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Microsoft’s next reorganization needs to start at the top

Microsoft CEO Steve Ballmer speaks at the Boston College Chief Executives Club luncheon in Boston, Massachusetts October 16, 2009


Microsoft CEO Steve Ballmer is implementing a massive reorganization at the software stalwart. There's one key problem with the new org chart, however: Mr. Ballmer's name is still at the top of it.

This is not the first time I've made such a suggestion in this space: Last December, in a piece called "Why Microsoft must end the Ballmer regime in 2013," I suggested "It's time for Microsoft to do one of two things: Admit that it's the equivalent of a slow-growth utility and start paying significant dividends. Or find a new CEO to replace Steve Ballmer and completely change the culture."

The company has done neither, and had paid no price for this first six months of this year. Through last week, when the shares hit a 52-week high, the stock gained more than 38 per cent. Why mess with success?

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Except investors who bid up the shares this year were ignoring this particular problem: People like to invest in companies who actually do things right. Outside of the Xbox, Microsoft hasn't done much by that description in decades.

(Beat up on Apple all you want. That company's problem is that it doesn't seem able to produce a product as drool-worthy as its multiple blockbusters of the last several years. Microsoft should be so lucky.)

The earnings Microsoft released last week brought many folks back to earth (the shares fell 10 per cent, although they should have fallen more). The company missed expectations on revenue and profit. The company took a $900-million writedown on its Surface tablet. The Windows division – you know, the part of the company that has a successful product – saw revenue fall 6 per cent year over year (adjusted for sales booked in prior quarters).

Mr. Ballmer left the dirty deed to delivering these results on the quarterly conference call to new Chief Financial Officer Amy Hood; he declined to participate in the call as is apparently typical.

Barron's tech columnist Tiernan Ray called the move "a little cheeky" considering Mr. Ballmer's recent announcement of the reorganization of Microsoft into a "devices and services company."

"Whatever that is," Mr. Ray added, a little cheekily himself.

Actually, I know what a devices and services company is. A company that does two things, neither of which Microsoft does well.

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It's too late for this company. It's too late for Mr. Ballmer. Investors who buy because of all Microsoft's cash need to enjoy it while it lasts.

READERS: After the reorganization is Steve Ballmer more or less likely to get the heave-ho in 2013?

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About the Author
Business and investing reporter and columnist

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers. He has also worked at the Wall Street Journal. More


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