Home Business Microsoft Corporation (MSFT) Re-Organization: What Exactly Is The Plan

Microsoft Corporation (MSFT) Re-Organization: What Exactly Is The Plan

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This morning Microsoft Corporation (NASDAQ:MSFT) announced its new strategy and functional reporting structure. The announcement is largely consistent with what has been reported in recent weeks by All Things D and, thus, should not be overly surprising. At a high level, the company is attempting to transform from a siloed business group approach to a more unified and collaborative structure; hence the “One Microsoft all the time” mantra that permeates the announcement.

Microsoft Corporation (MSFT) Re-Organization: What Exactly Is The Plan

In practice, what this means is that functions (i.e. Marketing, Business Development and Evangelism, Research, Finance, HR, Legal, and COO) will be shared across the whole company, rather than broken up by business group, and development will be collaborative across products, rather than fenced in. From a product and engineering perspective, there will be four key areas: OS, Apps, Cloud, and Devices (Dynamics remains separate).

Raimo Lenschow, CFA of Barclays notes:

Microsoft Corporation (MSFT)’s Strategy

In our view, the new strategy makes a lot of sense, given the demands of consumers for a more unified experience across devices. Specifically, unifying operating system engineering efforts is critical, as Microsoft Corporation (NASDAQ:MSFT) builds to the holy grail of writing an application once and deploying it on any device (PC, tablet, phone, Xbox/TV), which continues to elude the entire industry. All of the existing business groups will be disrupted quite significantly, although Server & Tools, and the enterprise business in general, likely less so given the consistent leadership and product mandate under the new “Cloud and Enterprise Engineering Group”.

However, there is clearly a lot of change that is going to happen and we are relatively concerned that the disruption could hinder performance and/or slow the pace of development in the first half of FY14. Further, given the scale of both Microsoft Corporation (NASDAQ:MSFT) and the strategy change, we believe there is risk that the internal disruption drags on beyond the end of CY13, which is the timeframe laid out by management.

Microsoft Did Not Provide Financial Details

There were no financial details provided around potential cost savings and/or a new financial reporting structure. We would expect to get more financial details when Microsoft Corporation (NASDAQ:MSFT) reports Q4 results next Thursday, July 18th. Based on the new functional structure, our base expectation is that the company simplifies its P&L and rolls up revenue, potentially into one or two line items, reducing transparency. While many investors expect this, it could be a point of frustration that reduces the attractiveness of the shares.

A Look On Microsoft’s Functional Areas

In detail, Microsoft Corporation (NASDAQ:MSFT)’s new functional areas, by which the company will be organized, are Engineering, Marketing, Business Development and Evangelism, Advanced Strategy and Research, Finance, HR, Legal and COO. Within Engineering there will be four groups: Operating Systems, Devices and Studios, Applications and Services, and Cloud and Enterprise. Operating Systems will led by Terry Myerson, the current head of Windows Phone, and covers OS development across all form factors (Xbox, mobile, PC, etc).

Devices and Studios will be led by Julie Larson-Green, the current Windows co-head, and covers all hardware development and supply chain, as well as content experiences (games, music, video, etc). Applications and Services will be led by Qi Lu, the current head of the Online Services, and covers productivity (Office, Yammer), communication (Skype) and search (Bing). Finally, Cloud and Enterprise will be led by Satya Nadella, the current head of Server & Tools, and covers the vast majority of enterprise IT products, as well as Azure.

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