Microsoft, the world's largest computer software company, is revamping the way it is organised in an effort to stay ahead of competitors.
Microsoft is looking to speed up its decision making process
The company will look to offer more of its services over the internet and will put computing veteran Ray Ozzie in charge of a number of key projects.
Microsoft will split into three units: business; entertainment and devices; and platform, products and services.
Analysts have accused the firm of being slow to react to the threat of rivals.
In an interview with the Associated Press, Microsoft chief executive Steve Ballmer said he hoped the changes would cut bureaucracy and give the top managers more scope to act on their own.
"I think that ought to lead to crisper, faster actions on certain kinds of decisions we need to make," Ballmer told AP.
The platform, products and services division will include Windows and the MSN Internet division, and be headed by Jim Allchin and Kevin Johnson.
The business division, which includes Office software, will be run by Jeff Raikes.
Robbie Bach, who was responsible for launching the Xbox video game business, will become president of the entertainment and devices arm.
Mr Ozzie, who joined the company earlier this year, will expand his role as chief technical officer and look to improve online offerings such as updates, security fixes, web-based email, search tools and instant messaging.
The worry for Microsoft is that if companies offer enough online services - such as email and file storage, and search tools - then clients may stop buying the Windows operating system, analysts said.
Matt Rosoff, an analyst at research firm Directions on Microsoft, said the changes are aimed at giving clearer lines of management and operation, as well as more punchy sales.
"There's room for improvement," Mr Rosoff said.