Faced with layoffs, the lessons of Microsoft’s strategy

In the midst of economic crisis and uncertainty, contributor Matt Asay is reviving part of an old Microsoft strategy, embrace, stretch and dye. The use of redundancies must be done wisely and in a measured way, according to him.

Layoffs, slowdown in hiring, tightening of budgets, etc. Recently, the IT world has imploded. Even though the global economy is in decline, digital seems to be particularly affected, in part perhaps due to an excess of development during the boom years. Whatever the cause, this sector is facing a particularly difficult and brutal period. For those who have already been there, it is worth remembering that even if the macroeconomics officially enters a recession (two consecutive quarters of decline in GDP), this will not be the case for IT.

At least, historically. Companies in this field have always continued to grow, albeit more slowly, including in the midst of recessions. Just look at the recent results from cloud providers: slower but robust growth, which is explained by the fact that companies continue to spend because if there is a lack of investment, they can fall behind, sometimes irretrievably. To survive and even thrive during this downturn, Microsoft has solutions to offer. Yes, I use the terms “embrace and extend” among other things. But it’s not necessarily badly.

Embrace, Extend, Empathize

This famous phrase – “embrace, extend, extinguish” – comes from internal Microsoft documents that the US Department of Justice released in the 1990s when it was reviewing the company’s antitrust position. At the time, Microsoft’s strategy was to adopt widely used industry standards, extend them with proprietary extensions, and then use these less standardized “standards” to weed out competitors. Not very pretty, is it? Times have changed: today the first two “Es” manifest themselves in a much more pleasant way.

What Microsoft has been particularly good at doing is understanding enterprise IT professionals who are looking to move to the cloud but aren’t quite sure how to go about it. Even though each of the cloud providers offers modernization programs that help companies migrate workloads, the Redmond firm seems to emphasize this point even more. It might be defensive – Microsoft would rather see many Windows apps using Azure than competing cloud services – but it’s also smart business move. The editor tries to take into account the current infrastructures of companies (mainly on-premises) and to help them move to the cloud on their terms. Hence this choice to highlight the hybrid cloud. The major cloud providers have all been very active in hybrid cloud, but this approach has been central to Microsoft’s strategy from the start.

It remains to apply the principle. Convincing CIOs or developers to make drastic, deep changes to their applications during an economic boom would probably have been wise, but in an economic downturn, taking a more “incremental” approach seems wiser. . We must not forget that companies will continue to spend because they have to. As David Linthicum, now Chief Cloud Officer at Deloitte, says, “the cloud is now a challenge for companies that want to move up a gear.” However, the gradual move to the cloud is arguably easier to justify, but still significant for digital transformation.

How to achieve it? First, companies should keep in mind that they have next to no chance of successfully “embracing and expanding” without the right people. Sure, layoffs can make up for a lack of profitability, but David Linthicum says there’s a serious downside to this strategy: Businesses that fail and those that succeed with the cloud spend about the same amount of money. What most determines success or failure is the skill set of those performing cloud deployments, not the technology itself. The big difference is always in the people. The decision to do without people is therefore very risky.

“Delete and replace”, a risky choice

Next, companies must find solutions to combine old practices with new ones. As RedMonk analyst James Governor recently told me, “Integration is a cardinal business virtue.” They generally cannot afford the luxury of a “remove, replace” transformation. Typically, they are looking for ways to “embrace and extend” existing infrastructure and applications with new alternatives. It’s both callous and inefficient to walk into a company and tell it to change everything without respecting the why and how of its architecture. The best thing is to put ourselves on their level and help them to modernize despite and because of the recession.

Get your affairs in order

Despite advice to protect staff, companies likely overhired during the boom times, as Nat Friedman, former CEO of GitHub, suggests. As I explained, there are, despite this, good and very bad ways (as demonstrated by Elon Musk) of reducing personnel in companies. As I have experienced, certain cuts can help. I’ve been through two major tech downturns, and my experiences couldn’t have been more different. For the first, I worked for a Linux-embedded startup during the height of the dot-com boom. Those who have not experienced it will find it difficult to understand how the situation was more than unusual. We were earning virtually no income and were far from profitable, but our bankers wanted to take us public, and they figured the only way to get a good valuation was to rate us against the talented engineers. Except we didn’t have many. If I remember correctly, at the time, the company only employed 40 people, and we were looking to obtain a valuation in excess of $200 million. (Unicorns didn’t exist yet.) So we did what any self-respecting dot.com company would have done: in the space of a month, we acquired six companies and increased our headcount tenfold (so as our engineering basis and costs). All went well until the dot-com boom turned into a crisis, and capital and customers disappeared. An adventure that ended soon after in layoffs and a less than rosy end.

If I compare this with another open source startup, Alfresco, for which I worked during the recession of 2007-2008, I can say that unlike my previous experience, our CEO, John Powell, was extremely cautious. As a former COO of Business Objects, he knew how to run his ship and he kept us profitable. We have increased headcount based on revenue growth and reduced expenses as needed to maintain profitability. The economy was in turmoil, but I felt safe. It’s an understatement to say that my colleagues and I have worked hard to ensure client success under difficult circumstances. I’m not sure I’ve ever experienced such camaraderie, and that togetherness has absolutely helped the company thrive through the recession.

Of course, a company should reduce its workforce if it has to, but it should do so very carefully. People bring a clear advantage. They innovate. They find ways to do more with less. I already hear some people saying “they will just fire the worst performers”. But we know that layoffs don’t always happen like that. I know people who were recently terminated by Stripe, yet were performing very well at some of the most demanding employers like AWS. Even if the company only manages to let the worst performing employees go, the environment created by the mass job cuts is toxic. And it risks losing its best elements as soon as they find a new job. I don’t mean that these decisions are easy. Rather, I remind you that the best strategy in a recession is to help people do more (as a supplier) and to protect their instincts and capacities for innovation (as an employer). Microsoft came up with the first idea, and I’ll take some credit for the second.

Matt Asay is a contributor for IDG NS and works at MongoDB

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