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Microsoft Reorganization Signals Big Challenges Ahead

Microsoft CEO Steve Ballmer now has the pieces in place, but will renaming divisions and shuffling executives bring a legitimate payoff?
In an email interview prior to the announcement, for example, Forrester analyst David Johnson said the company's silos operated under independent sets of goals and metrics. The setup isolated units from one another, and sometimes resulted in one division impeding the progress of another. Under the reorg, finance and marketing functions will now be centralized, rather than spread across numerous semi-autonomous units. This shift could encourage Microsoft leaders to collaborate more effectively, and perhaps to realize the promise of Steve Ballmer's vision.

In his memo, the CEO framed that vision around a speech he gave several years ago at CES, the annual consumer electronics extravaganza in Las Vegas.

"I observed there was a shift underway," he wrote. "We were headed from a phone, a PC and a TV to simply three screens and a cloud -- and over time, a common software-based intelligence would drive all of these devices, bringing them together into one experience for the consumer."

Ballmer's critics might view this as revisionist history; by rooting his goals so far in the past, Ballmer suggests the company has been moving deliberately toward the future, a perspective that neglects the widely held view that Microsoft underappreciated the importance of mobile devices. Some of Windows 8's struggles can be attributed to its unfamiliar Modern UI, but adoption has also been slow because Microsoft accorded Apple's iOS and Google's Android such a large head start in the tablet market.

Even so, Ballmer's point remains: Thanks in part to the cloud, multi-device workflows are becoming more popular, and device categories, such as laptop verses tablet, are dissolving. In an interview prior to the announcement, Gartner analyst Carolina Milanesi said that with Azure, SkyDrive, Office 365, Windows 8 and other assets, Microsoft has the pieces to capitalize on these emerging trends. The problem, she stated, is that the company has "ingredients" but has not yet blended them into a "recipe."

Indeed, one of the factors by which Ballmer's plan will be measured is the extent to which cohesion across the Windows ecosystem improves. The CEO explicitly stated in his memo that this will require a consumer emphasis, but he also underscored that designing for "enterprise needs" will remain a core value.