As he concludes his 9th year as Microsoft CEO with the layoff of 10,000 employees, Satya Nadella offered some broad insights into the company’s future and attempted to rally the remaining 200,000 employees by proclaiming “it’s showtime — for our industry and for Microsoft.”
While the loss of those 10,000 jobs is certainly tragic, it is inevitable that companies driving the digital revolution will have to periodically rebalance their workforces to put more people and related resources into high-potential areas and to cut back in segments that are flattening or declining.
IBM had to go through that wrenching process more than once over the past several years and is now looking stronger than it has in a long time; Oracle made big job cuts last year while also hiring aggressively in other areas; and Salesforce founder and CEO Marc Benioff recently claimed responsibility for hiring way too many people over the past few years during periods of high growth.
So while it’s a bit shocking to see the #1 company in the Cloud Wars Top 10 admit unambiguously that it must “align our cost structure with our revenue and where we see customer demand,” I believe the big story here is not so much the layoffs — as agonizing as they always are for the people involved — but rather where and how Nadella & Co. place their future bets.
In that context, I’ve pulled out some verbatim comments from Nadella’s message to Microsoft employees about the layoffs — headlined Focusing on our short- and long-term opportunity — and I’ve added some thoughts on the core impact for each.
- “As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.” Microsoft and Nadella need to come up with a better rationale than “do more with less” — that tired old bromide’s become such a cliché that it barely has any meaning. I think business customers want their major cloud partners to help them become end-to-end digital enterprises with enhanced potential for growth. As for “doing more with less,” every company on Earth should aspire to that objective every single day, in good times as well as bad.
- “At the same time, the next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform.” Can’t wait to hear if Nadella describes how that “new computing platform” will engage and interact with the cloud — is AI replacing the cloud as the “new computing platform”? Are they collaborators? Mutually enriching? And you’ll see a bit later in this piece that Nadella is planning on doubling down on AI even more aggressively than before via his grave warning about being slow to adapt to new computing paradigms.
- (Nadella then outlined “three priorities” that are driving the company’s new direction, including the layoffs of 10,000 people.) “First, we will align our cost structure with our revenue and where we see customer demand. Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3. This represents less than 5 percent of our total employee base, with some notifications happening today. It’s important to note that while we are eliminating roles in some areas, we will continue to hire in key strategic areas.”
- “Second, we will continue to invest in strategic areas for our future, meaning we are allocating both our capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas. These are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn’t adapt to platform shifts.” Nadella later refers to “changes to our hardware portfolio” but gave no details. It will be most interesting to see what segments of Microsoft’s massive business fall into the category of “divesting in other areas.” On the “hardware” side, does this signal a move out of the PC business?
- “And third, we will treat our people with dignity and respect, and act transparently.” Nadella goes on to speak compassionately about those who’ve lost their jobs.
- “When I think about this moment in time, the start of 2023, it’s showtime — for our industry and for Microsoft. As a company, our success must be aligned to the world’s success.” Even for a company as successful and driven as Microsoft, relentless innovation is a skill and cultural norm that takes a long time to develop but only a short time to decay. Nadella’s comments above about AI are, I believe, at the heart of this “showtime” perspective.
- “That means every one of us and every team across the company must raise the bar and perform better than the competition to deliver meaningful innovation that customers, communities, and countries can truly benefit from.” That’s a worthy challenge: competing directly against some of the most advanced, innovative, and capable companies in the world, Microsoft has to remember that what got the company to this point in its remarkable trajectory will not get it beyond the next inflection point. The only way to achieve that is to “raise the bar and perform better than the competition” for the benefit of customers and the worlds they live in.
Final Thought
Nadella could be forgiven if, a year or two ago, he was not expecting to begin his 10th year as CEO with massive job cuts. But even the most powerful companies in the world are not immune to disruption, upheaval, and even perhaps a bit of complacency.
This “big layoffs at Microsoft” label will hang around the company for a long time, and the only way to get rid of that connection is for the world’s leading cloud provider to demonstrate a renewed commitment to innovation, growth, and customer success.
So we shall see what Nadella has to say about how Microsoft plans to make that so when the company discloses its quarterly earnings on Tues., Jan. 24.
Everybody stumbles, and everyone is occasionally humbled — no shame in that. The much bigger thing is how we respond, and I’m eager to hear Nadella’s new plans.
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