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Ballmer marks first year amid Microsoft transition

Named president last July, Steve Ballmer has driven the software giant to focus more on consumers, and reorganized its divisions to reflect that focus.

For some, the moment that says it all about Steve Ballmer came in a cramped conference room near the San Jose airport nearly two years ago, when the sometimes atomic Microsoft executive bellowed, "To heck with Janet Reno."

Steve BallmerTo others, Ballmer--approaching his first anniversary as president of Microsoft---represents the brains behind the marketing machine that drives the company's wildly successful products and the singular motivational voice spurring the company's internal technology development along.

This combination of schoolyard arrogance and operational savvy has helped catapult Microsoft to its position as the dominant provider of software for PCs and caught the eye of the Justice Department. But is Ballmer, 43, the executive to guide the most successful software company in the industry through one of its most important evolutions?

"[Ballmer's] the right guy for the job. He's got the right mindset, the right motivation," said Rob Enderle, an analyst with industry consultants Giga Information Group. "The question is if he's the right guy for the job after the transition."

The answer to this question is significant for Microsoft, since many view the computing industry as fundamentally changing over the next few years. The combination of a rapidly developing movement toward "open source" software such as Linux, the exponential growth of the Internet, and Microsoft's own dependency on its various versions of the Windows operating system could lead to a far different market in the coming years that may be less reliant on Microsoft's traditional strengths in software.

Since Ballmer's official coronation last July as president, perhaps his most important act has been a re-organization conducted this spring that was intended to align the company around the needs of customers, rather than specific products such as Office or the Exchange messaging software system.

"As an organization grows there is a tendency for the customer to be less central---that is a danger," said Jonathan Murray, head of a recently formed customer and product satisfaction group at the company. "That is not something we want to have happen at Microsoft."

In conjunction with that move, Ballmer placed more product and technology responsibility in the hands of the various managers under him heading specific groups, allowing them to operate in a more independent fashion.

Placing Ballmer in a more direct position to affect the performance of various business units also is intended to allow chief Bill Gates to focus on the so-called vision thing, pondering the changing nature of the PC or the proliferation of alternative computing devices, for example.

But in the short term, Ballmer's remaining tasks may be more daunting than managerial chess moves. Unresolved issues include: Making sure there are no further slips in the delivery of the long-delayed Windows 2000, an upgrade to the company's corporate Windows NT operating system; finding a new chief for the company's online businesses; and making Microsoft's technology more palatable for e-commerce tasks, a booming market in which Microsoft is thought to trail.

Keep your head up
Long-viewed as a product-focused company that fostered a "heads down" atmosphere among its army of software programmers, the move toward the customer cannot be over-emphasized, in spite of Microsoft's continued success, according to some.

"If they didn't start moving toward the customers, customers were going to start to move away from them," said Enderle.

"Microsoft got very out of touch with its customer base," he added. "It had to be brought back in so they weren't their own worst enemy."

But others see Ballmer's first year as offering few clues as to how effective the gregarious leader will be in the coming years, once Microsoft's transition is complete.

"Were he to leave today, I don't know if you would be able to separate what he has done for Microsoft in the past from what he is doing now," said Christopher Galvin, equities analyst at Hambrecht & Quist. "He is clearly one of the three or four most important people who have been associated with Microsoft probably since its birth.

"On some of the newer initiatives, it is tougher to tell," said Galvin. "What [Ballmer] is particularly good at is creating a powerful sales organization and strong message to the marketplace. I think the customer-oriented restructuring was emblematic of that."

Those inside Microsoft note that Ballmer's customer-driven nature and dispersal of product responsibility to various product heads is a welcome opportunity to re-invigorate a company with more than 30,000 employees worldwide.

Microsoft's shift to address specific customer niches is a departure for the company. Previously, Microsoft has made the majority of its money riding several widely used software programs, such as Windows or Office. But with the company's corporate push, Microsoft is increasingly hoping to use its desktop dominance as a means to tie PCs into a wider network of Microsoft server-based software, in order to reap further revenue and target specific customer types, such as the health care or financial services industries.

"Customer focus is as much a part of our culture as writing code," Ballmer said in prepared remarks at the time of his appointment. "We want to build on that tradition and culture by listening more, reaching out more, offering to help more."

Ballmer declined to be interviewed for this story.

Evaluating Microsoft
Ballmer undertook interviews with 100 of Microsoft's managers upon taking the helm last July, according to a Microsoft spokeswoman. Based on those discussions, the executives sent out a memo last fall outlining his customer focus credo--an important departure for what has been a largely product-focused firm.

"His leadership style of continually emphasizing the customer is precisely what we needed to re-focus and re-engage," said Chris Williams, vice president of human resources at Microsoft. "As our company continues to grow and develop more products and services, it becomes that much more important to remember who the customer is and how to best serve their needs."

Meanwhile, the defining moment of Ballmer's year at the helm is widely viewed as the reorganization he implemented in March, taking the company's product-focused groups and melding them into more autonomous and customer-centric businesses focused on information technology (IT) managers, the developer, the consumer, and the so-called knowledge worker.

Coincidence or not, the restructuring and Ballmer's re-commitment to the company's customer base has resulted in a period of upheaval within Microsoft's executive ranks. The most recent example is John Ludwig, a vice president leading the MSN Access group, who decided to take a leave of absence last week.

Other recent departures include Nathan Myhrvold, who will begin a one-year sabbatical, his brother Cameron, who resigned in April, and Steve Perlman, a WebTV co-founder who stepped down in May.

"Ballmer probably had an impact on some of the decisions of some of the executives to leave, but that is to be expected any time you have management changes," said Steve Shepich, equities analyst at Olde Discount. "I'm not sure to what extent, but he definitely has taken hold of the company and some people maybe not jive with the way he runs things."

Added Giga's Enderle: "Now we're going through the fine-tuning phase, when people who don't really have the heart are being moved out of things."

Those within the company say Ballmer has re-invigorated a focus on the company's customers. Those on the outside say that time will tell whether Ballmer's transition will be a success or not, given the perception in some circles that Microsoft is a company of software "code warriors" focused on product, product, product, rather than more comprehensive computing approaches.

Most Microsoft observers believe Ballmer's transition is half-complete. Whether the changes he has implemented will take hold is the next question.

"Ballmer has done a good job instilling across Microsoft the notion that employees have to be more focused on customers," said Dwight Davis, analyst with industry consultants Summit Strategies. "Even so, Microsoft will always remain a product company at its core."

News.com's Sandeep Junnarkar contributed to this report.