Microsoft CEO Nadella Hones His Axe

Microsoft CEO Satya Nadella on Thursday announced the elimination of 18,000 jobs — roughly one in seven of the company’s workforce — in the next year.

About 12,500 of the positions eliminated will be at Nokia.

However, Microsoft will add jobs in “certain other strategic areas.”

Microsoft’s time span may be shorter than Nadella’s statement indicated. The 18,000 cuts “will be done by the end of the year, with 13,000 announced today,” Maria Newman of Microsoft’s PR agency, Waggener-Edstrom, told the E-Commerce Times.

Nadella also is undertaking a sweeping restructuring of the company — changing the technical expectations for each area, flattening out management, giving preference to people managers, and building lean, efficient business process and support models with greater trust between teams.

Making the Right Cuts

The layoffs were widely expected in the wake of Microsoft’s acquisition of Nokia.

Nadella’s challenge is to make sure they yield the maximum benefit to Microsoft.

The layoffs will work “if Microsoft does its homework and has truly identified redundancies or things that are part of the old structure that aren’t needed in the new structure,” Michael Cherry, senior analyst at Directions on Microsoft, told the E-Commerce Times.

To eliminate roles in some areas and add them in other, strategic areas, as Nadella plans to do, “might in some cases mean correctly moving people around internally,” Cherry suggested.

Another issue to address is duplication of functionality in products such as Skype, Yammer and Lync. Redundancies might be eliminated through consolidation of features and work processes, Cherry said.

“That’s where the challenges come from,” Cherry pointed out.

“Are you cutting too broad a swath instead of being fine-grained enough to be effective?” he mused. “A couple of months ago, Microsoft revised their employee review system. Is that new system good enough to let them correctly identify people in their work roles?”

Fallout From the Layoffs

In addition to the risk that some good staff members who are integral to the organization may be laid off, employee morale overall may suffer, Laura DiDio, principal at ITIC, told the E-Commerce Times.

Some well-qualified, desirable staff may decide to leave on their own, which could hurt Microsoft.

“That’s always a huge risk, and I’m sure some very good people will opt to leave, even if a chosen few get a retention bonus,” DiDio said. “Look at what happened to Sun Microsystems when Oracle bought them — all the smart engineers left.”

Also, the cuts among Nokia staff could backfire. Current Nokia customers might be upset “because Microsoft may fail to convince them it can deliver the same top-notch product and service at competitive price points,” DiDio suggested.

Dealing With Cultural Issues

Possibly an even bigger challenge is Nadella’s attempt to change Microsoft’s corporate culture.

“IBM effectively did this in the 1990s, but it is neither trivial nor easy,” Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times. “People don’t like to change.”

Altering the culture “generally requires large changes in staffing, particularly focused on those who can’t or won’t comply with the [new culture], and behavioral modification management practices that actively identify and correct employees’ [nonconforming] behavior,” he explained.

The skillset needed to do this is “very hard to find, and these efforts most often fail,” Enderle cautioned. Microsoft might be better off retaining outside consultants.

On the other hand, “outside consultants come in at a big cost, and when people see them on premises it can raise the level of angst and drive down productivity,” DiDio said.

Surviving the Challenge

Whether Microsoft emerges from the changes as a leaner, meaner entity that’s more competitive will depend heavily on the execution, Enderle said. “Nadella has been executing well so far, but this is very difficult to pull off, and he is a new CEO.”

On the other hand, Nadella “is blessed with one of the most experienced boards I know of, and he is clearly taking their advice,” Enderle added. “The odds favor success, but it is by no means certain.”

Richard Adhikari

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

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