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SAN FRANCISCO—Microsoft Technology partners Tuesday said the software giant’s radical reorganization from seven into three major divisions is an important move to reduce costs and improve competitiveness.

The partners, who were demonstrating their own technology on the exhibition floor of OpenWorld,—the annual customer conference of yet another partner, Oracle Corp.—said they didn’t believe the reorganization would have a significant effect on their business dealings with Microsoft.

Microsoft is organizing its existing business units into three core divisions—Platforms and Services; Business; and Entertainment and Devices—to better reflect the company’s current goals, company officials said.

Platforms and Services will manage its core Windows operating system software, server serve software and the MSN web services.

The Business Division will combine the Information Worker business and Microsoft Business Solutions units will market key application software products, such as Microsoft Office and the financial, accounting, customer relationship management and enterprise resource management applications it markets to small and midsize companies.

Click here to read what the reorganization means to Microsoft’s corps of developers.

The Entertainment and Devices division will market products such as Microsoft’s Xbox game console, along with software and services for mobile phone and handheld devices, according to company officials.

The reorganization will be valuable if it allows Microsoft to streamline business decision-making and reporting while bringing greater order to the company’s wide-ranging product line, said Rob Raponi, director of professional services with DataMirror Inc., a Canadian developer of real-time data integration software based in Markham, Ontario.

How successful the reorganization is depends on whether it can produce “the kind of economies of scale that they must be looking for,” Raponi said.

He said he would be particularly interested to see whether the reorganization helps Microsoft in its effort to rationalize and integrate its Business Solutions applications.

For example, there is till a considerable amount of overlap in the financial analysis features of the Microsoft’s Navision ERP product and the Great Plains accounting package, he noted.

The new business division may make it easier for Microsoft to provide the management and marketing focus these products need, he said.

Read Scot Petersen’s commentary here arguing that Microsoft needs to concentrate on innovation.

The main effect of the reorganization will be to “reduce overhead and increase profitability,” said Doug Adams, product marketing manager with Cognos Corp., a business intelligence software producer and Microsoft technology partner based in Burlington, Mass. This is the typical justification for most corporate reorganizations, he noted.

However, he said he didn’t think it would result in major changes in its relationship with its partners or how it does business on a day-to-day basis.

But it shows that even a large and very successful company like Microsoft feels the pressure to reorganize in response to market forces, he said.

“And Microsoft is already a very formidable competitor, ” Adams said.

The creation of a Platform and Business division make sense since they are the company’s core product lines, noted Eric Liwanag, major account manager with Actuate Corp. a developer of data analysis and reporting software based in South San Francisco, Calif.

However, he said he was mildly surprised that Microsoft set up a division focused on its game and entertainment products.

Liwanag said he had the impression that Microsoft was stepping back a bit from its investment in entertainment products.

But there is plenty of money to be made in the entertainment market, and creation of the Entertainment division shows that Microsoft wants to keep its hand in it, he said.

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