Satya Nadella consolidates roles and trims Microsoft leadership team

The new CEO of Microsoft, Satya Nadella, has taken the next step in consolidating power to a small Senior Leadership Team (SLT). He has also made it clear that he is not staying the course on Ballmer’s gradualist approach to slowly reformulating the business atmosphere at Microsoft. Nadella is reinforcing what appears to be an entrepreneurial start-up mindset. From a March 3 memo,

One of my consistent themes has been a point I made in my original mail – we all need to do our best work, have broad impact and find real meaning in the work we do. Coming together as teams fuels this on a day-to-day basis. And having the Senior Leadership Team (SLT) set both pace and example means a lot to me.

I have discussed this point in various forms with the SLT and have asked for their “all in” commitment as we embark on the next chapter for the company. We need to drive clarity, alignment and intensity across all our work.

To parse that closely, the two paragraphs are very different sides of the equation. The first talks about personal motivation, for the members of his SLT and everybody at Microsoft. The second is a demand for alignment around his newly emerging strategy and organization plans: a ‘my way or the highway’ line in the sand. And he’s starting to quell what must be no small amount of dissent in the organization by pushing out those that don’t sign up.

At the end of the memo he casts this degree of perfect alignment — the collective ideal where everything is subordinated to the team winning — in terms borrowed from The Boys In The Boat by Daniel James Brown, a non-fictional account of an Olympic rowing team:

There is a thing that sometimes happens in rowing that is hard to achieve and hard to define. Many crews, even winning crews, never really find it. Others find it but can’t sustain it. It’s called ‘swing.’ It only happens when all eight oarsmen are rowing in such perfect unison that no single action by any one is out of synch with those of all the others….Poetry, that’s what a good swing looks like.

And Nadella is holding that out as an aspirational goal for the company. It’s the entrepreneurial vision: a small elite acting as coach and coxswain, and everyone else acting as crew, rowing in cadence and direction set by the coxswain.

And now, he starts by getting various folks off the boat, and reorganizing the elite running the show.

To that end, Tony Bates — the former CEO of Skype who has been the head of the business development and eveangelism team — is leaving the company. It’s almost ineveitable that Bates would leave after having been passed over for the CEO spot. He has a great reputation and experience, and will likely be CEO elsewhere very soon.

Tami Reller will be leaving the company (although Nadella said ‘taking time off’?) after leading the marketing group at Microsoft. She was always an odd choice, since prior to this last go at marketing she held various CFO jobs in the company. Maybe she’ll be back in a financial role. We’ll see.

Chris Capossela has been elevated to EVP and CMO. He was SVP of Microsoft Information Worker Product Management Group for the past few years, which runs the Microsoft Office Group. He’s been at Microsoft for 20 years. Obviously, Nadella has been working with Capossela during the leveraging of Office into the cloud, which was Nadella’s last role at Microsft, as head of the servers and tools group.

And behind it all, I believe, is Mark Penn, who is now EVP and Chief Strategy Officer. Penn is a former Clinton family advisor — a skilled political operative — who joined Microsoft in 2012, and made a name for himself running adverting with project like the much discussed ‘Scroogled’ campaign against Google. Nadella said in his memo,

Mark brings a blend of data analysis and creativity that has led to new ways of working and strong market outcomes such as the “Honestly” campaign and the Super Bowl ad, both of which were widely cited as examples of high impact advertising across the industry. His focus on using data to quickly evaluate and evolve our campaigns has driven new insights and understanding. Mark and his team also will continue to provide input in the area of competitive research and analysis. I am looking forward to applying Mark’s unique skill set across a broader set of challenges facing the company, from new product ideas to helping shape the overall areas of strategic investment. He will be a member of and an advisor to the SLT and will continue to report to me.

But Penn is yielding control of advertising to Capossela, so this is a shrinking of his direct control. My bet is that Nadella thinks of Penn as a laser beam to cut through old ways of thinking, but not someone to let run marketing.

Nadella has taken decisive steps to reanimate Microsoft, and create an organization very unlike that he inherited from Ballmer. We’ll have to see what else this means in strategic outcomes, but it seems likely to be a very different machine than the one they had a few months ago, and that’s a necessary — but not sufficient — precondition for Microsoft turning the corner.

Microsoft reorganizes and this time it’s for all the marbles

The monster news of last week is clearly Marissa Mayer giving Jawbone UP fitness monitor wristbands to over 11,000 employees, which sends a strong signal to the markets and lets Yahoo staff know that she wants them to be healthy and work hard. And tracking their every movement. No, no, just kidding.
Maybe Steve Ballmer should have bought Jawbone UPs for the staff at Microsoft, who are going to have to run faster to just keep up with the sweeping organizational changes announced last week. I’ve written a number of posts prior to the reorg about what it means (see Microsoft announces reorganizationMicrosoft will rise from the ashes of Windows and Surface failures, and Microsoft passes on Nokia, and Ballmer is set to reorganize).
Throwing away all the packaging, Ballmer’s memo boils down to this organization:

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.
[…]
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.

Let me recapitulate what the new organizational structure could mean for the enterprise software side of things. First of all, Google has reorganized but is still structured around technology. As Danny Sullivan has pointed out, there is no head of Social or Ads like you’d find at Google, Microsoft’s leading competitor.
Qi Lu is head of Applications and Systems Engineering, which now incorporates many of the company’s major profitable products, Office apps and enterprise software, like Exchange, Outlook, Office 365, Yammer, Sharepoint, and a dotted line management of the engineering team of Dynamics. Also included is Bing, which is a money-losing endeavor that doesn’t fit anywhere, as far as I am concerned.
For all intents and purposes, Qi Lu is now heading up Social at Microsoft, because the products he’s managing are where all the social is. (I’ll add one asterisk to that statement: when Microsoft gets around to building social streams into Windows as a native operating system capability, we will revise that. If they ever do.)
Some have noted that Microsoft has a history of reorganizing, and it hasn’t led to any enormous spike in profitability or focus in the past. Bill Gates wrote in 1996,

We changed the structure of the company. I’m sure we’ll change it again many times. Reorganizations are expected around Microsoft.

With the benefit of hindsight, and with my perspective being the social business, let me make the case that this time the reorg is different, because for the first time one person is in control of the user experience for users of Microsoft’s enterprise applications. Again, an asterisk for Windows, but I maintain that the collapse of the desktop PC market is happening so quickly that someone in Qi Lu’s position has to chase the hot zone of growth, nowhere near the Windows PC operating context. He will likely focus overwhelmingly on cloud services, like Office 365 and Yammer, and transitioning on-premise server-based solutions like Sharepoint and Exchange to their cloud counterparts.
We’ve already see the push in Office 365 to make Yammer the default user experience in Sharepoint (see Yammer is becoming the social UX for Microsoft). They are going to enlarge what Yammer is, and make it the social stream for the passage of all sorts of newly socialized information.
Qi Lu’s cloud solutions run on Windows Azure, and so he will continue to be the most important customer for Satya Nadella’s cloud and enterprise engineering group for some time. It’s not stated in Ballmer memo, but the value of Office 365 and the other enterprise apps (and Bing) is so great that in essence Qi Lu has a dotted line influence on Nadella’s engineering group, as well.
The missing piece of the puzzle for me — along the lines of Sullivan’s comments about ads and social having no owner — is this question: Who owns the mobile experience at Microsoft, now? The new Microsoft has no place for a Jony Ive controlling user experience.
The simple and wrong answer is Julie Larson-Green, who is building devices like tablets and smartphones. Another wrong answer is Terry Myerson, who is building the Windows software that runs on those devices. These are both wrong — and especially wrong in the enterprise area — because many Microsoft customers are having their primary interaction with Microsoft software through the browser, or on non-Microsoft devices. And if the trend lines are to be believed, in the near future those proportions will continue to rise. So, already today the most important user experience to consider is in the browser, and soon it is likely to also include mobile apps running on hardware not produced by Microsoft. And I don’t mean Internet Explorer, either.
Yes, I know that Ballmer, Qi LU, and anyone else in authority at Microsoft will have to publicly stick to the party line — “Windows will continue to be a dominant operating platform for decades to come, we are turning the corner with Microsoft smartphones and tablets, yada yada yada” — but the numbers say different. Ballmer’s memo only mentioned PC four times, and mostly in retrospect, phone only three, and Internet Explorer zero. (I noticed that Surface’s price was dropped today by around $100. Too little, too late?)
However, behind the scenes, Qi Lu and his colleagues must be planning for a transformation to a very different operating model: a leading enterprise software company, integrating a collection of tools necessary for the functioning of business in the past decade, right up to the business of today. But the battle now is to contrive the software platform for the emergent company of next year, and the decade that follows. Qi Lu, with the people at Yammer, Office 365, Sharepoint, Exchange, and Skype, will have to connect the dots in a way that transitions to a very different tomorrow while delivering value at every today along the way.
Microsoft’s battle for the future is not other established mainline enterprise software players, like IBM, Oracle, and SAP, who are increasingly being sidelined into narrow functional areas — like manufacturing, and finance — or deriving more of their revenues from consulting services. The battle for the future is with Google, to a lesser extent Apple, and perhaps the rapid rise of upstart start-ups, like Dropbox. And in the weeks, months, and years to come, we will see that multidimensional, multiplayer game play on. This reorganization is a prelude, and not a finale.

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.

For Evernote, 2011 was a year to remember

2011 has been all about personalized mobile apps, and Evernote has benefited handsomely: In the past 12 months, the personal note-taking software company grew its user base from 6 million to 20 million. GigaOM talked to CEO Phil Libin about the growth and Evernote’s 2012 outlook.

Vid-Biz: epix, DVRs, Battlestar

Viacom/Paramount/Lionsgate/MGM Venture Has a Name; the new premium content channel launching next year will be called epix. (MediaDailyNews)

Survey: 90 Percent of DVR Users Skip Ads; TiVo-based Starcom study finds higher percentage of ad zappers than others, which put the number closer to 60-70 percent. (MediaPost)

Battlestar Galactica Webisodes Debut Today; “The Face of the Enemy” is a 10-part online series revolving around a frakkin’ murder mystery in space. (Sci-Fi.com)

Heroes the Most Time-Shifted Show of the Year; according to Nielsen, with Fringe, Lost, Bones and Grey’s Anatomy rounding out the top 5.

nielsen_year_end

Anvato Raises $2 Million; automated video content identification and monetization company raises half of its $4 million Series A, led by Oxantium Ventures. (release)

Andrew Lloyd Weber Goes YouTube; his branded channel will feature clips from Jesus Christ Superstar, live performances from other shows and interviews. (Variety)

What’s Wrong With Yahoo?

Yahoo and its destiny has become fodder for headlines and cheap shots. What hasn’t been discussed is the crumbling culture within the company, thanks to layers of management, and resultant state of masterful inactivity masked as consensus. The only organization more dysfunctional than Yahoo? The New York Mets. Yahoo needs a cultural cleanse … quickly! Continue Reading