Q&A: Building Diverse Businesses Around a Common Strategy

Steve Ballmer, Microsoft CEO

REDMOND, Wash., April 3, 2002 — Microsoft today announced changes to its organizational structure that will give leaders of the company’s seven core businesses comprehensive operational and financial responsibility, and greater accountability (see press release ). As part of these changes, President/COO Rick Belluzzo will transition out of his role on May 1, while continuing to work at Microsoft until September to ensure a smooth transition. PressPass spoke with Microsoft CEO Steve Ballmer and with Belluzzo about the changes.

PressPass: How did this change in management process come about and why are you making the change now?

Steve Ballmer: Since Rick became president, we’ve been working to streamline decision making and really focus on a key set of scenarios for our customers. Microsoft has seven core businesses today: Windows Client, Knowledge Worker, Server & Tools, Business Solutions, CE/Mobility, MSN, and Home & Entertainment. Although we’re a company with one core technology platform, we’ve also got a number of unique businesses. The goal was to come up with a way that we could empower the leaders of these businesses to think like CEOs of that business responsible for product development, sales, marketing and financial performance — while also providing a level of coordination across the businesses.

Rick Belluzzo: When I took this role just over a year ago, a lot of people asked what I thought the key challenge would be. My response was: how do you continue to grow a business while simultaneously managing the diversity of all the businesses we have a Microsoft? That is something I was very much aware of because of my experience at Hewlett Packard where we faced a similar challenge. There, we built an end-to-end business model with a series of businesses built around a common strategy, a common platform which could execute and deliver results on a regular basis. I was convinced then and am just as convinced now that the only way Microsoft can successfully manage business diversity and keep the company growing and thriving is by having a limited number of key people making decisions each and every day to run the business. And that is what this change has really led to building a process so that there are series of business leaders who are going to run their part of the business built around a common strategy.

I really do think it’s a good move for the company, although it does put me in an interesting place personally. When you move to a model like that you have to ask yourself how many people really run the business. Since my passion and enjoyment is around building and running a business, it makes it difficult in a model like this to be able to get that because of the fact we are empowering people though the organization to build a business so that the company can thrive and grow and make decisions more quickly with more accountability. It’s all the right stuff. And so that really makes my change kind of a natural extension to the change we’re making in the direction of the company overall.

PressPass: How does this new management process differ from the existing one in terms of how things are going to function at Microsoft?

Ballmer: This is not an organizational change in the sense that we have a new structure. It’s an explicit organizational pairing between our seven core product businesses and our focus on customers. It’s so we can generate greater end-to-end thinking and accountability. For example, if you are Jeff Raikes or Steven Sinofsky and you’re thinking about the Office business, you now have to figure out what the product needs to do to meet customer needs, what you need to do for the existing customers of that product, what the sales and marketing strategy is around the globe. So, it’s that notion of getting the top leaders of these core businesses to think about themselves as owning the range of issues sales, marketing and development. They will be accountable for the end-to-end strategy all the way out to the customer, as opposed to just building a great piece of software and handing it off to the sales force. We see this approach as really key to growing the business and doing a better job with our customers.

PressPass: So is this announcement mostly a change in what your business leaders are responsible for?

Ballmer: While this new approach will not structurally change people’s roles, it will have an impact in terms of the way our people think about R & D and resource allocation. I want to make sure that if we should be allocating more effort on a particular customer issue, customer opportunity or customer problem, people can think end-to-end about how to get that managed and drive a solution.

Belluzzo: One of the key things about running a business is making trade off’s and deciding where to spend the money, how you compete with product vs. how you compete with new customer experiences and services, pricing and how you deploy field resources, what channel you useit’s really pretty complicated. And our business is no longer a single homogenous business model. I think that the change here allows these business owners to be able to look around the various components of the business and make decisions about what the product should look like, what channels we should be using, what support model is necessary and at the end of the day how do we drive growth and revenue.

PressPass: Rick, what do you feel you’ve accomplished at Microsoft?

Belluzzo: Several things come to mind. I’ve been very gratified with the great work around our consumer business. When I joined the company we had a lot of different consumer activities and a number of those businesses were struggling. I really enjoyed bringing the team together, developing a strategy and vision about devices and services and then working to help each individual component of that vision grow and develop. For example, MSN is now one of the leading online networks in the world, and we’ve launched an incredibly popular game console in Xbox. I believe that in a few years we’re going to look back and see these consumer businesses being a very vibrant, successful part of the company in every respect.

Another big part of my job is focusing on the financial performance of the company. It’s been a very, very tough economic environment and I’ve enjoyed working with the product teams and the field teams to be able to work though this period in a way that I think has been reasonably successful. I also think we’ve been able to put in place some very strong internal business processes that really build a good path to go forward.

And finally, I’ve enjoyed a lot of work with partners and customers, dealing with issues and customer challenges and helping them look for new opportunities. I think I’ll leave behind a very good set of partnerships and relationships which I think will be good for the company moving forward.

PressPass: The process changes you are announcing today are part of a broader set of business changes that you have been making over the last year or so. Can you say a little more about other parts of that business process?

Ballmer: There are two things we have to do. First, we have to let our businesses operate in an entrepreneurial way, while at the same time have a way for senior management to check in with those businesses. Second, we need a way to focus in at the center on those things which we share across the company. These are very important centers of coordination the platform we share, our sales force, our marketing efforts. Our new business system is designed to let the businesses work and run hard, and still provide an appropriate level of coordination and focus on the platform the business platform as well as the software and technology platform that is at the center of Microsoft.

PressPass: So how do these changes affect Microsoft’s product strategy going forward?

Ballmer: They really don’t. The changes we are making in terms of management process are for basically two reasons. We’ve got a lot of ideas on how to add value for customers and a lot of new products, services and tools that do a lot of amazing things. We needed a business system that let’s us be flexible, be nimble, be active in multiple ways, so that all the best work of the very bright people who work here could get out into the marketplace. So in a sense nothing changes, but it gives us the opportunity to share our core whether its in our core platforms like Windows, .NET, or with new customer scenarios, new areas like MSN or X-Box, or some of the things we are trying to do in the enterprise service space to share our core, yet move nimbly to serve customers in every area.

PressPass: Steve, are you going to be replacing Rick?

Ballmer: No. Given where we want to go and what needs to happen, and given how we are asking the business leaders to step up, combined with the fact that Rick would like run his own company, I don’t anticipate doing so. We’ve had the discussion for awhile and he and I agreed that this would be the right time for him to pursue the dream that he has. I am very thankful for Rick’s contribution not only in terms of implementing this new business structure, but also his leadership really ratcheting up our consumer efforts on MSN and Xbox and in a great number of other ways. I wish him well and I’ll certainly miss him.

PressPass: Was this a mutually agreed upon decision?

Ballmer: Since Rick joined Microsoft everything that we have done has been very mutual, and this was a mutual decision.

Belluzzo: When I look back at my time with Microsoft, we have constantly fine-tuning and changing responsibilities in the company. That has been a real strength in the company that we’re flexible and able to make important changes. I have been in the business for a long time so I always try to stay open-mined as to what’s best for the company. So while this is in some ways a challenging change for me personally, it is one that is clearly the right direction for the company. Steve and I have been able to talk openly about and come to the right conclusion.

PressPass: What about you personally, Rick, what kind of role are you looking for?

Belluzzo: I was just telling Steve this morning that when I graduated from college I started work the next Monday and I have worked ever since. That was 25 years ago and I’ve never taken time to step back and think about my next step. Great opportunities have always presented themselves. So over the next few months I intend to help with the transition and I’m also going to spend sometime thinking and reflecting. I’m really excited about running something, building something, building teams, developing products and all the aspects of running a business and it is something that I hope to continue to do.

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