Kara Swisher

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Aiming for “Functional Coherence,” Mulling a Different P&L and With Advice From Ford CEO, Microsoft Restructuring Set for Thursday

coherence

According to numerous sources close to the situation, Microsoft CEO Steve Ballmer is poised to unveil his plan to drastically restructure the tech giant this week. And, while timing might change, sources said that the current plan is to make it public on Thursday.

A number of issues are still up in the air, due to the close-to-the-vest planning by Ballmer over the major reorg — which has caused a not inconsiderable amount of nervousness on the part of top execs at Microsoft.

As has been much reported here and elsewhere, he is expected to organize the Redmond, Wash.-based company around services — or software — and devices, both in the consumer and business sectors. Ballmer had telegraphed this intent in his shareholder letter last fall.

The effort, said many insiders who have talked to Ballmer and others involved, is to create something that is being called “functional coherence” at the company, although it is not among Microsoft’s talking points when the restructuring will be made public. That also includes putting more wood behind fewer efforts and eliminating overlapping functions.

In theory, it also presumably means things going where they belong in the product cycle. In practice, which is a lot messier, that means moving a lot of important people around.

As as been reported by Bloomberg and earlier, in part, on AllThingsD, top jobs in the new structure are going to a number of longtime high-ranking execs.

That includes a new cloud computing and business-focused products unit headed by current Servers and Tools head Satya Nadella; Online Services leader Qi Lu could add Microsoft Office and other apps to his portfolio that already includes the Bing search service; Julie Larson-Green, who now co-heads Windows efforts, is in line to be in charge of all devices from Surface tablet to Xbox game player, as well as music and TV services; and Windows Phone chief Terry Myerson is expected to take over Windows engineering and platforms.

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Meanwhile, Windows CFO and CMO Tami Reller is expected to have a larger marketing job; and current Skype president Tony Bates gets purview over all of business development, corporate strategy and M&A, playing the role of outside guy to Silicon Valley and developers (complete with a giant checkbook for acquisitions and other investments).

It’s not clear where Microsoft Office president Kurt DelBene or Microsoft Business Solutions president Kirill Tatarinov could land in the new set-up, but presumably either out the door or under new units headed by Qi Lu (DelBene) and Satya Nadella (Tatarinov), respectively.

As to the fate of COO Kevin Turner, sources expect he’ll stay (at least until he is offered a tasty and big operationally-heavy CEO job outside the company).

Current CFO Amy Hood — who was just appointed — will also stay in place, as will HR head Lisa Brummel, who has played a key role in this reorg effort. Chief lawyer Brad Smith also seems safely away from the hubbub.

Interestingly, Hood might have to deal with one big change that Ballmer has been contemplating that would mash up all the divisions — which had previously reported their financial performance separately — into a different version of its current P&L.

This would be a big deal to Wall Street and investors if it happened, since it could shield the company from complaints about its money-losing units like Bing search, that are still integral to the company. It could also make its finances less transparent. But any such changes, sources cautioned, could take some time and could require regulatory approvals.

But it would also give even more control over the company to Ballmer, who does not seem to have answered the increasingly interesting question of who will eventually replace him. The new reorg does not seem to point to any one person as a clear heir apparent.

It is also not clear how the new organization will enable Microsoft to move faster at innovation, especially against more nimble rivals such as Google.

“It will take a while to see how this shakes out,” said one person with knowledge of the situation. “And it is very dependent on collaboration that is very hard to pull off even in much smaller organizations.”

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AFP/Getty Images

Added an insider, who is concerned: “If this is all about an org chart and not how to build great products, it does not matter what org chart Ballmer presents. Consumers buy products, not a management structure.”

Indeed.

Another interesting part of the restructuring is the help and advice that Ballmer has gotten from longtime colleague Alan Mulally, CEO of Ford. Insiders said Ballmer has told them he has tapped the much-respected exec, who has been adept at turnarounds at big organizations, for ideas about how to structure Microsoft for the years ahead.

When Mulally was named to the Time 100 list in 2009, in fact, it was Ballmer who wrote about him for the magazine, noting, “[Mulally] understands the fundamentals of business success as well as any business leader I know.”

And, of course, Ballmer loves Ford — his father was a longtime exec there and he is from the Detroit area.

If all goes as planned, the reorg announcement will come just after Microsoft’s Worldwide Partner Conference, which is now taking place in Houston. Ballmer was the event’s keynote speaker today. In addition, the company’s Build conference for developers took place two weeks ago.


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— Kara Swisher and Walt Mossberg, in their farewell D post