Microsoft CEO Steve Ballmer unveiled what he termed is a "far-reaching realignment" of the company designed to help Microsoft innovate faster and operate in a more coherent and holistic manner as it faces a variety of challenges from rivals big and small.
"Going forward, our strategy will focus on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most," Ballmer wrote in a memo sent to all Microsoft employees.
The reorganizations' three main angles are to focus the whole company on a single strategy, improving its capacity in all its business and technology areas and collaborating better around a common set of goals, he wrote.
"This is a big undertaking. It touches nearly every piece of what we do and how we work. It changes our org structure, the way we collaborate, how we allocate resources, how we best empower our engineers and how we market," Ballmer wrote.
The overall goal is to have "One Microsoft," according to Ballmer.
As part of the plan, Office chief Kurt Del Bene will retire from the company. Leading the new Operating Systems Engineering Group will be Terry Myerson; the Devices and Studios Engineering Group will be led by Julie Larson-Green; the Applications and Services Engineering Group will be led by Qi Lu; and the Cloud and Enterprise Engineering Group will be led by Satya Nadella.
Myerson's Operating Systems Engineering Group will oversee all OS work for gaming consoles, mobile devices, PCs and back-end server systems, including OS cloud services.
At the Devices and Studios Engineering Group, Larson-Green, until now one of the two Windows OS chiefs, will focus on all hardware development and their supply chain strategy. This group will also be in charge of "studios experiences" including games, music, video and other entertainment.
Qi Lu, until now the leader of Microsoft's online services, and his Applications and Services Engineering Group will be in charge of applications and services core technologies in productivity, communication, search and other information categories.
Nadella's Cloud and Enterprise Engineering Group, will be responsible for back-end technologies, including technologies for data centers, databases and enterprise IT systems and development tools. Nadella had been in charge of the Servers and Tools group.
Thus, these four groups will be in charge of Microsoft's new four main engineering areas: operating systems, applications, cloud computing and devices.
The Dynamics enterprise software products will continue to operate as it has under Kirill Tatarinov, but reporting to Lu, Reller and to COO Kevin Turner.
Eric Rudder will lead the Advanced Strategy and Research Group, replacing Rick Rashid, while Tami Reller, the other Windows chief prior to the reorganizations, will head the Marketing Group.
Turner will remain as COO, while Tony Bates, currently Skype president, will be in charge of the Business Development and Evangelism Group. Amy Hood, who has been the CFO for a few months, will be in charge of the Finance Group, while Brad Smith will remain as general counsel leading the legal unit. Lisa Brummel will remain in charge of human resources.
Meanwhile, Craig Mundie will work on a "special project" until the end of this calendar year, and assume a consultant role starting in 2014.
Ballmer also stressed that Microsoft must undergo a culture change to make itself more nimble, communicative, collaborative, decisive, motivated and better able to seize opportunities. At a process level, every major company initiative will be inter-disciplinary, with teams that have members from every division.
Rumors that Ballmer was working on a drastic and extensive company reorganization began popping up weeks ago. He reportedly kept the plan close to his vest, causing anxiety among high-level officials fearful of what their fate might be.
Unhappy investors and industry critics have argued for years that Microsofts product roster is too heterogeneous and disconnected, housing products as disparate as gaming and entertainment devices, CRM software, desktop and server OSes, collaboration and communication applications, development tools, consumer online services and tablets.
A recurrent suggestion has been to spin off some business units as autonomous subsidiaries or independent companies.
In addition, Microsoft has a reputation for having a bad corporate culture marked by corporate politics and lack of cooperation. This came to the forefront a year ago when Vanity Fair magazine published an article titled "Microsoft's Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant.
That story in part detailed the so-called stack ranking system that forces team leaders to give glowing, fair and bad annual reviews to a pre-determined percentage of their employees, even if most team members excelled at their job.
Whatever the solution, there has been a consensus that Microsoft needs to be restructured and streamlined in order to make it more agile and flexible in both its product development and business strategy.
There have been some big opportunities Microsoft has missed in recent years, in particular the explosion in popularity these past 3 years of smartphones and tablets both as personal and work tools. Windows has a small share of the tablet and smartphone OS market. Microsoft is trying to improve its position there with Windows Phone 8 and Windows 8 but its way behind iOS and Android.
Last summer, Microsoft spent $1.2 billion to buy Yammer and catch up in enterprise social networking, a hot trend these past few years in which its SharePoint collaboration server and other business software like Office, Exchange and Lync hadnt kept up with competition.
Going back a bit further in time, Microsoft left a door open for Google and others to challenge Office and Exchange with less expensive and cloud-only email and productivity suites.
And of course, Microsoft saw the then upstart Google march into the Internet search fray in the early 2000s and walk away with what became the largest, fastest growing and most profitable segment of the online advertising market.
As with any major company reorganization, it remains to be seen if it will yield the expected results once it is fully implemented. Its not unheard of for reorganizations to backfire in a variety of ways. The plan may be inherently flawed. Sometimes the mere fact that a company needs to restructure lowers employee morale and customer confidence.