Can Microsoft shake its fast-follower mentality?

Microsoft’s latest restructure indicates that it’s looking to lead technological innovation in mobile and cloud rather than follow other trends. So far, the strategy seems like a step forward, but it may take a couple of years before we truly see this re-org’s impact.

Forrester Research

Today's re-org at Microsoft comes amidst mixed success as they straddle the gap between capricious individual consumers and the cash-strapped, risk-averse needs of enterprise IT buyers who find themselves years behind the demands of their own capricious workers, who are also consumers when they go home. Windows 8 shows us that Microsoft has more learning to do about where to place those bets, but we also think their work on server, cloud and hybrid cloud is excellent, and that their longer-term strategy is viable. We see this organisational re-alignment as very positive.

The Server and Tools Business becomes Cloud and Enterprise Engineering Group

Satya Nadella and Scott Guthrie both have done a great job of driving Agile development and continuous delivery into every team in STB and that is resulting in faster moving and more compelling products and services. They deserve a lot of credit for this and so putting even more under them seems a good thing. The key is whether it is the right things.

For perspective: one of Microsoft's greatest strengths is that they give smart people development tools that are extremely easy to use and deceptively powerful. So much so that generations of developers will commit themselves and careers to mastery of Visual Studio, for example. Microsoft democratises software development by lowering the barriers to entry like no other company. The shift to cloud gives them the chance to do it again, and the improvements in Visual Studio 2013 shown at BUILD in San Francisco are superb and stretch smoothly from the data centre to the cloud.

So, cloud and enterprise engineering under Satya makes a great deal of sense to us, but notice that OS-related cloud services go to the OS Engineering Group under Terry Myerson. This is a potential point of conflict between the groups to watch out for.

The Windows Division and the Server part of the Server and Tools Division become the OS Engineering Group

What Microsoft is saying with this change, is that the experience a person has with Windows will be paramount from this point forward, and all of the other components will line up to make that experience what it needs to be in a wide range of consumer and enterprise contexts. This is a tall order, and the challenge will be straddling that line between creating experiences that consumers and workers crave, without prompting IT to crash the party with policies and controls. As I've written earlier, fundamental to this vision will be the success of the AppContainer - the application execution and security framework beneath the Modern UI. Microsoft needs to eventually leave the legacy Windows desktop behind, but that can't happen until the AppContainer is fully realised and the application ecosystem is rich, diverse, and sticky. It's a massive shift.

Microsoft needs to unify the experience across all devices, and stop treating them as separate businesses with separate priorities and revenue goals. We would like to see them recognise that each device has a different optimal user experience. Either let a laptop be a laptop and tablet be a tablet, or find a much better way to blend the experience between the traditional Windows desktop and the Modern UI. We also think there is a great opportunity for Microsoft to go after point-of-sale systems. Apple is succeeding in disrupting cash registers despite Apple hardware being designed for individuals and not for permanent installation. A company with a focused effort to shift retail from cash registers to phones, tablets and new PC-based registers could really disrupt and transform this market, and sell a lot of new backend technology to go with it.

Devices division finds new prominence on its own

This is a major shift for Microsoft. Creating devices and device experiences that customers crave is hard, and it requires excellence in materials science, creative design, electrical and mechanical engineering, supply chain, distribution and service and support. By concentrating all devices from smallest to largest under one umbrella at a peer level with the OS, cloud, and apps groups, it will allow Microsoft to create better experiences across devices, while improving their supply chain and possibly building larger global hardware distribution channel relationships. Dell and HP have extensive channel partner networks all over the world that large enterprise buyers rely on for service and support in regions where they can't justify having their own personnel on site. To compete, Microsoft will have to either do the same, or find a way to disrupt the basic model.

Watch out for mounting conflict between the PC and device OEMs and Microsoft as this division builds momentum. One possible outcome is that it could drive the OEMs toward more innovation around Android and a move toward Frames, as my colleague Frank Gillett postulates could be the future. Another possibility is that this is a move to create the device strategy for the post-PC era as Microsoft moves to regain Leader status in new ideas for personal computing technologies. Either way the question remains: who will be driving the bus on device/OS integration?

Why the re-org in the first place?

Microsoft is facing disruption in their traditional businesses (the Windows desktop, datacenter virtualisation), and they face strong competition in newer markets like cloud Infrastructure as a Service (IaaS) and business tablets to name just two. But they have enormous capabilities and resources as a company, that if coordinated in the right ways, would allow them to do things that no other company could do.

Also, perhaps the greatest potential advantage of a large company is the ability to coordinate resources and talents across a large number of things, to get a few very important things done. Forrester believes this new organisational structure will foster this coordination, but we may not see the real results until 3-5 years out. Why? Because truly disruptive ideas and strategies that these new organisations incubate today, will take more than a few months to germinate and grow. That's a long time in a constantly shifting technology landscape.

What it Means for I&O:

Microsoft is a worthy contender for your private, hybrid and public cloud needs and this will only increase. They are leading well across server, tools and cloud, as they follow in the tablet and smartphone markets. They will eventually regain ground here as the AppContainer in Windows 8.x matures and new apps are built for it. We look for this re-org to better align their capabilities around Devices, Services and Software, keeping Microsoft in a good position to navigate a rapidly shifting landscape. Don't expect your contract negotiations to get any easier though. Microsoft is creating substantial new value and it won't come cheap. Don't throw out your iPads yet.

David Johnson is a Forrester analyst who serves infrastructure and operations professionals. This post was originally published on Forrester’s blog network. Republished with permission. 

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles