Microsoft Shuffles Management; Senior Windows VP Allchin RetiresMicrosoft Shuffles Management; Senior Windows VP Allchin Retires

Microsoft Corp. on Tuesday announced a major reorganization that consolidates the company's operations into three divisions, a move that follows sharp criticism that the company's internal operations were hampering its effectiveness and chasing away employees.

In addition, the Redmond, Wash., software giant announced the retirement of Jim Allchin, the well-respected head of Windows development. Allchin plans to leave the company at the end of next year, following the release of Windows Vista, the next generation of the computer operating system.

Under the reorganization, the Platform Products and Services Division will include the Windows client, server and tools unit, and the company's MSN portal. Kevin Johnson and Allchin will lead the division as co-presidents.

The Business Division, led by Jeff Raikes, will comprise the current Information Worker collaboration-software business and its Business Solutions unit, which include the company's business software for small and medium-sized companies.

The Entertainment and Devices Division will combine the Home and Entertainment and the Mobile and Embedded Devices divisions. The combination is expected to improve Microsoft's work in providing software and services for mobile devices. Robbie Bach will be president of the new unit.

In addition, Ray Ozzie, chief technical officer for Microsoft, will also be responsible for helping drive the company's software-based services strategy and implement that strategy across all three divisions.

"These changes are designed to align our Business Groups in a way that will enhance decision-making and speed of execution, as well as help us continue to deliver the types of products and services our customers want most,” Steve Ballmer, chief executive of Microsoft, said in a statement.

The reorganization followed on the heels of reports of severe criticism by some Microsoft employees of its internal operations. The discontent has led to defections, with 100 former employees now working for rival Google Inc., and dozens of others finding jobs elsewhere, according to a recent cover story in BusinessWeek magazine.

Among the highest-profile defections was Kai-Fu Lee, a former vice president of Microsoft's speech technology division who left to head Google's research and development center in China.

Microsoft sued Google and Lee, accusing the latter of violating the non-compete clause in his contract. During a recent hearing in the case, which is still pending, Lee testified that the company was "incompetent," which contributed to his decision to leave.

Microsoft believes the reorganization will lead to better products, closer collaboration among development projects and speedier product development. But at least one expert was skeptical.

"From my perspective, I'm not sure why a new organizational structure is needed to accomplish that," Joe Wilcox, analyst for JupiterResearch, said.

Wilcox sees the changes as creating another layer of bureaucracy, given the former business units will remain intact and continue to report their own profits and losses.

"It looks to me that Microsoft has added another layer of bureaucracy," Wilcox said. "At a time when startups are starting to show some real promise again, Microsoft now looks even bigger and potentially slower than it was before."

Rob Helm, analyst for Directions on Microsoft, questioned the timing of the changes, which are occurring in the middle of some major projects for Microsoft, particularly next year's planned release of Vista. Helm said the time was "a matter of concern."

"There are some pretty important platform products coming down the pike," he said. "It's striking that they would make this kind of change at this point."

Helm believes the departure of Allchin is probably what drove the reorganization.

"Jim Allchin has certainly earned the right to ride into the sunset, but this will be a tough transition," Helm said. "More than anyone else, he's been responsible for putting Microsoft in a leading position in the enterprise and networking space."

In announcing the changes, Ballmer said the company saw a "new era of opportunity" by weaving both software and Internet services into products.

"By bringing together the software experience and the service experience, we will better address the changing needs of our customers’ digital lifestyles and the new world of work,” Ballmer said.

For example, the platform division includes Windows development and the company's MSN portal, which points to the company's intent to tie its desktop platform closer to MSN. The portal has been evolving as a platform that web developers can use to draw services into their own applications.

MSN and rivals Yahoo Inc. and Google have increased the number of application programming interfaces available to developers for calling services.

TechWeb's Gregg Keizer contributed to this report.