Microsoft Pushes Autonomy, Accountability into Its Divisions

by Timothy Prickett Morgan

Microsoft held its financial analysts meeting last week, setting the stage for its fiscal 2004 and setting goals for its technical and sales people and partners to meet as they take on some pretty tough challenges over the next 12 months. During the meeting, Microsoft announced a corporate restructuring that will put chief financial officers at the helm of different Microsoft divisions, giving CEO Steve Ballmer and CFO John Connors more time to focus on larger issues.

Microsoft is neck-and-neck with General Electric in terms of the market capitalization of the two companies and their impressive profitability. At press time, Microsoft had a market cap of $289.6 billion and a price/earnings ratio of 29. GE has a market cap of $284.1 billion and a P/E ratio of 20. Microsoft has close to $50 billion in cash and securities, while GE has a stunning $130 billion in cash and securities. (Microsoft has mostly cash; GE has mostly investments.) Microsoft founder and chairman Bill Gates is friendly with former GE chairman Jack Welch, who has been heralded as a management genius because he built a larger conglomerate and made each GE unit accountable for making money. He did this by giving each GE unit enough autonomy to run itself and to compete in its own market, and by simply telling Wall Street each quarter when any particular unit wasn't making money. If your division didn't measure up and contribute to GE's revenues and its profits, you were in the dog house. With the new appointments of CFOs for various Microsoft units, Microsoft's top brass are trying to drive up autonomy and accountability in those units.

There is a CFO for each of Microsoft's main units. Alain Peracca is CFO of the Windows Client unit, and joins Microsoft from Hewlett-Packard. Marc Chardon is CFO of the Information Worker unit, which sells Microsoft Office and its related tools; Chardon comes from inside Microsoft. Peter Klein is also from Microsoft, and is the new CFO for the Server and Tools unit. Ken Mueller, who joined Microsoft from ExxonMobil six months ago, is the new CFO for Business Solutions, the part of Microsoft that sells the former Great Plains and Navision ERP application suites. Bruce Jaffe is the CFO for the Microsoft Network (MSN) unit, and is a relatively young Microsoft employee, but has a considerable amount of influence. Bryan Lee, the new CFO for the Home and Entertainment unit, joined Microsoft from Sony. David Rinn, who has been appointed CFO for the Mobile and Embedded Devices division, has been a Microsoft employee for nearly a decade. Alain Crozier is the new CFO for the Sales, Marketing, and Services group, and has been with Microsoft since 1994. Eileen Johnston, who's been with Microsoft for six years, is CFO for the Operations and Technology Group, which manages Microsoft's own IT infrastructure. In addition to appointing these CFOs for the units, who all report directly to CEO Ballmer, Microsoft has appointed Scott Di Valerio as the corporate controller; Di Valerio comes from Disney. Robert Uhlaner has been named vice president and head of the Corporate Strategy, Planning, and Analysis Group; Uhlaner comes to Microsoft from IT consultancy McKinsey & Co, where former IBM chairman Louis Gerstner cut his teeth before taking on American Express, RJR Nabisco, and, later, Big Blue.

This reorganization of Microsoft's structure maps financial accountability to the autonomous business units, and puts in place seasoned executives who can bring all the information together to help Microsoft's leaders--who are not financial wizards, even if they are very rich--pick their targets better and drop businesses that are not worth the trouble more quickly.

The other interesting bit that Conners, who remains the overall CFO for Microsoft, said in his briefings with analysts was that the company is anticipating growth in Intel-based PCs and servers in fiscal 2004. But don't get your hopes up too much, if you are wondering if there will be a return to boom times. "We're assuming that the worldwide economy remains roughly at current levels," said Connors. "We don't see a big contraction from where we are. We don't expect phenomenal growth to impact our results, but we do not expect any decline from where economic activity is today." This is a sentiment that many executives--both inside and outside of the IT market--would agree with.

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