The rumors were true! Microsoft Corporation (NASDAQ:MSFT) has just announced a major internal restructuring as it kicks off its new fiscal year. The company has shared an internal memo from CEO Steve Ballmer that lays out the future of “One Microsoft.”
In no uncertain terms, this is a dramatic overhaul of the software giant’s organizational hierarchy that will change how departments collaborate and revamp internal resource allocation policies, among other things. The previous structure was known to foster too much competition between departments, all vying for resources to fulfill their own goals. Former Windows head Steven Sinofsky reportedly used to undermine any products that would have reduced the importance of his own segment, which is hardly good for collaboration.
Microsoft’s own worst enemy
Microsoft Corporation (NASDAQ:MSFT)’s internal performance review system is built on a stack ranking system that fostered too much internal competition at the expense of cooperation. A pre-specified percentage of employees are categorized as top performers, good performers, average performers, or poor performers, regardless of their accomplishments in absolute terms. Everything is relative, so everything is about competing with coworkers instead of working together.
This system has been characterized as the “most destructive process inside of Microsoft.” These types of rankings aren’t exactly uncommon among large companies. Microsoft Corporation (NASDAQ:MSFT) just took it to a “dysfunctional” level, according to an op-ed in The New York Times in 2010 penned by former Microsoft Corporation (NASDAQ:MSFT) exec Dick Brass.
This may all be about to change.
Function over form
Under the new structure, Microsoft Corporation (NASDAQ:MSFT) will be organized by function rather than by product. Microsoft has had five operating segments for many years, all based on products. Windows, servers, and business were the cash cows while online services and entertainment and devices were on the side.
Now, Microsoft Corporation (NASDAQ:MSFT) will have organizations dedicated to things like engineering, marketing, and research, all of which will focus on the company’s unified strategy of becoming a devices-and-services company. In Ballmer’s words: “We are rallying behind a single strategy as one company — not a collection of divisional strategies.”