CEO Satya Nadella broke the news Wednesday, with Microsoft issuing both a statement and the email Nadella sent to employees, which included reducing the number of major divisions from four to three.
"To better align our capabilities and, ultimately, deliver better products and services our customers love at a more rapid pace, I have decided to organise our engineering effort into three groups that work together to deliver on our strategy and ambitions," Nadella said in the email.
Two of the three groups existed prior: Cloud & Enterprise (C+E), led by 18-year veteran Scott Guthrie, and Applications & Services (ASG), headed by Qi Lu. Guthrie's group is getting Dynamics, Microsoft's customer relationship management (CRM) and and enterprise resource planning (ERP) software, which previously was in its own oddball division.
Terry Myerson, who previously directed the Operating System group, will continue to do that while also picking up the Devices team, which Elop had run since his return to Microsoft after the $7.9 billion Nokia acquisition finalised last year. Former CEO Steve Ballmer did the deal just months before he stepped down.
Myerson's new group, a mash of his OS team and Elop's Devices division, will be called "Windows and Devices Group," or WDG for short.
Nadella touted the combination of OS and devices. "This new team brings together all the engineering capability required to drive breakthrough innovations that will propel the Windows ecosystem forward," he said. "This enables us to create new categories while generating enthusiasm and demand for Windows broadly."
The creation of Myerson's WDG was a return to how Microsoft organised its engineering efforts immediately after the mid-2012 launch of its Surface and Surface Pro tablets, the company's first-ever personal computer. Then, Julie Larson-Green, who was later shunted to a different role after Elop came aboard, ran the engineering of Microsoft's OSes and its hardware.
"That's a massive group," said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in an interview today. "I think it might almost be too big to manage."
But Rob Helm, an analyst at Directions on Microsoft, saw it differently. "I think this underlines the fact that Microsoft's hardware business is going to be the first and best customer of Windows," Helm said.
Moorhead viewed the rearrangement of executives' chairs as a continuation of the massive reorganisation that Ballmer instituted in July 2013. The then-CEO called it "One Microsoft," and touted it as an efficiency move that would make the firm nimbler in a market quickly skewing towards mobile, which Microsoft has largely missed.
"A reorganisation is never really done," Moorhead argued. "Companies in high tech are especially in a perpetual state of reorganisation."
Again, Helm had another take. "This is the start of the Nadella era," Helm said. Nadella took the CEO office in February 2014 after a several-months search that some believed would result in the appointment of an outsider, not a 22-year insider.
Several long-time lieutenants of Ballmer and co-founder Bill Gates before that were put in place to provide advice to Nadella, Helm said. But many of them have since moved on; the removal of others today was simply another part of the same process.
"Nadella started with the organisation that he was given, but he's now put his own stamp on it," said Helm.
Several top-level executives will leave the company in the coming months, Nadella said today, as fallout of todays' moves, including Elop; 25-year veteran Eric Rudder, vice president of advanced technology and education; and Kirill Tatarinov, who had been running Dynamics.
Also out: Mark Penn, the former political advisor who joined Microsoft in 2012, ran the anti-Google Scroggled campaigns, and was most recently the company's chief insight officer, a role that was never clearly defined. Penn will found a new digital marketing equity firm, Stagwell Group, that has raised $250 million in capital, some of it from Ballmer's billions.
Kurt DelBene, who was pushed out in 2013 by the Ballmer reorg but brought back by Nadella in April as the head of corporate strategy and planning, will continue in that role.
Neither Moorhead nor Helm viewed the changes as indicative of a switch in strategies at Microsoft. Nadella's email, in fact, trumpeted the same mantras that have become writ at the company, including "productivity services and platforms" and "mobile-first, cloud first world."
Although Wall Street has often urged Microsoft to divest itself of the Nokia business, there was no clue of such a move in today's executive game of musical chairs, said Moorhead.
"What will be interesting, though, is who leads the hardware under Myerson," Moorhead said. "Microsoft needs a star hardware person. If they do that, then no, [Microsoft won't dump Nokia]. But if they put a long-time software person under Myerson [to head hardware], then maybe."
Earlier this year, Microsoft filed documents with the U.S. Securities and Exchange Commission (SEC) that implied the company would soon take a massive write-off of its Nokia acquisition that could run into the billions.
According to The Verge, Jo Harlow, a former Nokia executive who came with Elop to run Microsoft's phone business, will also leave Redmond.
Nadella's high-level strategy remains intact, Moorhead maintained. Today's changes were of a tactical grade. "But the mobile and cloud strategy may or may not include a hardware business," Moorhead said.