Microsoft Announces 5% Cut in Workforce (Updated)

Microsoft has announced that it will cut as many as 5,000 jobs, roughly 5% of its total workforce:

Jan. 22 (Bloomberg) — Microsoft Corp. will cut as many as 5,000 jobs, its first companywide firings, and said sales and profit will probably drop as the global recession eats into demand for software. The stock fell the most in three months.

The reductions, about 5 percent of its workforce, will take place in nearly all areas and will help save $1.5 billion, Microsoft said today in a statement. The company will also eliminate merit-based pay raises, cut travel costs and reduce the use of contractors to shore up profits.

Chief Executive Officer Steve Ballmer is under pressure to reduce costs as sales growth dries up in what may be the worst recession since World War II. The company’s Windows division, which accounts for about a quarter of sales, is suffering after personal-computer shipments rose at the slowest rate in six years in the fourth quarter.

No doubt all of these people will be getting jobs building roads and bridges. I fear for our roads and bridges.

In all seriousness, I repeat what I’ve been saying around here for some time. I think it’s one thing for a company to cut jobs in order to survive but another thing entirely to cut jobs in the worst economic climate in decades to keep its stock valuation high or boost the dividend.

Has a company ever cost-reduced its way to robust growth? I can’t think of a single case where that’s happened. Particularly in a company where productivity and creativity go hand in hand mood is extremely important. When Teletype cut staff back in the 1970’s, it had a drastic negative impact on productivity. That can especially be the case when management doesn’t have the cuts to pick who will go and who will stay.


Welcome, The Moderate Voice readers! See today’s post on the Caterpillar layoffs for the latest healthy company laying people off.

6 comments… add one
  • This is why I read this blog. The first time you talked about this was I think a post on Walgreen’s. You’re the only person I’ve seen making the point, and it’s not something I’d ever thought of before. Interesting perspective.

  • Brett Link

    Good point. I suppose you could hire all these people to do computer research for the government, but there’s that whole “morale” issue.

    Ah well. We always need more office monkeys to print and prepare the same paperwork over and over, right?

  • PD Shaw Link

    I’m not convinced, though I don’t know enough about Walgreens and MS to judge what’s going on.

    First, I think a corporation owes its duty to stockholders, so if cutting jobs increases stockholder value, its doing its job.

    Second, I think that the traditional American business models found value in increasing size; I don’t know if this is as true anymore.

    Third, there is the scalability issue. A lot of companies with strong business cycles develop procedures that allow them to scale up and down production without a lot of structural change. My understanding is that commodity industries (like coal mining) have a lot of difficulty ramping down production without lay-offs. I wonder if we are going to be seeing businesses in relatively hot sectors (computers and drugs) have special difficulties dealing with a business cycle they thought they were above?

  • First, I think a corporation owes its duty to stockholders, so if cutting jobs increases stockholder value, its doing its job.

    The issue is one of short-term value vs. long-term value. As I noted above, I know of no case in which a company has ever cost-reduced its way to increased growth.

    But there’s a special problem for technology companies. If companies get into the habit of hiring during boom, firing during bust, they will eventually find that quality people won’t work for them. I can name a half dozen technology companies who’ve learned that the hard way.

  • It’s a point that I’ve made several times. In addition there’s the fact that Wall Street analysts encourage businesses to fire people all the time to “trim the fat” even if there isn’t any fat no matter what the economy is like. My favorite example was when I heard an announcement of Abbott Labs making record profits and firing over 5000 people in the same news report. Watch labor expenses is the mantra but of course after you’ve done this for a while you cripple the consumer. Gee, what could possibly be the result of years of the American middle class having its income stay flat and then suddenly get hit with a series of economic shocks? Can you say “economic catastrophe”?

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