Even a tech giant needs to reinvent itself to stay relevant

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From “software and services”, Microsoft is now trying to morph itself into a “services and devices” company (Photo credit: Nils Geylen, flickr).

From “software and services”, Microsoft is now trying to morph itself into a “services and devices” company (Photo credit: Nils Geylen, flickr).

By Oon Yeoh

Oon Yeoh Profile PicIn the late 1990s, Microsoft had grown to become such a dominant company that the US government actually took it to court over anti-trust violations. Fast forward 15 years and Microsoft, though still a giant, is not quite as dominant anymore.

That’s not due to any government action but the march of technology and the changing trends that go with it. Today, we are entering a so-called “post-PC era” where the main mode of accessing information is not through the laptop or desktop PC but through smartphones and tablets. (Microsoft, though, prefers to term it the “PC-plus era”.)

Make no mistake. Microsoft is still a very powerful and profitable company. It registered US$19.90 billion (RM63.79 billion) in revenue for the fiscal year – that’s not exactly chump change – but it did miss expectations of US$20.72 billion (RM66.42). This was largely due to a whopping US$900 million (RM2.9 billion) write-down for unsold Surface RT tablets, which was supposed to steal some of Apple iPad’s thunder.

The PC world is still dominated by Microsoft, whose operating system runs about 70% of the world’s PCs. So, it’s still doing well there. But if you throw in smartphones and tablet devices (where Apple and Google dominate) into the mix, Windows’ global market share is only 30%.

Its main foray into smartphones has been through Nokia, which uses its Windows Phone operating system. That’s hardly made a dent in either the iPhone or Android phone market. As for tablets, it tried to do an Apple and provide both hardware and software… and seemed to have failed thus far.

Microsoft CEO Steve Ballmer has just announced a massive restructuring designed to increase collaboration and innovation in the company as it evolves into a “devices and services” company.

Given Microsoft’s size – it employs close to 100,000 workers – such a restructuring will be challenging and it will take time. Ballmer himself said the changes “will take through the end of the calendar year as we figure things out”.

The goal is to deliver multiple devices and services as a single company, rather than a collection of separate divisions. To achieve this, the company’s eight branches will be consolidated into four new ones, each with a broader theme. The idea is that this will encourage communication among divisions and result in more holistic products that make the most of Microsoft’s offering of hardware, software, and services.

Will it work? The challenge is not so much with capability or expertise. As Gartner analyst Carolina Milanesi reportedly said: “With Azure, SkyDrive, Office 365, Windows 8 and other assets, Microsoft has the elements that could allow it to capitalize on today’s emerging trends.” The problem, Milanesi added, is that the company has the “ingredients” but not the “recipe”.

The new strategy is designed to make the company more cohesive and collaborative, so as to spark quick(er) innovation. This is necessary in the connected world we live in where online content and interactions are experienced across multiple devices connected to the cloud.

I don’t think anyone disputes that such a restructuring is absolutely necessary. But at the end of the day, it still boils down to results. As they say, the proof of the pudding is in the tasting. Will people want to buy Microsoft devices and use its cloud services?

Only time will tell. But in order for Microsoft to create compelling products and services, it needs to have the right corporate structure and culture to make it happen. By reducing the number of product divisions and centralizing its operational services, the Redmond Giant is now evolving into a company that structurally, at least, will more closely resemble Apple and Google, its key rivals in the devices and services space.

And that’s not a bad thing. Oh, and Microsoft also needs to convince the tech industry that it has a clear vision of what lies ahead.

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