Microsoft Layoffs: Signs of the Times but Possibly Good for Microsoft

Rob Enderle

Microsoft surprised the tech industry with a before-market announcement of earnings and large-scale layoffs. Companywide layoffs can be a wakeup call for a large company comfortable with where it is, and Microsoft is a firm that has been acting much like IBM did in the 80s. In the 80s and early 90s, IBM had a large number of failed initiatives and products but seemed to take them in stride because the corporate gestalt had the executives convinced the firm was invulnerable and they were employees for life.


Microsoft's Needed Wakeup Call


Microsoft has had a long line of failures and missteps since the mid 90s: Mira, Chrome, Plays for Sure, Media Extenders, Media Center, Origami, Windows ME, Live Search, Yahoo acquisition, Zune, and Windows Vista. This is far from a complete list. Some died due to politics, some Microsoft is still positioning internally as successes, some broke Microsoft's economic model and were counterstrategic, and many were never really completed.


Vista, or the lack of success for Windows Vista in business and on netbooks, appears to be at the core of the current problem, though there are clearly other divisions in the company not contributing as well as they should.


Currently, Microsoft is facing a massive amount of competition from a surging Apple, which, with a critically ill CEO actually turned in comparatively stronger results. Google has outplayed Microsoft at almost every turn (much like Microsoft did to IBM when it was young). Most recently, Palm eclipsed Microsoft again at CES with its new phone offering. Only the Server and Tools division of Microsoft is performing at traditional levels and, in the previous quarter, it was the star, showcasing the benefits of Microsoft's focus on the enterprise. But it might also imply an excessive focus, given the health of the other more consumer-oriented units.


Layoffs as a Wakeup Call


For IBM, the much more massive layoffs of the early 90s broke the belief that the firm was the kind of employer for life where it was difficult to get fired, and cleaned out a lot of the dead wood that had clogged IBM's arteries. Louis Gerstner, who led the company during the turnaround, referred to the problem as "smug insularity" and a tendency for the firm to blame the media and PR for its problems. This left IBM a smaller company but one that was able to turn in better results, was less tolerant of bureaucratic bungling, was and much more focused on assuring performance.


The best example of what a wakeup call can accomplish, however, is HP, where Carly Fiorina started a massive effort to wake the company up, was removed herself as part of the unplanned process and Mark Hurd came in and finished what she started, changing a company that was having trouble getting out of its own way into one that regularly kicks seemingly more nimble companies around regularly.


Much like the donkey trainer in the old joke who hits the donkey over the head with a two-by-four to get his attention, broad layoffs can be an attention getter if they are done properly. But large mature firms, and Microsoft is hardly alone here, are very good at spreading the effect around and using the process to eliminate folks who are driving change because often they are the least well connected politically.


If the latter is the case, the firm may actually get worse before it gets better, but that too can force the eventual changes the firm needs to recover by accelerating the financial impacts. For example, putting the Microsoft board in a position where they must act decisively. The difference is only in how far Microsoft declines before definitive action is taken across the company and how disruptive that eventual change actually is. For IBM, the early departure of Jerry York slowed the process enough that by the time the firm again stabilized, it had lost too much momentum. This eventually allowed HP to pass it up. For HP, the timely replacement of Carly Fiorina allowed Mark Hurd to reinvigorate and accelerate the change, allowing HP to pass both IBM and Dell. In both cases, the firms were changed by a process that appeared very painful at the time but resulted in vastly stronger companies.


Wrapping Up


I don't yet have a full sense of the Microsoft effort but it seems to continue (there is an art to these things and this is actually how I started out) for what might be an excessive period of time and is likely not yet deep enough to cover the full extent of what will be the company's revenue decline. Still, if executed well, it could have the needed impact - but I've seen more of these initially go badly than well across the industry over the years. I am less certain of the success of this effort as a result. However, I am certain that this will eventually lead to a change at Microsoft, it is just when and how drastic that eventual change will be that is in question.


The question for everyone else, and this is far from a company- or industry-specific problem, is how prepared are you for the layoffs that are coming? Do you have an idea who the employees are that you and your company need to be successful and an idea who the employees are who are in the way of that success? This may be a good reminder that you need to do an assessment and drill down into actual accomplishments so you avoid protecting the successful bureaucrats and save some of the folks who have been taking names and kicking butt, as opposed to the more typical other way around.


A down market can be a tool to craft a more nimble company or it can be a way to reach retirement early. It may be time to decide which path you want to encourage your firm to take because you are likely stuck with that firm for the duration of this economic crisis.

Add Comment      Leave a comment on this blog post
Jan 23, 2009 3:44 AM JL JL  says:
I assume the vast majority of staff reductions were US employees. Microsoft has a significant number of H1B visa employees, and was there a reduction in force of these people as well? If so, the 5,000 number was understated.. if not, then why were not US employees given preference to H1B's? Reply

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