Microsoft Layoffs About Nokia and New CEO

Finance Gourmet on July 17th, 2014

Microsoft recently announced a big round of layoffs. According to reports, this is Microsoft’s biggest round of layoffs ever, at nearly 18,000 employees, all within the next year. Often, layoffs are all about Wall Street, rather than the company itself. Cutting jobs shows you are serious about cutting costs, which investors seem to care about more than the admission that your company no longer produces the products or revenues to fully use your workforce. In this case, the motivation is different.

New Microsoft CEO Stamps

Microsoft has a new CEO after years under Bill Gates replacement Steve Ballmer. The company, which still generates plenty of revenue and profit, is frequently criticized for not growing more, for “losing” its dominant position, and for missing out on big technology shifts, primarily mobile technology. When Ballmer stepped down, nothing was more important than the next CEO making big, drastic moves to “right the ship.” New¬†Microsoft CEO Satya Nadella is doing just that.

First, there was a company-wide memo (gladly made public) about how Microsoft would make be making major shifts in its focus and in how it develops, markets, and sells products. Next up, Nadella is “proving” he is serious about changes by shaking up the company’s employees.

In fairness, a large majority of layoffs are coming from the Nokia division, an acquisition quickly proving to be as worthless as Google’s acquisition of Motorola. Monkey see, monkey do, is apparently not a good business strategy.

These layoffs are one way of saying that Nadella does not want to be seen as endorsing the acquisition, and certainly does not want to be tarred with brush of any failures thereof.

Ironically, while Nadella’s moves are right for a CEO trying to court the approval of Wall Street and benefit to MSFT, they are very likely the opposite of the moves needed to improve the actual company. By turning off Nokia’s development of Android devices (the reason for much of the layoffs), Nadella loses the diversity, and experience, of marketing Android phones. By turning Nokia into nothing but a Microsoft Windows Phone manufacturer, the company pushes other phone makers further into the arms of Android. While Apple gladly, and profitably, is the only maker of its phones, this is not Microsoft’s strategy for its mobile devices. While Microsoft will no longer be competing against itself by making Android phones, it now asks phone makers to do the same thing instead. You can guess how well that will end up going down. While Microsoft has a vested interest in Windows Phones, enough to hold its nose while making Android phones, none of the other phone makers have that motivation. Nadella has setup Microsoft to be just like Apple, going it alone in the phone market. However, unlike Apple, this is not an area where Microsoft has a worthwhile track record.

And, with the layoffs, Microsoft becomes the only major company in the technology industry to admit to every potential tech employee in the world that it is not doing well enough to not only keep its employees, but hire new ones. Layoffs are never good for morale, and many of Microsoft’s best and brightest will no doubt be looking around to find greener, more stable pastures.

All of this is to improve profits by lowering costs, rather than by increasing revenues. While this can work, it’s a much more difficult strategy to actually execute. Nadella may have been better off being the “investing in the new” CEO rather than being the cutting to the bone CEO. HP tried the latter and is still floundering years later. In a time of a booming tech industry, now might be the time to double-down, rather than pulling your chips back.

In short, Nadella’s moves better show results, and quickly, or the narrative will quickly become one of more of the same at Microsoft, but this time, without the promise of a stable future.

 

 

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