Nadella makes Microsoft’s plans clear: 18,000 to go

Microsoft’s Satya Nadella let the other shoe drop last week. Nadella wrote a long, and aspirational memo on the previous week that ostensibly made a case for focus in Microsoft’s plans without conceding anything (see Satya Nadella wants to focus on the core of Microsoft’s business, which is… everything). But it provided no details of what was implied: massive layoffs and reorganization at Microsoft.
Since then, the picture has started to become clear. Microsoft is going to end as many at 18,000 jobs, with former Nokia staff likely to be the group with the biggest cuts.
Stephen Elop, the former CEO of Nokia, wrote a controversial memo which combined a breezy delivery and really stark news, leading to widespread controversy (see Elop Continues His Losing Strategy: It’s Time For Him To Go). Om Malik, the founder of Gigaom, was merciless about Elop’s continued involvement at Nokia and Microsoft, where he has overseen the firing of over 50,000 since becoming Nokia’s CEO a few years ago.
But now it is clear that Nadella plans to make some really significant cuts at Microsoft, and to put a new, more modern approach to product development in place. He’s adopting agile software development thinking, and one aspect of that is that the people who write the code are largely responsible for testing it. Today, Microsoft users software testers to take that step in the process, and eliminating them could lead to ending 5,800 jobs, and speeding the development cycle considerably. This also will pull the company away from siloed development. As Nedalla’s memo says,

First, we will simplify the way we work to drive greater accountability, become more agile and move faster. As part of modernizing our engineering processes the expectations we have from each of our disciplines will change. In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers. In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft. These changes will affect both the Microsoft workforce and our vendor staff. Each organization is starting at different points and moving at different paces.

Xbox, which was singled out by Nadella in his first memo about the reorganization as a non-core but profitable business, is going to see some big changes, too. The group will be refocusing its efforts on new games, and deemphasizing ancillary activities, like new movies and tv series. As a result, the Xbox Entertainment Studios will be closing over the next months (see Xbox franchise gets caught up in Microsoft layoffs after all).

What hasn’t yet fully emerged is a sense of how all these moves will affect product strategy. It’s clear that the changes are sweeping, if only because of the scale, and I presume that the changes will lead to an overall slowing of their execution. This may be a bad time to be slowing down — even if the purpose ultimately is to speed up — given the nature of major changes coming from others — like iOS 8 and Android L, to mention only examples of operating systems releases — but Nadella’s in a tight spot: you have to go slow to go fast, as the martial artists say. So, if he wants to pivot the company and get folks there acting like a startup, he has to go through a wrenching cultural change first.
I’m not sure what will fall out of all that — whether he can do it or not — but he certainly has to try.
One wrinkle that came up in this last series of announcement is an effort to reduce Microsoft’s reliance on contract developers. I have to look into that in more detail, but the skinny is that Microsoft uses a lot of external developers, and Nadella wants to mininimize that.
Last comment: I still believe that he will have to spin out or shut down some element of the sprawling Microsoft array of offerings. He’s axed the Lumia Android experiment which is a start (although not necessarily the right one), but we’ll have to see what appendages may get lopped off before the rightsizing of Microsoft is done.