When employee layoffs can spell trouble for your reputation

Does the public announcement of a large-scale lay-off of employees affect a company's goodwill and reputation? At a certain level, bad news about company may well affect consumer behaviour. This Kat admits that, a few years ago, he was dissuaded from buying a Blackberry mobile phone because of the announcements about the company's business difficulties, changes at the senior management level and substantial employee lay-offs. I suspect that what happened then was that I felt that, rightly or wrongly, I could no longer trust the brand. But Blackberry's decline was sudden and massive and occurred in the face of larger and better-healed competitors, such as Apple and Samsung. But what if the circumstances are less drastic?

This question arose following the 17 July announcement by Microsoft that it was eliminating 18,000 positions during 2015. The announcement, made by Microsoft CEO Satya Nadella, here, stated as follows:

"The first step to building the right organization for our ambitions is to realign our workforce. With this in mind, we will begin to reduce the size of our overall workforce by up to 18,000 jobs in the next year. Of that total, our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers. We are moving now to start reducing the first 13,000 positions, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months. It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas."

[In addition, the company will abandon its attempt to create original content by gradually closing down its Xbox Entertainment Studio, here.]

We start with the assumption that most people probably did not actually see Mr Nadella's announcement. We further assume that only a relatively small number of people read at least one newspaper or online article about the move. On the other hand, we assume that many more people probably saw a headline or were exposed to a brief media description, enough to become aware of the scope of the lay-offs, although they probably did not focus on the fact that the bulk of the lay-offs are directed to employees who were absorbed only recently by the company as part of its acquisition of mobile phone assets from Nokia. What one is likely to remember is that the company is laying off a record number of employees. And so the question—has the Microsoft brand been impaired?

My immediate response would be—no. Microsoft is not Blackberry. Lay-offs do occur, not infrequently at mature mega-companies (HP also announced relatively recently sizeable lay-offs, here.) I have used the installed base of Microsoft software on my computers for years and I will continue to do so in the future. But the issue may be more nuanced that that. Mr Nadella has emphasized that he wishes to pursue "mobile-first" and "cloud-first" strategies for the company. Unlike the desktop, however, the cloud and mobile are both highly competitive areas where Microsoft is merely one among a number of competitors. It is here that potential trouble lurks for the Microsoft brand.

For a company of Microsoft's size, one can identify two different circumstances in which sizeable employee lay-offs will occur. The first is an outright cost-saving measure, where the company seeks to become "leaner and meaner". The second is an attempt to redeploy assets into new and more promising areas. Ironically, perhaps, it is this second type of lay-off that poses the greater risk to the reputation of a company such as Microsoft. This is because the company is making an implicit promise that the lay-offs are part of a larger strategy intended ensure that the company will have a better tomorrow. In such a situation, the risk to a company's reputation is that it will not make good on its promise. As such, the circumstances surrounding Microsoft's announcement will not harm the company's goodwill in the present. However, it does set up the brand for a fall if the company ultimately fails to deliver on its promise.