I am sure I am not the only one surprised by the scale of the layoffs announced at Microsoft this morning in a letter to employees:
More than 1 in 7 employees will be let go. To be sure, some layoffs were expected. We had already heard that 1,000 Nokia-Microsoft workers in Finland would be laid off with the closing of R & D operations there, and it was assumed that about half of workers in Microsoft’s mobile initiatives would eventually have to go. The surprise is that the scale of layoffs extends far beyond this. A total of 18,000 layoffs were announced today, and they will be carried out quickly, half in August and September it sounds like, and “the vast majority” by January. The letter’s headline starts with the words “Starting to” which implies that there is more to come by the time the changes in this announcement are completed. Though most details have not been decided yet, the layoffs cut across organization divisions, with the one saving grace that there is no companywide hiring freeze.
Details are starting to trickle out, and they point to a declining interest in operating systems. Goodbye to original Xbox content, half of enterprise marketing, and most curiously, Windows testers. In the latter move, supposedly all testing for Microsoft Windows will now be conducted by product managers. That, of course, is probably unrealistic. At best, managers do checklist-based testing, in which the team’s own goals are met but anything not specifically on the list might be broken along the way. I foresee tense meetings and infighting as said managers try to arrange to cancel projects they suspect of breaking their own teams’ work, and a bunker mentality as teams try to keep their own work secret and away from this scrutiny for as long as possible.
The declining focus on operating systems is surprising at a company so identified with operating systems. Could it be a sign that Microsoft now sees itself primarily as an enterprise services provider, like Hewlett-Packard?
Besides the consequences of the layoffs themselves, people are talking about how awkward the series of announcements has been. Granted, Microsoft has hardly any experience with layoffs, but in the middle of all the intensely bad writing in today’s memos, Microsoft practically came out and said it has no expectation of ever making money in the mobile market — that Microsoft Phone and Surface are loss leaders intended to steer people toward the high-markup enterprise services department. To paraphrase, “Our division is counting on this incredibly lame loss leader theory to justify our existence within the company. Oh, and by the way, half of you are fired.” The actual memo was more awkward than this summary suggests. This kind of awkwardness in running a business comes when top managers are emotionally conflicted — they don’t see a way forward for the business, but they have to act as if they know what they’re doing. It is a surprising state to observe in a company with the earnings history of Microsoft.