7 Reorg Moves Microsoft Should Make7 Reorg Moves Microsoft Should Make

10 Hidden Benefits of Windows 8.1

Microsoft CEO Steve Ballmer has been foreshadowing a major overhaul since last fall, when he asserted in his annual letter to shareholders that the company's future rests in "devices and services." Windows 8, the Surface Pro and other recent developments are signs that Ballmer's vision is beginning to take shape. But according to reports, the CEO plans to galvanize the process with a company-wide reorganization.

The most recent rumors indicate Microsoft could make an announcement as soon as Thursday.

Under Ballmer, new Microsoft ventures such as Azure and Office 365 have grown at a spectacular rate. But the CEO remains under pressure due to the retreating PC market, and Windows 8's lowly market share. With Windows 8.1, the company is shifting to an accelerated update cycle, which Ballmer believes will help his company set the pace in a rapidly evolving, mobile-oriented world. But for this rapid-release mentality to pay off, various units will have to be working in sync.

[ What's Microsoft's plan for the more than 160 million users who are still stuck on Windows XP? See Microsoft Preaches XP Conversion. ]

For a company of Microsoft's scale, achieving this sort of cohesion will be no small feat. Here are seven smart moves that will help.

1. Keep Pushing The Next Big Thing

In hindsight, it's clear Microsoft underestimated the importance of mobile devices. Windows 8 has struggled not only because of its radically redesigned UI, but also because Microsoft's late entrance into the tablet game allowed iOS and Android to build large and loyal user bases. The company can avoid repeating history by staying ahead of the curve on the next wave of important technologies, such as the cloud.

In an interview, Gartner analyst Carolina Milanesi said that Microsoft has valuable assets in SkyDrive, Azure, Nokia's mapping technologies, the Xbox and so on -- but she countered that, "Most of the time, you see single ingredients, and they don't come together in a recipe." A reorg, in other words, needs to help Microsoft demonstrate real value -- rather than potential value -- in its connected ecosystem.

Forrester analyst David Johnson noted in an interview that Microsoft can also leverage the cloud, the Internet of Things and mobile retail. He stated that Apple's iPad has infiltrated the point-of-sale market almost inadvertently, simply because the device is easy to use and manage. "Windows can do the same," he said, "by combining Azure with point-of-sale functionality, and having different services for stores, retailers and others."

2. Stop Giving Business Units Competing Goals

Reorg rumors suggest the new business divisions will allow closely related units to collaborate more effectively. If the Windows ecosystem is eventually going to provide a seamless device-to-device experience, for example, it makes sense for the Windows 8, Windows RT and Windows Phone 8 teams to work together. It also makes sense for them to have close ties to the device teams, so their products can mutually enhance one another. Likewise, the more the OS and device teams are in sync with the cloud teams, the more effectively Microsoft can stitch its devices and services together. And so on.

In an email, Forrester's Johnson noted that Microsoft's current organizational structure allows innovation to occur only in pockets. Each division has its own revenue goals, which can impede collaboration and produce competing agendas within a single project.

3. Understand When "Consumer Vs. Business" Matters, And When It Doesn't

Thanks to BYOD, Microsoft and its OEM partners have to be more cognizant of the consumer experience, even when designing business PCs and tablets. That said, it also has to continue supporting no-nonsense IT staffers and desktop workers who are less interested in touchscreens and Angry Birds than in productivity and security. So far, Windows 8 hasn't achieved this balance.

"There are two types of clients -- consumers within the enterprise, and IT managers," said Gartner's Milanesi. She said these bases often prioritize different things; the former might want more compelling devices, whereas the latter wants easier licensing terms and simpler manageability. Balancing the needs of divergent groups with a single product is a challenge, but Milanesi thinks Microsoft is making progress.

"Windows 8.1 is the first fruit of a faster-paced and more agile company," she said. "If a reorganization will lead to software, services and hardware working together, that's the right direction." 4. Know When To Play Nice With Others

Rob Helm, a consultant and VP with Directions on Microsoft, said in an interview that many Microsoft customers are dealing with an influx of tablets from other companies, such as Apple and Samsung.

Microsoft "could help with that by focusing more resources on helping companies manage tablets," he said. He stated that Azure could be part of the answer, and that System Center and Windows Intune are important too.

"Coordinating all of this and extending its reach to the devices people are bringing into companies today is something Microsoft has started, but it should be a top priority," he said.

5. Find A Way To Target High-End Users

Steve Ballmer is bullish on hybrid devices that switch between tablet and laptop modes. These devices are getting some traction, but many of the success stories involve ROI plays; that is, the devices are chosen not because they're the most delightful but because they check off a number of needs -- light weight, access to mobile apps, access to x86 software and so on -- at the right price. This budget-friendly strategy can certainly pay off -- but there's a lot of money to be made from affluent users, who not only buy more expensive devices that yield higher margins, but are also likely to invest in apps and additional products in the ecosystem.

Helm said hybrid Win8 tablets appear to target high-end users, such as executives who are constantly moving between airports and meetings. "So far, [the devices] haven't proven compelling enough," he said, adding, "There are increasingly alternatives to Office. It might not be the asset that it used to be."

Johnson offered similar remarks, noting that the "Surface Pro is not setting any sales records," and that Apple, which outsells Windows OEMs in both premium laptops and tablets, "still has the customers that Microsoft wants, especially on the high end."

6. Prioritize Relationships With Developers

The Windows Store now has more than 100,000 apps, and Windows 8.1 will introduce a redesigned storefront that should be easier to navigate, and which could help developers to earn more money. Still, the Win8 Modern app experience is a hollow shell compared to what users enjoy on iOS and Android. Until that changes, Windows 8 will struggle with consumers, limiting not only its BYOD potential but also Microsoft's ability to thwart further encroachment from competitors.

Helm noted that "it's not a question of a single killer application." Windows needs "an insurance application that lets you take pictures and file a claim after an accident, or applications that let you work with your bank," he said. Indeed, while Microsoft is slowly attracting big names such as Facebook, it needs thousands of smaller players to chip in too.

Dave Johnson said that Visual Studio, Microsoft's primary toolkit for developers, is "relatively easy to learn and extremely powerful." He praised its versatility, which can be applied not only to tablets but also to desktops, cloud apps and even software for the data center. Still, he said, "There's a lot of work to be done for [Win8] apps and devices."

7. Streamline Licensing, Not Just Business Units

Microsoft needs a reorg because its various operations have grown too complicated. Some Microsoft customers might say the same thing of its licensing policies.

Helm said that licensing is a challenge because a lot of companies are interested in moving to the cloud but have investments in on-premises software and licenses. They want to leverage these investments, he elaborated, but doing so is confusing.

"Microsoft has tried to give them lots of different ways," Helm stated. "But it's a challenge to cut through the thickets of complexity, and to have customers confident they have the right product."

The difficulty is compounded, he continued, because Microsoft wants -- as Office 365 demonstrates -- to transition customers from standalone licensing to perpetual subscriptions. The fact that Office for the iPhone is only useful with an Office 365 subscription demonstrates the frustrations and complexity that can arise from this effort.

Helm noted that "licensing in the near term is potentially a blocker for getting customers onto tablets, and getting them to use Microsoft's cloud services." If a reorg succeeds in letting Microsoft employees collaborate more effectively with one another, it also needs to succeed in letting Microsoft customers communicate more effectively with the company.