microsoft-organizational-structure

Microsoft Organizational Structure In A Nutshell

Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

Understanding Microsoft’s organizational structure

Microsoft has a product-type divisional organizational structure, with each division focusing on a specific line of goods and services. Furthermore, each has a separate research and development arm and dedicated sales and customer support staff.

Since current CEO Satya Nadella was appointed in 2015, the company has undergone several structural changes. Presently, Microsoft has two core engineering (product development) divisions:

  1. Cloud and Artificial Intelligence Platforms.
  2. Experiences and Devices.

Functional structure

Microsoft has a further seven functional divisions:

  1. Business Development and Evangelism.
  2. Finance.
  3. Human Resources.
  4. Legal and Corporate Affairs.
  5. Engineering (operating systems, devices, studios, applications, services, and cloud and enterprise units).
  6. Dynamics.
  7. Advanced Strategy and Research.

Despite each division having some autonomy, divisional heads must still report directly to Nadella.

Geographic divisions

Microsoft also contains two geographic divisions: United States and International.

Other characteristics of Microsoft organizational structure

Span of control

Microsoft has a wide span of control (SOC). This means the company has a comparatively higher number of subordinates under a single manager.

Centralization

Unlike Apple – where decision-making is made by all levels of management – Microsoft remains predominantly centralized with decisions made by those with authority.

Instituted by Bill Gates, centralized decision-making standardizes work output and removes the potential for personal biases. This creates a unified company with universal standards of performance and progression.

Advantages and disadvantages of Microsoft’s corporate structure

Advantages

  • Streamlined innovation. With a product-based divisional structure, employees work on projects that suit their skills and expertise. Supportive leadership with access to the CEO gives product specialists the freedom and resources to innovate. This ties in nicely with Microsoft’s core strategy of creating a family of integrated devices and services.
  • Minimization of internal conflict. With little overlap in the scope of each division’s activities, there is little chance for conflict over resources or skills. 
  • Flexibility and responsiveness. Each division operates as a pseudo-entity, equipped with the functions and resources necessary to accomplish its mission. As a whole, this makes the divisional structure of Microsoft more adaptative. Divisions can be added, removed, or merged as required and do not impact other units.

Disadvantages

  • Incompatibility. The divisional structure has led to a scenario where Microsoft’s own products were incompatible with each other. This occurred when the business software division was unable to integrate Microsoft SharePoint with Windows Live.
  • Minimal consideration for international markets. Microsoft has a sole geographic division for the rest of the world sans the United States. It could be argued that a single geographic division fails to capture the nuanced differences of regional markets.

Key takeaways:

  • Microsoft has a product-based divisional organizational structure. The company has sought to streamline product development over the years, with current CEO Satya Nadella creating just two product divisions. These are Cloud and Artificial Intelligence Platforms and Experiences and Devices.
  • Microsoft has a further seven functional divisions, with each divisional head reporting directly to Nadella.
  • Microsoft’s divisional structure helps it streamline innovation and support a core strategy of integrated products and services. Divisions also help the company operate as a collection of flexible and adaptive entities with separate missions and access to resources.

Related Case Studies

Microsoft Business Model

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Microsoft has a diversified business model, spanning from Office to gaming (with Xbox), LinkedIn, search (with Bing), and enterprise services (with GitHub). In 2021, Microsoft made over $168 billion in revenues, of which over $52 billion came from Server products and cloud services and $39.8 billion came from Office products and cloud services. Windows generated over $23 billion, Gaming generated over $15 billion, LinkedIn over $10 billion, and search advertising (through Bing) over $8.5 billion. 

Bill Gates Empire

bill-gates-companies
Bill Gates is an American business tycoon, software developer, investor, and more recently, philanthropist. After dropping out of Harvard University and founding Microsoft in 1975, Gates has at times been the richest man in the world with an estimated net worth of $129 billion. He founded Cascade Investment in 1995 to manage his investments outside of Microsoft. The firm employs over 100 people and has significant stakes in hotel, rail transport, beverage, and waste management companies. To further his philanthropic causes, he founded the Bill and Melinda Gates Foundation in 2000. The foundation holds almost $47 billion in assets and tackles entrenched global issues around poverty, healthcare, and climate change. The foundation also has several trust investments in companies such as Berkshire Hathaway, Caterpillar, FedEx, Walmart, and UPS.
organizational-structure
An organizational structure allows companies to shape their business model according to several criteria (like products, segments, geography and so on) that would enable information to flow through the organizational layers for better decision-making, cultural development, and goals alignment across employees, managers, and executives. 

Read Next: Organizational Structure, Microsoft Business Model, Microsoft SWOT, Microsoft Mission.

Organizational Structure Case Studies

Airbnb Organizational Structure

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Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

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eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

IBM Organizational Structure

ibm-organizational-structure
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

Sony Organizational Structure

sony-organizational-structure
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

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Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

Tesla Organizational Structure

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Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

McDonald’s Organizational Structure

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McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

Walmart Organizational Structure

walmart-organizational-structure
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

Microsoft Organizational Structure

microsoft-organizational-structure
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

Read Next: Organizational Structure

Read Also: Business Model

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