Microsoft can boast of operating systems that are installed on the vast majority of desktop computers, of the popular Xbox gaming system, and of the Office suite of software, which dominates the market for word processing and other business applications. The 100,000-employee company has enjoyed steady growth in revenues, recently exceeding $73 billion. However, profits have lagged revenue growth as Microsoft has struggled to keep up with the pace of technological change.

The top managers at Microsoft, under new CEO Satya Nadella, determined that what was holding the company back was a structure that did not foster a shared vision. Microsoft had eight divisions focused on specific products, and each division pursued its own strategy. The solution, then, would be to reorganize work into fewer divisions aimed at a unified strategy.

The organization’s new shared strategy is to create “a family of devices and services.”1 In other words, instead of one division handling, say, the Bing search engine while another handles the Windows operating system, Microsoft’s hardware, software, and online services divisions should work together to let users perform computer-related activities on all their devices. This would require a new level of cooperation among employees across divisions.

The major change to Microsoft’s structure involved shrinking the number of divisions and combining activities. Instead of eight divisions based on product lines, the new structure has four divisions based on ways groups of products are used:

• Applications—This group, headed by Qi Lu, has been assigned to manage work related to Office and Skype. Lu was formerly in charge of Bing.

• Cloud and enterprise—“Cloud” refers to online software and computing systems, including Microsoft’s network of data centers running cloud systems. “Enterprise” includes databases and other technologies used primarily by businesses.

• Devices and studios—Under Julie Larson-Green, this group includes Xbox, Surface tablets, hardware accessories, and games. Larson-Green formerly headed the group in charge of the Windows operating system.

• Operating systems—Terry Myerson was chosen to head this group, which aims to unify operating systems across computers, Xbox, and mobile devices. Myerson previously led engineering for Windows Phone.

Besides these product-use divisions, the reorganized Microsoft has divisions providing support functions for all employees and groups. These divisions include finance, marketing, and human resources. The goal of setting up company-wide functional divisions is for managers to collaborate and create marketing plans and finance projects in support of Microsoft’s corporate strategy, rather than pursuing divisional strategies that might conflict.

With this plan sketched out, the challenge now is implementing the new structure. Besides spelling out the details of each new job, Microsoft’s managers, including Lu, Larson-Green, Myerson, and the heads of the functional departments, must convince their employees that collaboration is the new way of life at Microsoft.2