Microsoft announced that it has drastically decreased its global workforce by laying off approximately 6,000 workers, or 3% of its workforce. This represents Microsoft's second-largest layoff of its employee brands under Satya Nadella since 2023. The goal of the layoffs is to execute a realignment of the operation.
This is a bid to drive operational efficiency and to focus increasingly on areas of growth. This provides an emphasis on artificial intelligence (AI)-related development.
The layoffs cross all segments of the business, including LinkedIn, Azure, and Xbox, and will ultimately affect employees across roles and geographies. In Washington state, first source reports indicate Microsoft will terminate nearly 2,000 employees, according to the state labor department.
Despite the size of the layoffs, Microsoft indicated that management would actively hire to fill the roles of high performers who were part of the layoff process to retain top talent overall.
CEO Satya Nadella expressly stated that the job cuts to employees were part of a comprehensive strategy. The goal is to restructure the business to align with key priority areas of AI. It also aims to drive a long-term operational efficiency mentality going forward. Microsoft has indicated that it plans to invest up to $80 billion in fiscal year 2025.
This investment will build additional data centers to serve its AI service requirements. It will also scale back AI service to retain market share in a competitive group of AI providers.
Apart from the layoffs, Microsoft has enacted a two-year rehire restriction for employees terminated for performance-related matters. Microsoft also deployed a new metric called “good attrition” to track employees who depart the company in the best interests of the organization, suggesting an increasingly aggressive way to manage ineffective employees.
Microsoft's restructuring aligns with an industry-wide and tech-driven desire to deliver flat organizations and enhance engineering efficiency. Competitors like Amazon and Google have taken similar action to improve performance and to increase investment in emerging technologies.
While the layoffs represent a severe departure from the company's approach to its workforce strategy, continued investment in AI remains a priority. This is combined with a persistent emphasis on operational efficiency. It suggests that Microsoft is thinking about long-term growth and innovation.
The company is not simply tearing down and rebuilding its organization. Their restructuring activities will position the company to take full advantage of opportunities in the technology space.