Before announcing that he would be stepping down as CEO of Microsoft earlier this year, Steve Ballmer made some significant organizational changes to the company’s operations. He had a vision he called “One Microsoft”, in which the lines dividing the different sectors of Microsoft’s operations were blurred. Traditionally, different divisions within the company were responsible for overseeing specific products. Instead, Ballmer wished to see managers within the company overseeing different kinds of functions related to multiple product lines.
In terms of fostering an environment of openness and communication which facilitates innovation, one could make the case – optimistically – that Ballmer’s idea was a step in the right direction. However, in terms of financial reporting and transparency, this move poses problems for readers of financial statements. As CFO Amy Hood explains in the article, accounting rules require companies to disclose revenues and earnings in a manner which illustrates how executives manage the business. This has been accomplished by reporting separate performance figures for the different divisions in a company’s operations. These separate figures are useful to financial statement users because they offer a better, more complete, picture of the company’s operations. For example, users may be interested to know that Microsoft’s Windows operating system continues to generate significant margins, whereas the Bing search engine posted a loss for the quarter of $262 million. The reason separate performance figures are useful is that it helps users further analyze information available to them. It may affect how investors react to news such as the manager of a certain department being let go. As Nomura analyst Rick Sherland speculates in the article, the company may move to a reporting method which simply reports performance figures in aggregate groups such as Devices and Services. This would significantly decrease the transparency of the company’s financial statements.
The motivation for such a move is unclear. While it may prove beneficial to the company over time should they begin to operate with more efficiency and fluidity across departments, the company will likely face criticism from frustrated financial statement users, and perhaps their auditors.