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Is Microsoft Planning a Management Shakeup?

Is Microsoft CEO Steve Ballmer preparing to replace executives under him with engineers rather than MBAs as part of a reorganization of the company?

The rumor mill says Ballmer's planning to do just that.

A story by Bloomberg, Tuesday, citing two anonymous sources, said that Ballmer might reorganize Microsoft's (NASDAQ: MSFT) management structure as soon as this month.

"The move would expand on an effort to promote managers who have engineering skills and experience executing product plans -- a bid to help Microsoft catch up with rivals such as Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) in Web services, smartphones and tablet computers. The overhaul also may quell criticism from the board and investors that Microsoft is falling behind in some markets," the article said.

In fact, in recent months, several high-level Ballmer reports have announced their departures.

Last May, Robbie Bach, president of Microsoft's Entertainment and Devices Division (EDD) and a 22-year company veteran, announced he was leaving. Although parts of Bach's division were doing extremely well -- game consoles and games, for instance -- two other areas in his purview -- mobile devices and smartphones, were stagnant.

Indeed, the company has been struggling in the past year, trying to convince customers and investors that it can still be a serious, long-term player with Windows Phone 7 handsets and with Windows 7-based tablet computers.

In July, Microsoft suffered a setback towards gaining and keeping that confidence when it abruptly cancelled its KIN smartphone, which failed to gain traction in the marketplace in the mere seven weeks it was for sale.

In September, Stephen Elop, formerly president of Microsoft's Business Division, left to become CEO of mobile phone giant Nokia.

In October, Bill Gates' handpicked replacement as visionary-in-chief -- AKA chief software architect -- Ray Ozzie announced he was leaving the company. Ballmer has not replaced him.

Then, in January, Bob Muglia, himself a 23-year Microsoft veteran and president of the Server and Tools Division which has grown into a $15 billion business on his watch, was unceremoniously deposed when Ballmer notified employees by email that he will leave in June.

"The CEO wants to rectify Microsoft's misfires in mobile phones and tablet computers, as well as ensure that the company doesn't fall behind in cloud software," the news report said.

It is not uncommon for Microsoft to have major reorgs as often as once a year, and several reorgs in the past ten years were mounted at this time of year -- most recently, on Valentine's Day, 2008.

However, rarely, if ever, have so many senior executives exited Microsoft in such a short period of time.

High stakes

For both Ballmer and Microsoft, much is at stake.

As the world moves towards an architecture where information and processing power resides in the cloud and, as more users move to smaller client devices for accessing that power, Microsoft faces the looming threat of loss of client share (from fewer people using Windows). If Microsoft doesn't execute well in smartphones, tablets, and the cloud, the company risks the possibility of being marginalized in the next few years.

A Microsoft spokesperson declined to comment on the reorganization rumors.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.