Firing 18,000 people isn’t proof Microsoft is in trouble (Wired UK)

Satya Nadella, the new CEO of Microsoft


Microsoft will slash up to 18,000 jobs by the end of the year.
That’s 14 percent of the company’s workforce, and it amounts to the
largest round of layoffs in the nearly 40 year history of the
software kingpin.

On Thursday morning, with an email euphemistically titled
“Starting to Evolve Our Organization and Culture,” CEO Satya
Nadella announced that the bulk of the cuts would affect employees
working for Nokia, the mobile phone company Microsoft acquired last
September. According to Nadella, these cuts would encourage “work
simplification,” “integration synergies,” and “strategic
alignment.” But even the heavy-handed business jargon couldn’t mask
the simple fact that 18,000 jobs is a hell of a lot of jobs to

And yet, tragic as these deep cuts will be for Microsoft
employees and their families, it may be premature to assume this
massive round of layoffs means Microsoft is in dire trouble. In
fact, tough as the decision may have been, it might be the best
thing for the company in the long term. “I find myself saddened and
disturbed at the news, but there are definitely legitimate business
cases to do it,” says J.P. Gownder, a vice president and principal
analyst at Forrester Research.

The fact is: when Microsoft acquired Nokia and its 25,000
employees, Nokia had already fallen far behind in the smartphone market, beat out by
frontrunners like Apple and Samsung. What Microsoft needed was not
the Nokia brand, but greater control over phones running its
Windows Phone operating system, so it could work to further expand
its place in the market.

Some, but not all of Nokia’s employees, would be critical to
that goal, and according to Gownder, this restructuring was likely
part of Nadella’s plans all along. “A lot of what’s going on is
eliminating what are, on paper, redundancies,” he says. “It’s not a
willy nilly thing. I’m sure when they bought Nokia, this was the

With a slightly leaner organisation, Nadella now feels Microsoft
will be better suited to compete with the likes of Apple and Google
in the smartphone space. Still, even with reduced overhead,
Microsoft has a huge task ahead of it to truly compete with other
smartphone-makers, and it’s unclear whether Nadella is willing to
take enough risks to make that happen. For instance, plans to
develop a Nokia phone that runs on Android, a move that might have
attracted more consumers to Nokia’s devices, have been shelved.
Instead, Nadella is committed to taking the Windows Phone operating
system mainstream, which Gownder says is a major challenge,
considering it doesn’t have much of an app ecosystem. “All these
new apps come out for iPhone and Android, and they don’t come to
Windows Phone, in some cases, ever,” he says. “That’s a huge
demerit in the efficacy of the platform.”

Gownder also warns that Nadella shouldn’t underestimate the
business cost of cutting so many employees. “I do tend to think
this will have costs in terms of losing people who have embedded
knowledge you don’t realise you’re getting rid of,” he says, adding
that the layoffs will have “tangible affects on morale.” To avoid a
disastrous fallout, Gownder says, Nadella ought to make it clear
that though this is an unprecedented change, it is not just the
first of many to come. “My hope is that this is a carefully thought
out restructuring, and this will be a one-time change, so they can
go and execute,” he says. “There’s always a cost associated with
these kinds of moves, but companies can survive and move on.”

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