Microsoft’s strategy game for a new world

The other shoe has dropped as Microsoft follows through on the major restructuring announcement it made in July. By the end of October more unfortunate staff had entered discussions about their future with the company, with the total now almost reaching the 18,000 figure announced in July.

It looks as if the process has being accelerated to get the pain over early – the most recent results announcement for Q1 2015 (Yes, we know it's still 2014 in the real world) results included allocating an additional $500 million in restructuring costs, taking the total cost of the process by the middle of next year up to a predicted  $1.6 million.

Painful. But Microsoft's revised strategy is well thought out. City investors certainly seem to like it, especially when they compare Microsoft's relative clarity and focus with some of the other big tech companies, currently wandering around in a post-recession daze trying to work out how to respond to changes in mobile usage, take-up of the cloud and loss of traditional licensing revenues.

Satya Nadella (pictured) was appointed as Microsoft's new CEO in February. A new CEO generally also means a new look at how the organisation they lead is structured.  And so it has come to pass that a significant part of an inevitable restructure is associated with a root and branch reorganisation of Microsoft's corporate structures, business activities and properties.

So, for example, Nadella may have been looking for (relatively) poorly performing non-core business to trim. This would explain why the global advertising team and, it is suggested, the entire sales force may be under threat. This is the team responsible for selling advertising space across MSN, X Box, Skype, Bing, Outlook and Windows 8, and it has been selling less than a tenth of what Google achieves, so looks a suitable candidate for simplification.

Nadella may also have been on the lookout for less risky approaches to Microsoft's core business processes too:  Many partner contracts are likely to be renegotiated under the new Partner-seller (P-seller) programme which is already replacing earlier channel initiatives in North America and is coming over here too.  It promises to get Microsoft closer to its clients through selected specialist partner sales representatives. Another box ticked.

But the most important thing Nadella will have been concerned with is alignment for future growth. So, the fact that the majority, over two thirds, of the slated redundancies are from the Nokia organisation Microsoft has acquired is highly significant.

Microsoft is hanging its hat on mobile usage. But Microsoft's mobile aspiration is very different from Nokia's: It's no longer a world domination, Nokia in every hand, aspiration (in truth it's been some time since Nokia was delivering on that one).

Today the objective is to push the Microsoft eco-structure out to mobile users.  Making this change is not been without cost – as well as the restructuring costs the company has had to sacrifice $600m in royalties from Nokia as was.

It's a price worth paying to make sure the company can provide and feed a Microsoft enabled mobile environment. With Apple and Google already having the biggest hold on the user's mobile environment, Microsoft needs to keep its own options open – hence Nokia's acquisition and the concentration on Lumia phones and Surface tablet devices.

This highlights the dilemma Microsoft faces. To the shorter term investor the figures look  pretty good, and the corporate mantra remains one of a single computing world spanning corporate and consumer users, and a stated desire to follow users as they flit between the two using their portfolio of Microsoft-enabled products.

Look a little closer and you'll observe that most of Microsoft's strength and success mostly emanates from its canny approach to serving the corporate end of this spectrum. Products range from a cloud based portfolio and services, back-end server products and all the services that tie these together. The client end activity feels like something of a cul-de-sac. As long as the only manufacturer making Windows based mobile devices is Microsoft, it's hard to see how this can ever be more than a rearguard action for the company.

Which makes our discussion of Microsoft's future a year ago, when Steve Ballmer first announced his intention to stand down, still seem topical. At that time CIO's Big Story suggested that Microsoft future probably lay in corporate services work, just as IBM had gone before it. Corporate communications coming from the company stalwartly deny this in favour of the single continuum of user from pure consumer to pure business, but we remain to be convinced.

Today Microsoft is on just about every corporate IT shopping list. Its success in repositioning itself and building major cloud opportunities is something that a company like Oracle can only dream of. But that doesn't change the fact that today most consumers live completely outside it's ecosystem for most of the time they are interacting with IT, except in the workplace.

To continue to build a proposition based on a reality that has already passed its peak seems perverse.  So we'd still bet on Microsoft moving to be a pure corporate player in due course; when the writing on the wall is impossible to ignore any longer...

Copyright © 2014 IDG Communications, Inc.

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