Satya Nadella replaces Bob Muglia as president of Microsoft's Server and Tools Business

Today, Microsoft began the big, rumored management shakeup with the appointment of Satya Nadella as president of the Server and Tools Business. Supposedly, Microsoft CEO Steve Ballmer is putting more engineering-focused employees in key, management positions. Nadella replaces Bob Muglia, who essentially was fired last month by Ballmer; Muglia will remain during a transition period through summer.

Like Muglia, Nadella is a long-time Microsoft employee, since 1992, and he more recently oversaw engineering efforts within Microsoft's perennially, money-losing Online Services Business unit. It's an interesting move, to sack the leader who helped build up the highly successful and profitable Server and Tools Business unit and replace him with someone working, since 2007, in a flailing group. OSB has been flapping like a chicken trying to fly above Google for years. Microsoft lags far behind its rival in search share, and the Online Services Business loses money quarter after quarter. It's a money pit.

Ballmer explains his rationale in an e-mail sent to employees and publicly released by Microsoft: "In deciding who should take the business forward, we wanted someone with the right mix of leadership, vision and hard-core engineering chops. We wanted someone who could define the future of business computing and further expand our ability to bring the cloud to business customers and developers in game-changing ways."

Ballmer praises Nadella's work at OSB: "He led the overall R&D efforts for some of the largest online services and drove the technical vision and strategy for several important milestones, including the critical launch of Bing, new releases of MSN, Yahoo integration across Bing and adCenter, and much more." Right, but where's the business success from these efforts?

That said, Ballmer highlights more-important qualities: "Satya is also well-known for his leadership. He has strong collaboration skills, is decisive in both decision-making and delegating and has strong customer insights, engineering and business expertise. He also knows how to structure organizations for outstanding performance."

Decisiveness and action-taking will be important. Steven Sinfosky embues some of these qualities, and under his leadership the Windows Vista fiasco he inherited turned into the Windows 7 success. If Nadella and Sinofsky are models for the kind of leaders Ballmer wants, surely more changes are coming. But at what cost? "Amitabh Srivastava, senior vice president in the Server and Tools Business, will leave the company," Ballmer writes. Srivastava is one of Azure's key architects and a huge loss to Microsoft. Considering that the cloud is now the Server and Tools Business' primary focus, could it be he is leaving after being passed over as unit president?

Nadella esposes lofty and aspirational goals. In an e-mail sent to Microsoft employees and publicly released, he writes:

We are on a path to change the world again with our next generation application development and cloud platform, and I feel fortunate to be part of this transformation. Our core capability as a division -- our computing infrastructure and platforms -- is the key driver of computing going forward. Today we are seeing our existing customers move to the cloud to address issues of cost and complexity; tomorrow, our work as leaders in innovation will result in new scenarios and workloads (some of them unimagined!) enabled in the cloud.

Change the world? More than the Internet already has done, or cloud services coming long ahead of Microsoft's. The attitude is refreshing, at least.

Nadella also writes about the importance of teamwork, emphasizing that "Individual agendas cannot bog us down." Last month, I wrote about how Ballmer is consolidating his power base and realigning management with a priority on Microsoft. I explained in January: "No Microsoft leader is sacred enough; anyone can and will be sacked if they put personal agenda or perceived Microsoft agenda ahead of the company. Nearly all the major executives exiting Microsoft over the last year...share something in common: They had a following within the company; purposely or not, they had established mini-fiefdoms." Nadella is communicating something that all Microsoft employees should take very seriously: The company comes first. That this even needs to be said is commentary enough on what's wrong with Microsoft's management structure and how Ballmer is trying to fix it.