Ballmer made the long-awaited announcement in an email to Microsoft employees, saying that the new "One Microsoft" strategy will focus on creating "a family of devices and services for individuals and businesses" that will give them the power to do whatever activities they want the most, whether at work or via mobile devices.
"We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders," Ballmer said.
Some industry analysts that follow Microsoft believe the changes mean that things are not all well and good at the software behemoth.
"You don't make massive, sweeping changes like this unless something is wrong," said Colin Gillis, of BGC Partners. Gillis noted this week's figures on second-quarter PC shipments, which showed a decline of 11.4 percent from a year ago -- the fifth straight quarter of declining shipments and the longest duration of any such decline in the history of the PC market.
"Major re-orgs such as this can serve as a negative distraction for months before potentially offering benefits," added Gillis, who has a hold, or neutral, rating on Microsoft's stock.
Ballmer said Microsoft will now be organized according to functions, those being engineering, marketing, business development and evangelism, advanced strategy and research, finance, human relations, legal, and the office of the chief operating officer. He said each area would be charged with driving Microsoft's overall strategy, while also being responsible for its core business capabilities.
But the reorganization's biggest emphasis appeared to be on Microsoft's engineering operations, with Ballmer saying the company "will pull together disparate engineering efforts today into a set of our high-value activities."
As such, Ballmer said Microsoft will now have four engineering areas: operating system, apps, cloud and devices. The reorganization is expected to take through the end of the year as Microsoft continues to work on current projects such as the coming releases of Windows 8.1, the Xbox One videogame console and Windows Phone.
The reorganization brings Windows Phone head Terry Myerson in to run operating systems, including Windows and Xbox software. Julie Larson-Green, who was co-chief of Windows, will now run all hardware engineering development, and Qi Lu, who previously ran Microsoft's online services division, will be responsible for applications and services engineers. Satya Nadella will be in charge of cloud and enterprise engineering after previously running the company's server and tools division.
Other changes include Windows co-director Tami Reller taking on all of Microsoft's marketing and Skype President Tony Bates now running the company's business development and evangelism group, which will work on corporate strategy and partnerships with companies such as Yahoo Inc. and Nokia Corp. Kevin Turner will remain as COO and run Microsoft's worldwide sales and other operations.
Kurt DelBene, who has run Microsoft's Office business for several years, will retire from the company, and senior adviser Craig Mundie will leave Microsoft's executive team to take on a special project for Ballmer that will run through the end of the year. Mundie will then remain as a consultant until the end of 2014.
Analyst John DiFucci of JPMorgan took an initially mixed view of Ballmer's announcement saying in a research note, "There is potential for disruption leading up to and during the execution of planned changes, especially if those changes remain unclear."
DiFucci, who has a neutral rating on Microsoft's stock, added that while the company looks to be simplifying its organization and strategy, "What that strategy is remains a bit unclear to us at this time."
Ballmer also said that going forward, each major company initiative will include a team that spans across Microsoft's groups "to ensure we succeed against our goals." These initiatives will each have what Ballmer called a "champion" who will directly report to the CEO or one of his direct reports.
"My whole staff will have commitment to the initiative's success," Ballmer said, and added that "succeeding with mobile devices, Windows, Office 365 and Azure will be foundational (and) Xbox and Bing will also be key to future contributors to financial success."