Does Microsoft Need China?

The tech giant is on the rebound, but its future may lie in how it decides to adapt its pricing model to the developing world.

All of this amounts to tremendous bargaining power against Microsoft.

Is It the Same?

Microsoft bashing is so common worldwide—and so much of a knee-jerk reaction—that it’s almost iconoclastic to look at how the familiar devil isn’t so familiar anymore. For one, on the finance side, Microsoft has turned itself into a more agile company, and in a remarkably short amount of time. Two years ago, Steve Ballmer, Microsoft’s CEO, suggested to John Connors that the company should restructure along the lines of General Electric into separate businesses reported on separate P&Ls. (The Wall Street Journal reported that Ballmer had his revelation after reading former GE CEO Jack Welch’s memoirs.)

Connors has enacted the change with remarkable swiftness for a company so large. Last summer, he appointed seven CFOs to the seven P&s, which are business solutions, server and tools, mobile and embedded devices, home and entertainment, MSN, client, and information worker. The seven finance chiefs were given the power over setting targets, performance measurement, and budgeting. Analysts said the new structure represented Microsoft’s maturity from a tech wunderkind to a giant industrial company.

Says Hilal at Friedman Billings Ramsey: “The move to seven P&Ls and seven CFOs was aimed at treating each product group as a separate company—and they’ve seen benefits.’ This year, MSN joined the client, information worker, and server and tools groups as Microsoft profit engines, Hilal says. “The three businesses that are losing money are losing a lot less of it,” he says.

To Connors, the move represented a shift in which finance was given an equal footing in a company which had always been the province of techies and ‘the field’. “We now have these P&Ls constructed over and above the field,” says Connors. “In the past, we had our geographical people who managed their own P&Ls—and we didn’t have them managing R&D. Now we have P&L leaders in charge of R&D, sales, services, and marketing.”

Still to be done, says Connors, is implementing “this in a way that our field isn’t frustrated.” He elaborates: “Say Australia has a great program in mind for a promotion that isn’t the same as France and Germany; we need to make sure that they’re not stopped from doing that.” He talks of a need to “make a big investment in public sector sales and relationship work. Making sure we have that kind of rapid decision-making movement as we would have before we established the seven PGs (product groups).”

Learning to Adapt

The Microsoft conundrum – of an admired giant seeking to find a footing in the developing world—is perhaps most succinctly defined by a Microsofter himself. “I have a company that economically is being driven by the mature market,” says John MacLellan, the company’s finance director for the Asia Pacific and greater China regions based in Singapore, “and I have to understand how to drive it by the emerging markets.”

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