Bosses Get It Wrong And Out Comes Axe
If you’re one of the 10,000 people being fired by Microsoft before Easter, you might wonder about the unfairness of capitalism. In its financial half year to end December 2022, the company’s net profit was $34bn, or €170m flowing to the bottom line every day. As thousands of staff face being ejected, shareholders were rewarded with $20.7bn in dividends and share buybacks in the half year. By contrast, the cost of funding the redundancies and reducing office space is estimated at $1.2bn.
Satya Nadella, executive chairman and CEO, is wielding the axe because the ‘More Personal Computing’ unit, which takes in Windows, Surface laptops and Xbox, had a revenue decline of 10% in H1, dragging down the company’s earnings. It’s in this context that Nadella talks about “aligning our cost structure with our revenue and where we see customer demand”.
Elsewhere, Microsoft continues to coin it. The ‘Intelligent Cloud’ division, which takes in Azure, is powering ahead. Thanks to a virtual public cloud duopoly with Amazon, Microsoft’s operating margin on its cloud services is a hefty 43%. Nadella is making a big fuss out of investing billions in OpenAI, the Artificial Intelligence company behind the ChatGPT sensation. One of the first issues to address might be allocating more Azure server capacity to ChatGPT, so that users can log on.
While he’s at it, Nadella could also throw more resources at Office 365, which is increasingly prone to glitches such as PC desktop shortcuts disappearing and not coming back. Microsoft extracts maximum profit from its ‘Productivity and Business Processes’ unit – the profit margin on all those 365 subscriptions is 49%.
In a recent blog Nadella complained that customers are optimising their digital spend “to do more with less”. 365 users might think that Microsoft is doing less with less, though Nadella insists otherwise. “When I think about this moment in time, it’s showtime,” he declared recently. “That means every one of us and every team across the company must raise the bar and perform better than the competition.”
SSatya Nadella’s mantra is more with less
imilar leadership guff was trotted out by Spotify CEO Daniel Ek when he was announcing c.600 redundancies in January. “As we say in our Band Manifesto, change is the only constant. Speed is the most defensible strategy a business can have, but speed alone is not enough,” Ek blogged. “We still spend far too much time syncing on slightly different strategies, which slows us down.”
Ek went on to assure departing staff that they would be treated fairly, adding that the company HR director would provide more detail “on the specifics around the ways we are committed to supporting these talented bandmates”.