How Microsoft is cutting costs

These are tough times. And, tough times call for tough measures. The software giant Microsoft too is following certain tough measures to rein in costs. According to company's Chief Financial Officer Chris Liddell, Microsoft is going in for a new diet regime where you slim down and stay slim. He added, “It's actually about dialing up the importance of costs.” Coping with its first annual sales drop, the company plans to make frugality a new way of life. Microsoft, which slashed $3 billion in operating expenses, expects software industry sales to expand 5 percent to 10 percent annually after the recession ends. That compares with Microsoft’s 18 percent sales growth in 2008. To tide over the slow growth, the software king has devised various ways to bring down the costs. Here's a look.
In its first bid to control cost, the company has adopted stringent policy on travel. Across the company, Microsoft managers have cancelled conferences and reserved business trips for visiting customers instead of employee meetings. The company has also put more limits on business-class flights. Microsoft is said to have saved as much as $200 million on travel in each of the past two quarters. CFO Liddell also wants employees to fight much harder for customers and ensure products are released on time with all the promised features. “It was a huge wake-up call for people that this was not a fire drill, this was something serious,” he said.
This January, Microsoft Corp made its first-ever mass layoffs in its 34-year history. The company announced approximately 5,000 job cuts. Microsoft CEO Steve Ballmer had then said that the company cut operating expenses by $600 million in the quarter earlier (Q2), but that it wasn't enough. The job cuts are expected to reduce operating costs by $1.5 billion as Microsoft prepares for lower revenue and earnings in the second half of the year. Bitten by low consumer spending, Ballmer added, "We're certainly in the midst of a once-in-a-lifetime set of economic conditions." The layoffs affected workers in research and development, marketing, sales, finance, legal and corporate affairs, human resources and information technology teams. Most of these employees were based in the company's offices' in Redmond and Washington. In May, the software giant announced 55 layoffs in India, which is about one per cent of its Indian staff. The announcement was part of the Redmond-based company's decision in January to cut 5,000 jobs globally.
Microsoft is also doing away with many of its products and services. These products and services are the ones which aren't succeeding or didn't fit into the company's strategy. The company recently jettisoned products such as YouTube competitor Soapbox and the Flight Simulator video game. “I’m seeing them discontinue products, which is something they’ve never done before,” said Walter Price, managing director at RCM Capital Management in San Francisco. “It sends a signal that the company is serious.” Price, who manages about $2.3 billion, had sold all his Microsoft shares last summer. He said he was impressed enough with the cost reductions in the past few months that Microsoft is now one of his fund’s top holdings.