Faced with layoffs, the lessons of Microsoft’s strategy

In the midst of economic crisis and uncertainty, contributor Matt Asay revives part of an old Microsoft strategy, embrace, stretch and color. The use of redundancies must be done wisely and measuredly, he believes.

Layoffs, slowdown in hiring, tightening of budgets, etc. Lately, the IT world has imploded. Although the global economy is in decline, digital appears to be particularly affected, in part perhaps due to over-development in the boom. Whatever the reason, this sector is facing a particularly difficult and brutal period. For those who have already been there, it is worth remembering that while the macro economy is officially entering a recession (two consecutive quarters of falling GDP), this will not be the case for IT.

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

Embrace, expand, 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 widespread industry standards, extend them with proprietary extensions, and then use these less standardized “standards” to weed out the competition. Not very pretty, is it? Times have changed: today the first two “E”s manifest in a much more pleasant way.

What Microsoft has been particularly good at is understanding enterprise IT professionals who want to move to the cloud but aren’t quite sure how to go about it. Although each of the cloud providers offers modernization programs that help companies migrate workloads, the Redmond company seems to emphasize this point even more. It may be defensive—Microsoft would rather see many Windows apps use Azure than competing cloud services—but it’s also a smart business move. The editor tries to take into account companies’ current infrastructures (mainly on-premises) and 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 it seems wiser to take a more “incremental” approach. 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 businesses that want to shift gears.” However, the gradual transition to the cloud is arguably easier to justify, but still important for digital transformation.

How to achieve it? First, companies should keep in mind that they have almost no chance to successfully “embrace and expand” 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: Companies that fail and those that succeed in the cloud spend about the same amount. 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 look for ways to “embrace and extend” existing infrastructure and applications with new alternatives. It is both mindless and ineffective to walk into a company and ask 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 modernize despite and because of the recession.

Get your affairs under control

Despite advice to protect staff, companies likely overhired during the boom, as Nat Friedman, former CEO of GitHub, suggests. As I explained, despite this, there are good and very bad ways (as shown by Elon Musk) to downsize companies. In my experience, certain cuts can help. I’ve been through two major tech downturns, and my experiences couldn’t have been more different. 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 making 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, the company at the time employed only 40 people and we were looking to get a valuation of over $200 million. (Unicorns didn’t exist yet.) So we did what any self-respecting dot.com company would have done: In one month, we bought six companies and multiplied our employees (as well as our technical base and costs) tenfold. All was going well until the dot-com boom turned into a bust and capital and customers disappeared. An adventure that soon ended with layoffs and a not-so-rosy ending.

If I compare this to another open source startup, Alfresco, that I worked for during the 2007-2008 recession, I can say that, contrary to my previous experience, our CEO, John Powell, was extremely cautious. As the former COO of Business Objects, he knew how to run his ship and he kept us profitable. We have increased staff based on revenue growth and reduced expenses as needed to maintain profitability. The economy was in turmoil, but I felt safe. It is an understatement to say that my colleagues and I have worked hard to ensure the success of clients under difficult circumstances. I’m not sure I’ve ever experienced such camaraderie, and that togetherness has definitely 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 just want to fire the worst performers”. But we know layoffs don’t always happen that way. I know people who were recently laid off by Stripe, yet performed very well at some of the most demanding employers like AWS. Even if the company manages to let only the worst performing employees go, the environment created by the mass layoffs is toxic. And it risks losing its best elements as soon as they find a new job. I don’t think these decisions are easy. Rather, I’m reminding you that the best strategy in a recession is to help people do more (as a supplier) and to protect their instincts and capacity for innovation (as an employer). Microsoft came up with the first idea, and I’ll take credit for the second.

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

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