In 1998, Boeing’s stock was at a historic low and the shareholders were clamoring for Phil Condit’s head. I worked on the DCAC/MRM initiative and sat in an all-hands meeting where a Veep told us that the company existed to “enhance shareholder value.”
Companies exist to make a product or service that will return profits if they meet demand.
Monopolies — like Boeing* and, once-upon-a-time, Microsoft — seem to exist in order to extract monopoly rents and stuff big bucks into senior level manager pockets. Case in point: Steve Ballmer net worth, $21 billion**.
Flashing back to 1998 for a moment: shortly after that all-hands meeting, Boeing announced it was laying off its contractor base. I was a contractor. I mentally unplugged as managers, mine included, scrambled to try to save their teams.
My job was slipped into someone’s protected budget space, but my heart had left the building. In a few months, my body followed.
Blood-letting in Redmond
On Thursday, Microsoft told us they were laying off 14% of their full-time (blue badge) global workforce.
Then Friday, an oh-by-the-way. Our contractors and vendors? Effective July 1, those folks are limited to 18 months of access to Microsoft buildings and network. Then they have to take a six month minimum break. Wouldn’t you like to be a vendor managing projects (and people) that support Microsoft products and services? A new example of the don’t-keep-all-eggs-in-one-basket adage.
How many people are affected by this announcement? We don’t know, but we have estimates.
In 2009, the Seattle Times reported that Microsoft’s external support workforce numbered about 80,000. Adding those to traditional employees puts Microsoft in the same league as Boeing, when it comes to head-count.
Cutting jobs always results in an increase in stock price in America’s short-sighted stock market. And the end-of-the-week news did the same for Microsoft stock. It also seems to boost CEO coffers.
What does it do for morale, productivity, community? As others have pointed out, it sends those factors into the toilet.
In Simon Sinek’s words, “layoffs destroy culture.”
Money to burn, just not on its own human resources
At the time Boeing slashed its contingent workforce, it had recently merged with McDonnell Douglas, to the tune of $13.3 billion. [Here’s why that didn’t work out well.] That acquisition, along with production woes, led to a 30+% drop in stock price in about 10 months. But the contingent staff hit bumped the stock price, at least temporarily.
It’s been about 10 months since MSFT paid $7.2 billion for Nokia’s phone unit. That purchase increased employee numbers by about a quarter. Today about half of those new employees (25K at the time) have pink slips. And Microsoft’s stock has increased almost 50%.
What’s good for Wall Street isn’t always good for America. Or the world.
So much for “Nokia’s incredible people” and the dangled “future opportunities for many Nokia employees.” Or Ballmer’s promise that “[b]ringing these great teams together will accelerate Microsoft’s share and profits in phones.”
In a stereotypical corporate example of rhetorical flip-flopping, Microsoft CEO Satya Nadella says now that cutting Nokia’s workforce in half means the company will “realize the synergies to which we committed when we announced the acquisition last September.”
But the writing — and numbers — was on the wall last year. In 2007, the Nokia 1100 was the world’s #1 selling phone. In 2013, Nokia wasn’t in the top five mobile phone vendors.
Combined, Microsoft and Nokia accounted for less than 4% of all global phone shipments last fall.
Today, the Windows phone market share remains “stuck” at 3%.
This was a smart deal? For who?
Clearly, phones aren’t Microsoft’s strength, even though they are the computing device of the near future.
Because where does Microsoft make two-thirds of its revenue?
What does it mean?
Certainly the raw numbers suggest that Microsoft is bloated.
Apple has a combined workforce (traditional and vendor) of about 100,000. That includes the employees at Apple’s 425 retail stores located in 16 countries.
Microsoft’s combined workforce is probably about 200,000, and it operates fewer than 100 stores in North America.
Bloated as a descriptor seems kind.
Tech pundits are already hypothesizing about Microsoft’s departure from the phone market.
And yet projections are that by 2017, 70% of the devices connected to the Internet will be phones. Another 17% will be tablets. That leaves only 13% for Microsoft’s traditional market, which has been eroded by Apple and Google and Linux.
It’s not possible for companies to “save” their way to profitability by cutting staff and reducing product quality. (Just ask the nation’s newspapers.)
I’m not convinced it’s possible to reboot this organization by axing employees, in part because the ax tends to swing low, not high. But decision makers live high.
Perhaps Microsoft’s next steps will focus on divestiture. But divestiture of what? The division taking the hit this week represents technology’s market opportunity. The divisions (Windows, Office, servers) providing most of Microsoft’s profits? That’s the shrinking yellow bar above.
Companies exist to make a product or service that will return profits if they meet demand. What’s the future demand for Microsoft’s big three?
Has the S.S. Redmond truly started sinking? And if so, what does that mean for Puget Sound?
* Over at GeekWire, a reader suggests that Airbus competition means Boeing is a duopoly. There is merit to that observation, although there are indications that the two firms have split the commercial airliner market. Domestically, Boeing appears to be the second largest federal contractor, in dollars, and it routinely pays little or no income tax in part due to a 20-year amortization on its airplanes.
** In a Twitter exchange, @KRaavi1 criticized using Ballmer as an example of monopoly rent excess because “Ballmer was the 30th employee in MSFT, his net worth was based of [sic] his 8% stake that he got earlier on.” It’s true that Ballmer got an 8% stake but we have no record of all of his stock awards in his various management roles leading up to CEO. Moreover, one primary reason that Microsoft stock soared to such unsustainable levels in its early years was its concerted, predatory behavior that led to its monopoly position in the PC operating system market.