Microsoft Goes Soft on Nokia Acquisition with Major Layoffs Coming

By Peter Bernstein July 17, 2014

The news that Microsoft’s new CEO Satya Nadella is taking the axe to the Microsoft work force and the bulk of planned layoffs, estimated at 18,000 employees, will come from eviscerating the Nokia Device unit by 12,500 people, is not exactly a surprise. As my colleague Steve Anderson reported, while this move is likely to be the largest workforce “realignment” in Microsoft’s history it is not the first time, and more could be coming.  In addition, Nadella had sent not very subtle signals in a July 10 email, Bold Ambition & Our Core,” to all Microsoft employees tipped his hand that this was coming.

There was always a question as to why Microsoft wanted to go so deep into on the mobile device market in the first place. One would have thought former CEO Steve Ballmer, having seen Google’s disaster with its acquisition of Motorola’s handset assets would have been more circumspect about buying Nokia.  He could have spent those dollars more wisely by paying better attention to other aspects of his ecosystem to improve the Microsoft position in both the residential and enterprise mobility markets. That said, there was an even bigger question, when Ballmer took the plunge as to why it bought Nokia to in essence compete against itself and Windows phones in the rough and tumble consumer market where Google’s Android and Apple’s iOS operating systems literally rule the world when Blackberry was available for a lot less and gave Microsoft an interesting mobility play in the enterprise market.

As the buzz about this news on the Internet has highlighted, not only was this not a surprise, but Wall Street has rejoiced.

For a glimpse inside Nadella’s thinking, while the press accounts documented the layoffs part of his latest email to employees titled, “Starting to Evolve Our Organization and Culture,” you may wish to click the link and read the entire email. There was a lot more said that is worth the read.  The part that caught my attention is the following:

“…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...”

As the hit TV show seems to have convinced people that “Orange is the New Black,” the word SIMPLICITY has become the term de jure for describing what the tech industry now is preaching as the driver of future success. Whether it was SAP’s CEO Bill McDermott saying making it simple is the basis of how the “new SAP” will succeed, or the new MeriTalk report about how the U.S. Federal government can save billions by taking complexity out of IT, the time is still ripe for you to jump on the simplicity train before it pulls too far out of the station.

More to the point about Microsoft and its decision about Nokia.  Nadella says in his email that, “The first-party phone portfolio will align to Microsoft’s strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.”

First there is the interesting use of the word “affordable” which has been a stranger in Microsoft marketing throughout its history. This is coupled with the word “success,” an unusual choice of words given market share metrics.    

More importantly, and less facetiously, there is the determination to focus on Windows Universal Apps. As I have repeatedly pointed out, success going forward is about the battle of the ecosystems, and it has become increasingly clear that being app-centric with universal and affordable portability is a major stone in the ecosystem foundation.  In fact, unless you are Apple, it is a—if not the—critical piece. Yes, if you want to be an ecosystem hub it would be helpful to have a major market share for devices with your proprietary OS. It also does not hurt if a position of strength is built on search, and now the browser where Google has frankly, left Microsoft in the rearview mirror. 

However, with apps the thing to capture the imagination of users, and the combination of the cloud and mobility making all of us, whether as regular consumers or enterprise IT, looking to a consistent look and feel for all of the tools we delight in using, it is encouraging that Nadella has got his vision and is willing to put the resources behind it and make the necessary adjustments that a rapidly changing world dictate. 

As I noted in a posting about Apple and IBM partnering in the mobility space, also to make things simple for enterprise customers, Cisco CEO John Chambers recently told the audience at Brainstorm Tech 2014, “Of the top 5 or 6 [top IT] players today, only 1 will exist in 5 years.” Not that Microsoft would be one of the ones to be gone, after all they are (pardon the pun) the Windows on the world, but Nadella is going to have his hands full to keep them off the endangered species list, and concentrating on the core is a good place to start. 




Edited by Maurice Nagle
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