Restructuring at Microsoft

Yesterday, Microsoft CEO Steve Ballmer announced a massive organizational restructuring of the company.   According to the Wall Street Journal, "Microsoft Corp.'s broad reorganization announced Thursday aims to break down internal fiefs that have slowed product development and caused friction among teams of employees... The company said it will shift from largely autonomous product groups to a more horizontal structure, under which managers who will oversee specific kinds of functions like engineering, marketing and finance."

Here are a few quick reactions:

1.  The Ballmer memo to the company consisted of more than 2,700 words.  Wow!   If you need that many words to describe what you are doing and why you are doing it.... do you really have a clear strategy?   Will employees really digest all of this material, understand it clearly, and align behind it?  First rule of thumb for leader communication:  keep it simple & concise.  The Ballmer approach falls down on this metric.

2.  No organizational structure is optimal.  Each structure has its strengths and weaknesses.  The key to high performance is driving the right culture, values, and processes in an organization.  Just moving lines and boxes around on an organizational chart won't enhance performance substantially.  Microsoft will succeed or fail based on how they redesign key processes and shift the culture and values.   Boxes and arrows won't  be the panacea.

3.  One still wonders if Microsoft should remain as an intact entity versus breaking up into several parts.  Many investors have wondered if the whole is truly worth more than the sum of the parts.  That question still remains after the Ballmer announcement. 

Read More

Does a Flat Organization Have Negative Consequences?

Julie Wolf of Harvard Business School has conducted an extensive study of companies that have tried to flatten their organizational structure.  She studied historical data on 300 large U.S. firms over a 15-year period, and she conducted interviews and analysis of CEO calendars.   She examines the consequences of attempts by large firms to "flatten their hierarchies" - something often recommended to improve performance.   The conventional wisdom is that we should flatten hierarchies so as to push decision-making down to the lowest level possible.  However, Wolf found an unintended consequence of such flattening efforts: "Results suggest that flattening transferred some decision rights from lower-level division managers to functional managers at the top. Flattening is also associated with increased CEO involvement with direct reports—the second level of top management—suggesting a more hands-on CEO at the pinnacle of the hierarchy."  In short, by removing layers, we may be pushing decision-making up the organization, rather than down to the people at the local level with specific knowledge about the customer, markets, technologies, and the like.  Flattening could lead to a more centralized management structure.

I've always believed that organizational structure is a blunt weapon.  Structure is an easy lever to pull if an executive wants to reduce costs and influence behavior.  However, simply moving boxes and arrows on the organizational chart often does not lead to higher performance.   Structural change must be accompanied by process and cultural change.  Specifically, Wolf's research suggests that firms need to be very clear about the allocation of decision rights when layers are removed.  I also think that firms need to pay close attention to status/informal hierarchies, rather than only focusing on the formal organizational structure.   Often, the informal hierarchy drives decision-making processes.   The values of the organization drive decision-making processes.  Flattening of the formal structure has to be accompanied by an effort to reduce the salience of status differences, and it has to be buttressed by leadership which emphasizes the value of putting decision-making in the hands of those closest to the work. 

Read More