Don Mattrick

Microsoft's reorganization is only step one

July 11, 2013: 1:16 PM ET

Changing its culture is going to be harder.

Many of the executive changes at Microsoft are a good thing, says Forrester analyst David Johnson, but the company's corporate cancer -- forced rankings -- remains.

Many of the executive changes at Microsoft are a good thing, says Forrester analyst David Johnson, but the company's corporate cancer -- forced rankings -- remains.

FORTUNE -- Now that Microsoft's long-rumored reorganization is here, the question becomes whether the massive changes are enough to achieve CEO Steve Ballmer's vision of "one Microsoft."

Under the restructuring, teams within the Redmond, Wash.-based tech giant will focus their efforts on operating systems, apps, the cloud, and devices but also contribute to all of the company's core products, from Windows to Xbox. Several top executives also benefit. Julie Larson Green, the former head of the Windows division, will now serve as hardware chief -- a role occupied recently by Don Mattrick, now Zynga (ZNGA) CEO -- with Windows Phone VP Terry Myerson running the Windows group. Others like Satya Nadella will now spearhead the company's cloud services, and Skype president Tony Bates will manage the Business Development and Evangelism group, leading corporate strategy and developer outreach. In doing so, it's not just Ballmer's aim for Microsoft (MSFT) to become the "devices and services" company he promised last fall but to also encourage unprecedented collaboration across the company.

"The most important thing for a large company is to be able to coordinate resources across a whole bunch of different domains to get something done, and that's what Microsoft is attempting to do," explains Forrester (FORR) analyst David Johnson, who argues that Microsoft has embraced and rewarded good leaders internally with the move. He points to Nadella in particular as one example. As president of Microsoft's Server and Tools previously, Nadella led a $19 billion-a-year division that saw sales climb 11% during the company's most recent quarter. (Before that, he also ran the Bing search group as well as the advertising business.)

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"It's a great first step but won't get them to 'One Microsoft,'" says Randy Ottinger, EVP of the executive leadership strategy firm Kotter International. "The real question is what are they going to do post-reorganization to actually change the culture. The reorg will not change the way they behave and act because it's been years and years of doing business in a different way."

Ottinger is referring to Microsoft's notorious "forced ranking" system which mandates that every unit declare a certain percentage of employees as top performers, good performers, average, and poor. According to a revealing Vanity Fair company profile last summer, it's a program that has bred a survival-of-the-fittest mentality among many employees and ultimately slowed Microsoft down. (To wit, one software engineer recalled employees spending much of their time planning for their six-month reviews instead of focusing on product development.)

"It's a cancer for innovation," agrees Johnson, who expressed surprise that COO Kevin Turner, the executive behind forced ranking, kept his role after the shuffle. "When employees know that someone on their team is going to take a bullet every year regardless, competition between people is a natural result. I think it fosters the wrong behavior within the company but Steve obviously still sees some value within that."

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