Microsoft Reorganizes the Wrong Part of Its Organization

(MoneyWatch)  Have a business problem? Reorganize. Anyone who has spent longer than a couple of years in a corporation is probably familiar with this strategy. Microsoft (MSFT) will now reorganize its entertainment and devices division. Will this fix the multitude of problems at the division that couldn't shoot straight? Not a chance, because the real cause is bigger than any one division. Until Microsoft learns that it needs the success of new ventures even more than the cash that Windows and Office generate, it will learn nothing and go nowhere it hasn't already been.

Microsoft pegged the reorg to the "retirement" of Robbie Bach (which, to be fair, might be accurate), but it also involves the transformation of division senior vice-president of design J. Allard from an active manager into an "advisor in a strategic role." Vice presidents Andy Lees and Don Mattrick will oversee the gaming and mobile device businesses respectively and report to CEO Steve Ballmer.

It's a shakeup and an attempt to coordinate strategy in key growth areas. That is the clear sign Ballmer sends when he has each group head reporting directly to him. However, the strategic and operational implication is that neither mobile devices nor gaming has achieved what it should have because of a lack of focus.

Sorry, I don't buy it. Microsoft has been in deep trouble for years because of a deeply dysfunctional culture. As I noted back in February, former Microsoft vice-president Dick Brass pointed out that the company's Windows and Office product groups "prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence." That is evidence of a deeply disturbed operation -- and a textbook example of Clayton Christensen's Innovator's Dilemma concept. Big firms make all the right moves but fail in part because servicing their past successes becomes a barrier to moving where they need to go.

Granted, when it came to consumer products, Microsoft was inept for far too long. The irony is that over the last few years, the entertainment and devices division has made huge advances in product design, with the new Zune interface, Windows Phone 7. Conditions were clearly changing, and rapidly, with executives taking daring action, throwing out what hadn't worked to start from scratch when necessary. Nevertheless, it was all years late. Why? Because Microsoft loves Windows and Office and at best tolerates anything else. Microsoft is so scared about disturbing its fiscal legacy that it waits until chances are gone and opportunity has vanished. Just look at the timing of this move. Microsoft is only now taking action for conditions from three and four years ago.

This reorganization will do nothing because nothing has really changed. Until the company is willing to do what Apple (AAPL) has learned -- understand that what you build for the future could well kill the safe past -- it is destined eventually to become a has-been.