Microsoft's Massive Reorganization -- All Structure, No Culture

Imagine you're the parents of three smart kids who just don't get along. They never cooperate, no matter how many lectures you give them. They're constantly at each other's throats, and you inadvertently encourage it by rewarding selfish behaviors as opposed to what benefits the family.

It's not an easy battle to resolve. It involves psychology, relationships, and the signals that you send through your own leadership as parents. It might take a number of strategic experiments to create a more productive environment.

One of them would not be shifting the kids' bedrooms around, sending them a memo announcing the restructuring of their domestic quarters, and hoping for the best.

Based on the reorganization announcements of last week, that's the way Microsoft is trying to address their own mega version of the parental challenge. While Steve Ballmer has acted boldly from an organizational point of view, he's done nothing to address the fundamental crisis in his culture. A culture of warring factions, mistrust, and a void of shared values and common purpose.

But he must fix that to create the next wave of growth in the company; you can't chart your future with an organization chart.

To quickly review what Ballmer initiated, in his own words:

"Today, we are announcing a far-reaching realignment of the company that will enable us to innovate with greater speed, efficiency and capability in a fast changing world."

On its face, it's a logical move. But will collapsing eight business units into four accomplish what the Times identified as Microsoft's urgent need to "encourage a tighter marriage among technologies as competitors like Apple and Google outflank them in the mobile and Internet markets."

"Marriage" is the operative word. But you can't legislate corporate intimacy and partnership, you can't force people to work closely together with an animating spirit of shared values by moving the boxes on a chart.

So what needs to be done? Turning to Dov Seidman will be invaluable here. Dov is a friend and a global voice for moral and ethic leadership; his company LRN "helps companies thrive by pursuing both profits and principles" as Time magazine described it when they named him a "Game Changer."

In his book How We Do Anything Means Everything, Dov brings great passion and clarifying insight to the steps that companies must take to re-frame their approach to innovation and growth in today's world where values matter more than anything.

Dov has spoken at the World Economic Forum and elsewhere about the need for inspired leadership, the exact issues that Microsoft is facing but that Ballmer failed to address. It's about empowerment in the deepest sense of the word. Dov sees a bright line between an organization that meters out the important but limiting "freedom from," and one that offers the transformative "freedom to." Freedom from is the absence of a negative -- freedom to is liberating, it's defined by a culture of trust that lets people fly.

Ballmer's Microsoft is a textbook case of a company that fails to offer freedom to. That includes the freedom to innovate, to create truly collaborative teams, to explore without the threat of being punished for failure, to work across arbitrary turf borders for the common good, to trust that your ideas will be supported and recognized.

But Redmond hasn't created that emotional ecosystem. Far from it. As the Times put it: "Rivalries among the Microsoft divisions have built up over time, sometimes resulting in needless duplication of efforts."

Going further, an exhaustive feature on the company in Vanity Fair in August of last year was unsparing about Microsoft's mojo hemorrhage:

"By the dawn of the millennium, the hallways at Microsoft were no longer home to barefoot programmers in Hawaiian shirts working through nights and weekends toward a common goal of excellence... life behind the thick corporate walls had become staid and brutish. Fiefdoms had taken root, and a mastery of internal politics emerged as key to career success.

Staffers were rewarded not just for doing well but for making sure that their colleagues failed. As a result, the company was consumed by an endless series of internal knife fights. Potential market-busting businesses -- such as e-book and Smartphone technology -- were killed, derailed, or delayed amid bickering and power plays."

Is it any wonder that Microsoft has stagnated? On paper, in front of analysts, they talk about growth, growth, growth. But growth is an outcome, not a strategy. They are often confused. Dov made that crystal clear in a Huffington Post piece where he commented on Mark Pincus's assertion that Zynga's culture has been "about growth."

"Admirable intentions aside, I'm afraid to say there is no such thing as a culture of growth. After all, you can't do growth; you can only get growth as a byproduct of a vibrant culture inspired by values, which fosters loyalty and innovation."

Those cultures are created by inspirational leadership at the top. By a CEO who has the courage and trust to distribute power. Ironically, Microsoft's new structure -- with its centralized marketing, sales and finance functions - actually creates a top-heavier architecture, not exactly an environment that encourages entrepreneurship.

So what should Ballmer have done? He should have sent an important, long-awaited message by dealing squarely with the reality of Microsoft's internecine stresses and fault-lines, delivering a courageous recital of what needs fixing:

"I take personal responsibility for many of the self-imposed issues we've faced in the past. We've fought amongst ourselves and let our competitors get the better of us. So I promise you that the innovative and creative talents of our amazing people will be unleashed and unlocked; never again will we face a situation where we invent something like the tablet, then let it die as a victim of our internal struggles."

That's the authenticity that defines a culture of values. A change in tone -- not a change in structure -- is what allows people to believe they can succeed; and when they believe it, they do it.

And it turns out these so-called "soft" cultural attributes are not soft at all. Dov and LRN have done some breakthrough work measuring the performance of "self-governing" organizations -- something Microsoft has clearly not been - and those results, published in their HOW Metrics report, are eye-opening:

• 93 percent of employees at high-trust, values-based businesses outperform their competitors vs. 48 percent of those at strict top-down organizations.
• Employees who work in high trust organizations are 22 times more likely to take a beneficial risk -- which, in turn, enables 8 times the levels of innovation as compared to the competition.

• When it comes to loyalty, 92 percent of employees of businesses based on values and trust plan to be at their company in a year, compared to 46 percent of those in strict top-down organizations.

• 98 percent would recommend their values and trust-based company to a friend vs. just 33 percent at strict top-down organizations.

Microsoft can change. I have no doubt. It is not so calcified as to make that impossible. But Microsoft can't grow into its new structure unless there's a candid and transparent admission of what it needs to grow out of it -- and the current management ethos is part of the problem.

Without a culture that's built on values, trust, and openness that liberates and ignites talent, you're just reorganizing your problems.

The kids will still be fighting.