Industry | Analysis

One Microsoft: The Impact of the Reorg on Education

Microsoft isn't talking publicly yet about what the company's reorganization means for its education customers. Is no news good news?

When Microsoft went public in mid-July with news about the largest reorganization it has ever undertaken, CEO Steve Ballmer acknowledged that the company needed to accelerate its lagging efforts to address wide adoption of broadband, the mobile Internet, and tablet and smart phone usage. It would do this by working as a single company with a single mission rather than a disjointed collection of technology fiefdoms. The subject of education barely made the footnotes.

Yet, the education segment has been a test subject of sorts for at least one aspect of what could come for the enterprise market. Although the education group within Microsoft told us it was "too soon" to talk about the "realignment" and its potential effects, observers inside and outside the company have come up with ideas about what the results will look like.

CEO Steve Ballmer explains the Microsoft realignment to a group of workers — including a front row array of newly appointed company leaders. Source: Microsoft
CEO Steve Ballmer explains the Microsoft realignment to a group of workers — including a front row array of newly appointed company leaders. Source: Microsoft

Some Background
Ballmer actually released two memos July 11, one titled, "One Microsoft," explicitly to his workforce of 98,000 and another, "Transforming Our Company," presumably for a curious customer base, concerned shareholders, and the general public. The first looks inward to explain to those affected internally what the reorg consists of and to identify the leaders put in charge of remaking the company. The other reads like a marketing whitepaper to lay out Microsoft's value proposition. Both are written in broad strokes.

Here are the key points culled from both documents.

Packaged Software Is Out

The cloud — software functionality available online — will deliver those functions wherever people need them, on whatever device they're using.

As one person noted in a recent online comment on GigaOm, users "don't want to pay for the OS and database and this and that just to use their business application; [they'd rather] rent the application in the cloud and [have] all the other costs are being taken care of."

Microsoft's strategy is to deliver "devices and services" that empower people "for activities they value most" and to deliver the "enterprise extensions and services that are most valuable to businesses." What are the activities that Ballmer is alluding to? He specifies, "Serious fun, meetings, tasks, research, information assurance and IT/Dev workloads."

On the consumer side, that means providing a "unified experience" for "everything in a person's life that matters" — "one experience, one company, one set of learnings, one set of apps, and one personal library of entertainment, photos and information everywhere."

On the business side, it means "next-generation decision-making and task completion" and social communication (meetings, events, gathering, sharing and communicating)."

The Company Will Build from Strengths

The restructuring is intended to help the company deliver better on "single experience" strategy while exploiting its strengths. "We need to transform how we organize, how we plan and how we work," Ballmer wrote in his missive to employees.

The emphasis on leveraging strengths is a page right from Ford Motor Company's playbook. Ballmer has made no secret that he has conferred with Ford CEO Alan Mulally on how to position Microsoft to regain its former stature. Mulally is the same turnaround artist who guided both Ford and Boeing through turbulent periods in their histories. He did this, as one source who has spoken with Mulally and who works with Microsoft put it, by "taking the fiefdoms out of the organization and creating a top-down structure. That's been the problem at Microsoft. It's been bottom up for so many years."

For example, when Mulally joined Ford and discovered that the company had discontinued its award-winning, best-selling Taurus when the car's competitive standing declined, he quickly mandated that Ford bring back the auto line and innovate it back into competition again. In the same way, Ballmer doesn't intend to forsake the company's stronghold on IT-pleasing enterprise functionality or user-comforting productivity functionality.

The Focus Is on Coordination and Collaboration

The company will be organized around functions — engineering, marketing, business development, finance, human resources, etc. — in some form of shared services. Up until now product groups maintained their own departments to furnish many of those services. The push for this part of the transformation, according to Ballmer, is to "coordinate effectively, within and among teams, to get results, build better products faster, and drive customer and shareholder value."

As The New York Times reported, "The underlying goal is to create software with tighter linkages to power an array of devices, making it easier for people to use their smart phones, tablets and game consoles as adjuncts to one another."

Engineering will have four areas of focus: operating system, apps, cloud, and devices.

Much has already been written analyzing the various leadership appointments for each of those engineering areas. The bottom line is this: A shakeup has occurred. It appears that Ballmer has put emphasis in his selections on showing they have a proven track record in pushing for coordination and collaboration across groups. For example, as Devindra Hardawar lays out in a story on VentureBeat, the person put in charge of the new engineering group for devices and "studios" (games, music, video, and other entertainment), Julie Larson-Green, was the same executive who "[streamlined] all of the teams working on Windows 7 towards a single-cohesive vision" (albeit at the elbow of ousted Windows leader Steven Sinofsky).

Or take the case of Qi Lu, brought into Microsoft from Yahoo to lead the Online Services Division. Lu has succeeded in getting Bing-built features added to multiple company products and services. Now Bing will be integrated deeply into Windows 8.1 as the primary search function. At Microsoft crossing those product boundaries when the division you run is bleeding billions of dollars every year calls for single-minded drive and a never-take-no-for-an-answer doggedness.

Cloud-Based Solution Sets
One source who works as a vendor with Microsoft suggested that the shift away from an emphasis on products "opens up the possibility for that they will sell solution sets — packages of solutions — which will include a wide variety of what we know today as products."

This is a scenario education has already been exposed to. When Microsoft developed its plan to evolve the freely available Live@edu into Office 365 for Education, it created a plan by which schools — K-12 and higher ed — could continue with a free package of cloud-based services or could go with two other monthly subscription offerings that added additional services. The additional "services" that can be purchased aren't just in the area of software functionality; they also encompass financially backed service level agreements guaranteeing uptime.

This source believes the Microsoft partner infrastructure already in place will stay intact. This includes certified solution providers, system integrators, and other kinds of consultancies that specialize in working with specific types of enterprises. The ones that will be "most valuable," the source adds, are those that can work "end to end," to implement those solution sets.

With an emphasis on monthly subscriptions, the software refresh cycles that often dominated the annual IT budget for schools will disappear, this source added. "You won't be making a decision about operating systems. You won't make a decision to move from Windows 7 to Windows 8 to Windows 9. That experience will be happening incrementally. As that gets pushed, you won't even know it's happened. You'll be learning [the new OS] in increments. You won't have a choice."

Commitment to Education
Nobody needs a crystal ball to predict a shift in computing to the cloud, especially not for users in education. However, many questions still remain. For example, will the emphasis on serving education as a unique vertical segment disappear in the chaos of the reorg? If that happened and education were to be dealt with just like any other generic enterprise, the end to special pricing, training, and other services and benefits enjoyed by educational institutions could easily drive more schools to competitive offerings that better address new and emerging needs.

Shaun Taylor, CIO for Tacoma Public Schools in Washington, said the changes announced by Ballmer prompt many questions for him. "For any organization that shifts from a vertical organization structure to an integrated approach, it is a high risk adventure," he noted. "Now add the size of Microsoft to the mix. I know that my organization will be impacted to some degree. [The] level of impact is to be seen. In the current vertical structure you can see Microsoft's investment and commitment to the K-12 space. How will [the company] ensure the continuity and commitment of service for both short-term and long-term support that we rely upon? Where does K-12 fit in their global strategy?"

Overall, Taylor, added, "I think that the shift is a good shift. I just have lots of questions."

The vendor source that spoke to us anticipated that many of the changes hinted at by Ballmer will only "begin to be implemented" within the next 90 days. Ballmer said in his "One Microsoft" memo that completing the "process" would take through the end of the calendar year "as we figure things out and as we keep existing teams focused on current deliverables like Windows 8.1, Xbox One, Windows Phone, etc."

To those who have been involved in major change initiatives, neither three months nor six months is a realistic timeline. One Microsoft employee who declined to be named is skeptical of the company's ability to carry off the changes it's pursuing for a very long time. "It feels like they are exploring and experimenting, and their ability to walk the talk hasn't come together yet. Architecturally, they're not where they need to be to live that." Over the next few years, this staff member predicted, "we'll probably see some growth, but it won't happen because of the reorg. It's maybe seeding that movement, but it won't be the movement."

This person pointed to the challenge Microsoft has faced in shifting from packaged software to Web-based programs. "That's been five or six years in evolution. It took them that long to say, 'We're a services company.'" Now, all of a sudden, the source added, "they threw in the device part. That will take time to transition. When you move a battleship, it takes a long time to turn it."

Making Sure the Changes Stick
Also, there are the cultural change aspects. In this regard, only time will tell if Microsoft's executives, board, and major shareholders have the patience and commitment for pulling off a massive restructuring.

While Ballmer is turning to Ford's Mulally for guidance on finding company focus, perhaps he should also consider taking a lesson from IBM lion, Lou Gerstner. In his account of IBM's transformation, Who Says Elephants Can't Dance?, the former CEO wrote, "Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization's makeup and success — along with vision, strategy, marketing, financials, and the like.... I came to see, in my time at IBM, that culture isn't just one aspect of the game; it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value."

Gerstner was successful in creating a culture that shifted the emphasis from what his company wanted to sell to what the customer really needed. With the beefed-up emphasis on services, mobility, and devices, Ballmer seems to understand that part of the customer equation.

But already Microsoft's CEO is signaling that the soft aspects of change management that are required internally may not really interest him for long. The only real references his memos made to the challenges of embedding lasting change into an organization are these two sentences: "Our leadership team has discussed these cultural aspects a lot and is committed. In my own staff meetings, we are modeling these new characteristics yet also find ourselves occasionally slipping back."

As Ovum analyst Jeremy Cox pointed out, "The way this transformation is communicated, coupled with demonstrable concern for the well-being of those going through it, will be major factors in its eventual success." Nowhere in either of his memos does Ballmer acknowledge that workforce reductions will be necessary, even as, according to one external source, pink notices have begun to go out.

In all of the activity that will define Microsoft for the next n number of months, education can only hope that it doesn't get overlooked too.

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