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 lose.
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 plan.”
With a slightly leaner organization, 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 realize 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.”