Mini-Microsoft is always an interesting read, for the pure uniqueness of its iconoclasm, and the odd thrill of wondering who might be the author. So it is with some reluctance that I have come to realize: Mini-Microsoft is just plain wrong. Yes, Microsoft has issues. But Mini-Microsoft’s analysis of those issues is confused and ignorant, and their prescription for a “cure” is misguided and wrong.
The title of the blog gives the thesis away: Microsoft is too big. The blast-off posting goes into a little more detail, and the message since then generally follows these themes: Microsoft has too many employees; many of these employees aren’t up to Microsoft standards; a smaller, more talented work-force could focus more closely on the core products and compete better. Who da’Punk would stop hiring, lay off the low performers, stop funding unprofitable efforts, especially development efforts that don’t ship, and stop moving into areas already being covered by others.
Refuting all of these points could take awhile (even though most of the refutations would be really simple). But I was curious about just the central point: does Microsoft have too many employees? In his posting “Microsoft’s Financial Horizon” Who da’Punk compares Microsoft’s stock market performance to Google and Apple, two companies he/she often uses as contrasting examples of smaller, more competitive companies. The comparison itself shows typical Mini-Microsoft illogic bound up in a reasonable sounding package: the company’s have been chosen because they are currently hot (ever hear “Past performance is no guarantee of future results?”), rather than because of similarity of business model. However, I’ll dig into the numbers anyway:
The raw measurements of company size are employees, revenue, earnings and market capitalization (I got these numbers from MSN Money, with the exception of Google which is changing so fast I used latest data from their Investor Relations site. I could not find up to date Google employment figures, so I gave them the benefit of the doubt with an older number). From this we can make some guesses about how “efficient” a company is by studying revenue and earnings per employee. Percentage of profitability also seems a good statistic to have, given Mini-Microsoft’s thesis that the company is in need of a round of cost cutting. Finally, market sentiment can be best measured by Price/Earnings ratio and Market Cap./Employee.
|Company||Employees||Revenue($)||Earnings($)||Market Cap($)||Rev. / Emp. ($1000)||Earnings/Emp. ($1000)||Cap/Emp. ($1000)||% Profitability||P/E|
Hmmmm…By any of these measures, Microsoft doesn’t look so bad. In fact we look quite good on the efficiency measures, it is only Google’s market valuation that stands out, but then most of us believe Google’s stock price is in a late 90s surreality zone.
Now, let’s compare Microsoft to others in its sector:
Still not looking terribly bloated and inefficient, are we? Finally, let us compare Microsoft to other recognized world-class companies:
Look at that last set of companies. That’s the group Microsoft wants to be in. All the numbers indicate Microsoft on a per employee basis is highly efficient and highly profitable. By comparison to the group at the bottom, Microsoft is not a big company, Microsoft is even fairly small (look in particular at HP and IBM employees and revenues). The stock market will reward Microsoft when it shows a strategy for growing into one of those world class companies. Though the stock market always likes profits, it is not clear that they would read a significant cost cutting effort as a good sign: they might just as likely decide it indicates Microsoft has no growth strategy.
We have to make smart hires and grow the talents of our employees, and yes we have to be smart about laying off truly poor performing people and cutting poorly performing businesses.
But Microsoft doesn’t need to be smaller, Microsoft needs to be bigger.