Microsoft announces reorganization

Steve Balmer, Microsoft CEO, sent out a companywide memo today that confirms a lot of the rumored changes to the company’s formerly product-oriented organization and organizing the company into four engineering groups and a small number of functional areas.
From the memo:

There will be four engineering areas: OS, Apps, Cloud, and Devices. We will keep Dynamics separate as it continues to need special focus and represents significant opportunity. We will consolidate our technologies coherently into these groups pulling together some things that have been spread out in our current BG structure like cloud infrastructure, operating systems, mail, and identity, to name a few. Some of these changes will involve putting things together and others will involve repartitioning the work, but in all instances we will be more coherent for our users and developers. We have resolved many details of this org, but we still will have more work to do. Undoubtedly, as we involve more people there will be new issues and changes to our current thinking as well. Completing this process will take through the end of the calendar year as we figure things out and as we keep existing teams focused on current deliverables like Windows 8.1, Xbox One, Windows Phone, etc.
To improve engineering pace and quality, we will increase focus on our engineering systems, processes, and tools to improve the productivity of every engineer and to facilitate engineering collaboration and contribution across the company. Our engineering culture and new structure will enable more cross- group contribution, while maintaining confidentiality of some projects as needed. We will improve the approach we use to get MSR involved in product development, building on and enhancing our significant strengths there.
Organizing for Speed and Strategic Alignment
Specifically, our teams and their leaders will be these:

  • Operating Systems Engineering Group. Terry Myerson will lead this group, and it will span all our OS work for console, to mobile device, to PC, to back-end systems. The core cloud services for the operating system will be in this group.
  • Devices and Studios Engineering Group. Julie Larson-Green will lead this group and will have all hardware development and supply chain from the smallest to the largest devices we build. Julie will also take responsibility for our studios experiences including all games, music, video and other entertainment.
  • Applications and Services Engineering Group. Qi Lu will lead broad applications and services core technologies in productivity, communication, search and other information categories.
  • Cloud and Enterprise Engineering Group. Satya Nadella will lead development of our back-end technologies like datacenter, database and our specific technologies for enterprise IT scenarios and development tools. He will lead datacenter development, construction and operation.
  • Dynamics. Kirill Tatarinov will continue to run Dynamics as is, but his product leaders will dotted line report to Qi Lu, his marketing leader will dotted line report to Tami Reller and his sales leader will dotted line report to the COO group.
  • Advanced Strategy and Research Group. Eric Rudder will lead Research, Trustworthy Computing, teams focused on the intersection of technology and policy, and will drive our cross-company looks at key new technology trends.
  • Marketing Group. Tami Reller will lead all marketing with the field relationship as is today. Mark Penn will take a broad view of marketing strategy and will lead with Tami the newly centralized advertising and media functions.
  • COO. Kevin Turner will continue leading our worldwide sales, field marketing, services, support, and stores as well as IT, licensing and commercial operations.
  • Business Development and Evangelism Group. Tony Bates will focus on key partnerships especially our innovation partners (OEMs, silicon vendors, key developers, Yahoo, Nokia, etc.) and our broad work on evangelism and developer outreach. DPE, Corporate Strategy and the business development efforts formerly in the BGs will become part of this new group. OEM will remain in SMSG with Kevin Turner with a dotted line to Tony who will work closely with Nick Parker on key OEM relationships.
  • Finance Group. Amy Hood will centralize all product group finance organizations. SMSG finance, which is geographically diffuse, will report to Kevin Turner with a dotted line to Amy.
  • Legal and Corporate Affairs Group. Brad Smith will continue as General Counsel with responsibility for the company’s legal and corporate affairs and will map his team to the new organization.
  • HR Group. Lisa Brummel will lead Human Resources and map her team to the new organization.

In an earlier post, I suggested that Tony Bates, formerly president of Skype, might be getting pushed to one side or groomed to succeed Balmer. The consensus among the technorati is that this is a sidelining.
The center of the action for enterprise looks to be Qi Lu’s Applications and Services Engineering Group, which will be running the development of enterprise products like Office, Office 365, Outlook, Yammer, Sharepoint, Exchange, and Bing. This is where the focus of Microsoft’s growth is likely to be and the source of most of the company’s revenue.
Ballmer has never made clear any plans for succession: he has no clear number two. While the official second in command is COO Kevin Turner — who runs sales and field operations — to me it looks like Qi Lu is the real number two: the guy running the largest engineering/products organization (including the dotted line relationship with the engineering group in Dynamics).
In essence, Ballmer setting the stage four four lines of business with shared corporate sales, marketing, finance, HR, and legal staff. Maybe the answer to the succession plan is an implicit competition between the four line of business heads.