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Microsoft’s HR Strategy – An Analysis

HR Planning Report

Jyoti Priyadarshini

805 ­ 803 ­ 145

Preview

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Elements of Effective HR Strategy

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Microsoft: Knowledge Fuel of the Technology World

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HR Strategy at Microsoft

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Recruitment and Selection: Attracting the Best and the Brightest

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Taking advantage of Market Conditions

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Employee Motivation

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Employee Satisfaction and Loyalty

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Employee Rewards: The Optionsdriven Engine

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Growth & Acquisitions

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SWOT Analysis

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Reshaping Microsoft’s HR Agenda

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Conclusion

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Preview

Human Resources Department at any organization is a crucial and indispensable part of the operational strategy 1 . It can directly affect the results of the organization, and make a very important difference between the success and failure of any organizational strategy or goal, both in the long and well as short term. An efficient HR department should be able to access, forecast, predict, design, and implement its strategies in direct sync with the business goals and strategies of the organization for a mutual and coherent environment, or completely fail at one or more steps to create imbalance and instability within the organization. With the

1 EE Lawler III Asia Pacific Journal of Human Resources, 2005; Creating high performance organizations’; 12 – 14

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present economic cycle of recession 2 at probably its worst for close to 15 years, it is all the more important for the HR department to act as a strategic partner of the business, so as to ensure that the long term and short terms visions and goals of the organization from the financial and human capital perspectives are perfectly aligned and harmonious. At the same time, an efficient HR department can also help in accurate environment scanning and forecasting, and use its knowledge and resources for nearexhausting set of scenarios for the organization to plan for.

Elements of Effective HR Strategy

Organizational Strategy HR Strategy HR Functions Results • Vision, Mission, • • Competitive Advantage
Organizational Strategy
HR Strategy
HR Functions
Results
• Vision, Mission,
Competitive
Advantage
Practices to Attract,
Motivate and Retain
employees to achieve
Practices to ensure
compliance and
efiiciency goals
• External Assessment
goals
Related and aligned
• Internal Assessment
Strategic Integration,
Employee
• Objectives, Initiatives
Committment,
Workforce Flexibility,
and Quality of Goods
and Services
efforts oganized to
produce intended
results
and Goals

Before 3 selecting a strategy or transitioning into a new one, it is important to study the organisation's business goals and its competitiveness in the industry.

Microsoft: Knowledge Fuel of the Technology World

Microsoft is considered by many to be an ideal place to work. The company has won several awards for innovation, for their commitment to diversity, and for their flexible work arrangements. It has always been a leader in the market with regard to its compensation. With a total strength of about 80,000 4 employees 5 across the globe, and a total revenue exceeding $15 billion, it is one of the biggest and best known 6 technology companies in the world.

Employees have access to the most current resources, from an intranet with source code libraries to periodical libraries to stateof the art research labs. Their work is personally challenging and on the cutting edge of technology. The organization believes in providing the employees whatever tools and technologies they need to achieve the best results possible; and the employees are expected to create software and entertainment products that could sell millions of copies worldwide. The office campuses at most locations are considered the

2 Personneltoday.com; ‘Human Resources input is key to managing Recession Risk’; 29 January 2008

3 It is very important to keep in mind that being strategic in HR means having a direct impact on business problems and results. So, the strategy which is likely to have the most significant impact on workforce productivity and profits should be selected.

4 Benjamin J Romano; The Seattle Times; ‘Microsoft head count way up in last 11 months, nearing 90,000’; June 20, 2008

5 Microsoft’s plan to lay off 8,000 workers is a phased lay off plan, with about 1,500 employees being let go every quarter. (Source: Microsoft Press Release; Dated Jan 22, 2009)

6 Microsoft also employees some of the most famous technical minds on earth, and owns more than 15,000 Intellectual Property Rights and Patents for its products across the globe

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benchmark of technology hubs, with fir trees, forested trails, snow capped mountain vistas, basketball courts, and even shuttle buses for employees to make use of.

Employees at Microsoft are recognized 7 as the intellectual fuel and are provided with various benefit plans and resources, which are designed to retain them. Lisa Brummel, who joined as the Chief of Human Resources at Microsoft, in 2005, started reshaping the company's HR strategies to make them more innovative and customized to individual employee needs. The focus was to project Microsoft, from an HR perspective, as an employeedriven 8 organization. As an organization, Microsoft offers a lot of flexibility to employees – the flexible work arrangements and flexible benefit plans offered at Microsoft are often considered Best Practices 9 by many employers 10 .

HR Strategy at Microsoft

by many employers 1 0 . HR Strategy at Microsoft Figure 1: Microsoft ‐ HR Growth

Figure 1: Microsoft HR Growth Model

Microsoft Corporation has adopted 11 the “Performance Culture Model`` as the best 12 approach to drive its success. All the critical people metrics are categorized and measured as per the Growth Pyramid shown in Figure 1. The amount of investment made in external and internal surveys is very substantial and projects Microsoft as a leader 13 in this regard across the industry.

Some of the categories across which the surveys are done, analyzed, and the results published are mentioned below 14 .

1. Organisation : Organisation size, open positions,

line HR ratios

2. Organisation Health: Workgroup Health Index,

Microsoft Pulse Index, Microsoft Culture Index

7 Michael A. Cusumano; Richard W. Selby (1995); ‘Microsoft Secrets: How the World's Most Powerful Software Company Creates Technology, Shapes Markets and Manages People’; Free Press ISBN 0 684 85531 3

8 Microsoft wanted to project its success on basis of its employees’ effectiveness as opposed to better manufacturing techniques or better technology. (Source: Binit Jha, HR Operations, Microsoft Vancouver, Response dated Feb 02, 2009)

9 HR Department at Microsoft conducts quarterly 'best company' days, when more than 100 companies visit Microsoft to view its HR 'best practices'.

10 Source: Best Practices, 2008; Best Places to Work Institute Inc.

11 There are a variety of HR strategic models which are used across the industry. However, the most commonly used models are Personnel, Generalist, Business Partner, Call Centre, Outsourced, Centres of Excellence, Self Service, Fact based decision making, eHR, Performance Culture, and, Strategy Models. 12 B Chakravarthy; 1997; Sloan Management Review; A New Strategy Framework for Coping with Turbulence’

13 Some of the internal employee surveys that Microsoft has done in the last quarter, and their results, are available at http://www.vault.com. The surveys are done across different departments, and the survey results are analyzed for various department wise, job class wise, location wise and performancewise parameters.

14 Source: Binit Jha, HR Operations, Microsoft Vancouver, Response dated Feb 04, 2009

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3.

Staffing : Hiring stats types of hires, channel wise hiring stats, positions closed internally, hiring spends, lead time, % of hiring plan, net adds, offer acceptance rates, reasons for offer decline

4. Talent Management: Good attrition, bad attrition, YOY and Qtr onQtr tracking, reasons for bad attrition, % retention of high positions, % of promotions, succession panning indicator, succession planning usage

5. Diversity : % of women (target vs. actual), % of women hired, % of women talent losses, reasons for bad attrition, % of women in leadership succession slate, % of Managers and employees completing MS Diversity training programs, % of other diversity hiring

6. Manager Capability : Span of Control, Organisation Depth, % of Managers

7. Learning & Development: Field Readiness Index, number of employees trained on employee development programmes, number of managers trained through management excellence framework (that provides for management development through career events, continuous learning and building connections)

8. Leadership Development: % of leadership hires, % of leadership attrition, succession planning index (% of successors in stages of readiness for a Leadership role)

9. Rewards : % of budget used on rewards

Besides this, they periodically run market surveys to ensure their competitive positioning on compensation.

While tracking the above metrics has shown more robust action planning to improve scores on each of them, there are two that that have made their People Review process much more meaningful ensuring both organisational readiness and talent management. These are the SPI and the SPU:

The Succession Planning Indicator (SPI) that is designed to help measure how well the organisation is positioned with weightings assigned to Ready Now and One Move Away successors for leadership positions.

The Succession Plan Usage (SPU) is an index designed to assess both the quality of the previous years’ succession plans and whether an organisation is effectively leveraging its succession plans when filling open leadership positions. It indicates the percent of leadership team positions that were filled during the past year by someone who was on last year’s succession slate.

In present times of recession 15 and organizational restructuring 16 , what businesses seek of HR is to: a) understand the talent needs of the business b) help develop strategic plans regarding employees c) identify talent issues before they impact the business and d) very importantly, help identify new 17 business strategies.

At Microsoft, the HR department is made accountable 18 for maximizing the value of their people asset to drive 19 business success. Core HR functions, processes and practices are divided among vertical tower structures for

15 Perth Leadership Institute; ‘A Recession’s Role in Leadership Development’; Feb 2008; 4 – 9

16 CWL Hill, GR Jones ; 2006; ‘Strategic Management: An Integrated Approach’; 27 – 32

17 It is important to envisage and reliably predict any changes that might occur in short and long run which might affect the business strategy and goals of the organization. HR department is expected to foresee such changes, and accurately prophesize any changes in the present or planned strategy that the business is looking to operate under. This is the premised of HR being a strategic partner of the business when it comes to strategy planning, designing, and implementation.

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easier and more transparent flow of information. The relatively independent functions also enable the business needs to be more closely aligned and measured 20 from a function unit perspective.

1. Talent Acquisition & Development

2. Management Development

3. Leadership Development

4. Management of the evolution of the Microsoft Culture

At Microsoft, the organizational culture is often termed as facilitative by the management – there are significant investments made in the development of employees, and most current support is provided for optimum career growth. The aim 21 is to receive the best talent which is passionate, capable, and growthoriented.

Recruitment and Selection: Attracting the Best and the Brightest

Beginning from its initial days, Microsoft has believed in recruiting extremely intelligent staff, favouring intelligence over experience. Co founders Bill Gates and Paul Allen shared a preference 22 for hiring extremely intelligent, not 23 necessarily experienced, new college graduates dated from Microsoft’s startup days. Microsoft’s recruitment strategies reflect their philosophy – Microsoft is an aggressive recruiter and is often the first 24 company to offer jobs to elite graduates at campuses and career fairs across the world.

At the beginning, the recruitment strategies at Microsoft included sourcing people from the elite educational facilities such as Harvard, Yale, MIT, CarnegieMelon and Stanford. Microsoft recruiters would visit these universities “in search of the most brilliant, driven students”. Experience was not required and it was in fact, preferred that new employees had no experience. The selected recruits would undergo a selection process which was focussed more on problem solving and thought process & composure testing exercises rather than the actual technical interviews. This interviewing process was seen as one which would push the interviewees to the limit of their creative and analytic abilities rather than their familiarity with a computer programming

18 The depth of accountability that Microsoft expects from the HR department is clear from the departmentwise listings of the last month’s layoffs from Microsoft. Out of 8,000 employees whose layoff was announced, nearly 1,400 were from HR department, including Shally Steckerl, then Recruiting Director at Microsoft. In Microsoft’s Press Release dated Jan 22, 2009, HR was specifically mentioned in the announcement about layoffs. (Source: John Zappe, ‘HR Getting Cut in Microsoft Layoff’; Jan 22, 2009)

19 D Ulrich, W Brockbank, AK Yeung, DG Lak e; 2006; ‘ Human resource competencies: An empirical assessment’; 274 – 279

20 Investment in HR needs to be driven strongly by business needs. Measurement of the impact of HR practices is essential to keep reevaluating the areas of investment and aligning them with business needs.

21 Considering the sheer diversity of areas that Microsoft works in, it is very important for HR to fetch the best talent. The skill requirements at Microsoft are traditionally unique, and call for diverse backgrounds. (Source: Ankur Gupta, Talent Acquisition Manager, Live Search, Redmond, Response dated 12 Feb, 2009)

22 From the beginning Gates realized that his employees were his greatest assets, shown by his quotes including “ it’s the effectiveness of our developers that determines our success ” and “take our 20 best people away, and Microsoft will become an unimportant company ”.

23 SL Brown, KM Eisenhardt ; 1998; Competing on the Edge: Strategy as Structured Chaos

24 Source: Placement Offer Data, 2006, 2007 and 2008 – Indian Institute of Technology (IIT). IIT engineering graduates are regularly considered among the best in the world, being offered similar paying positions as their contemporaries at MIT, Berkeley and Harvard.

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language. The importance of hiring the right people is also shown in Microsoft’s ‘n minus 1’ strategy which means less people are employed than are required. This policy reinforces that hiring the right people is more important than hiring just to fill a position.

Microsoft retains the same basic principles as they have expanded but had to change their methods when the number of new employees required could no longer be sourced only from universities. The recruiting practices continue to be active rather than passive, with Microsoft ‘head hunting’ the best staff. These staff are found, monitored and recruited from other companies by over 300 recruiting experts.

These staffs actively recruit suitable employees and focus on the right type of person rather than the right type of skill level. In ‘Human Resource Management: An Experiential Approach’ (Bernadin & Russell) human resources are described as an important source of competitive advantage. Microsoft uses human resources for competitive advantage, basing its success on having the very best 25 people in the industry and inspiring them to be the best. It is this that leads to Microsoft’s unique recruitment practices.

What is most crucial here is that Microsoft’s recruitment practices meet its human resource needs. It is an important sign of the focused approach of Microsoft, with its actions always leading towards its ultimate goals. Some important factors to be considered in recruiting staff include that the recruiter should be from the same functional area and that candidates should not be deceived about the negative elements of a job. The interview process at Microsoft reflects this with the new employee being interviewed by the manager. The recruitment process also goes further than just informing the employee about the negative aspects, instead the recruitment process actually tests the employee on the negative 26 aspects, putting them under the same type of pressure they would be put under on the job.

Taking advantage of Market Conditions

Microsoft also took advantage of breaking opportunities such as company layoffs; one example is with the AOL down size. The CEO announced 27 that when they heard AOL was downsizing Netscape’s operations in the valley, they assembled a team to identify the best talent and go knocking on doors.

Employee Motivation

The key to supporting the motivation of your employee is to understand what motivates each of them. While the recruitment and selection process at Microsoft aims to employ people who will be motivated by the environment they are provided, the HR department at Microsoft takes great care to understand such needs and try fulfilling them for the employees. Opportunity and environment to allow the employees to progress and self develop is a part of the work culture that the HR staff is expected to adhere to. The fit between employee and organization is important to motivation and this is what Microsoft ensures. A study reported in the Journal of Applied Psychology reports that employees working on projects are more

25 Based on the importance placed on having the best people in the industry, their aggressive ‘head hunting’ techniques can be justified.

26 This is an effective method, as it can be ascertained, that if the employee is successful in the selection process, they will be successful within the organization.

27 ‘AOL Layoffs End an Era’; Oct 16, 2007; http://www.microsoft watch.com/content/web_services_browser/aol_layoffs_end_an_era.html

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efficient when their goals relate to the overall team goals rather than individual goals (Kristof Brown). Microsoft ensures that the goals of the organization are understood via its strong culture and by employees being clearly aware of what is required of them.

Motivation can be described as providing a work environment in which individual needs become satisfied through efforts that also serve organizational objectives. Microsoft achieves this by incorporating their goals into their human resource management programs. The people recruited and the systems within the organization all serve to motivate the type of people that Microsoft values.

Employee motivation can also be related to Maslow’s hierarchy of needs theory. This theory has the top level of the needs theory as self actualization 28 needs, which is a person`s need to be self fulfilled. This is exactly what Microsoft provides for its staff and also exactly what it expects, for them to be the very best they can be. The link can also be seen here between the type of people that are employed and what is expected. Microsoft hires the very best people, for these people to achieve self actualization they need to be pushed harder than most and given greater opportunity to achieve than most.

Employee Satisfaction and Loyalty

Microsoft attempts to cater to the needs of its employees by recognizing that the majority workforce comprises fresh graduates just out of college. This is the premise 29 behind Microsoft setting up its offices as ‘campuses’ rather than plain workspace and parking space setting that was the norm before Microsoft. The environment it provides also includes every employee being free to decorate their office as they please; and the provision of subsidized food and drink.

Employee satisfaction was also afforded by the opportunity for growth, development also occurred by encouraging horizontal transfers, and employees were encouraged to develop themselves by switching jobs. Top management is required to coach 30 lower levels and assisting in their development. These practices are designed to increase employee satisfaction and commitment to the organization, while maintaining the same spirit the small company began with.

For many organizations, empowering employees is seen as a relatively new approach to handling and motivating employees – one which requires gradual changes to the corporate government and the work culture. However, in case of Microsoft, it can be seen as an inverted view – wherein the idea of employee empowerment was an inherently intrinsic part of the work culture since its inception.

28 Maslow describes that the way to achieve this is to “provide people with opportunities to grow, be creative, and acquire training for challenging assignments and advancement”.

29 Christopher A Bartlett; Microsoft: Competing on Talent; Harvard Business School; 9 300 001 Rev July 25, 2001

30 This program, which was initiated during the early 1990s during the recession, also became known as ‘turning over the keys’. The premise at that time was to retain the talented employees and keep them motivated by offering them new areas of learning and self development. In the hindsight, however, this was a unique exercise of employee empowerment and succession planning, where the mentor would teach the protégé the skills and fineries of a position before moving on to the next position and leaving a worthy successor.

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Three aspects of tasks that affect job satisfaction are job complexity, degree of physical strain and perceived value of the task. Microsoft manages 31 this by providing the high complexity high achievers require and by ensuring the perceived value of the task is high. This high value is communicated via the high achieving culture the company maintains.

Employee Rewards: The Options ­driven Engine

As an organization, Microsoft still follows the firm belief of its followers in linking employee ownership with employee motivation and retention. Critical to this is the link between individual performance and reward, with semi annual performance reviews linked to pay increases, bonus awards and stock options. The formal 32 review system also includes more common evaluations by managers to ensure no unexpected deviations. The system also includes the process of employees evaluating themselves, these self evaluations then being sent to the manager who does their own evaluation. The employee and manager then meet to discuss the review.

Stock options awards are based on whether the employee is considered a longterm asset of the company and awarded on this basis. This is an important symbol of Microsoft’s commitment to retaining good employees. In ‘Ideas That Will Shape the Future of Management Practice’ (Bohl, Luthans, Hodgetts & Slocum) human resources is described as being the way of the future with it being argued that we will see a more mature articulation of the importance of people as a firm’s only sustainable competitive advantage. The change is described as giving high reward for high performance with the focus on a partnership. Microsoft recognizes the importance of its people and this is reflected in the reward systems, in the sense that not only current achievements are rewarded but also rewarded are stocks to those employees that are seen as valuable future assets of the company. This can be seen as a prime example of the focus on a partnership that Microsoft aims to foster with its employees.

Important to the reward system is also the fact that there are two reward paths available, one for those following the technical path and one for those following the management path. The skills of employees can be divided into three areas: conceptual skills, human skills and technical skills. Typically, conceptual skills become more required and technical skills less required as one moves up the corporate ladder. Microsoft is a company valuing technical skills, due to the nature of its product. In most organizations, employees with conceptual skills would be rewarded by moving up the corporate ladder, while those with technical skills would not advance. Microsoft, however, offers two advancement paths – allowing those with technical skills to advance as technical experts, just as those with conceptual skills advance as managers.

Reward systems are an important part of organizational culture; they communicate to employees what is valued by the organization (Robbins, Bergman & Stagg 84). By having these two reward systems, Microsoft effectively

31 This issue can also be looked at in terms of an employee’s role. There are three factors associated with roles – role ambiguity, role conflict and role overload. Role ambiguity is kept low by Microsoft because of the consistency in the culture and in what is required; role conflict is also kept low due to clear goals and objectives; Role overload is kept high, with employees pushed to their limits. In most organizations this would be a concern, but Microsoft’s awareness of this means that they specifically seek employees who will react well with role overload.

32 In terms of performance, employees are measured against specific measurable goals, usually termed as SMART goals under Organizational Behaviour Terminology Specific, Measurable, Attainable, Resultsbased, and Timebound.

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communicates that both sets of skills are valued. This is also an important sign of Microsoft’s consistency. They recruit people for technical ability and so not rewarding for it would be dissatisfying to employees.

Growth & Acquisitions

During its lifetime, Microsoft has pursued an aggressive policy of take overs and acquisitions. This shows that as an organization, Microsoft is ready to adapt quickly to market conditions in order to appeal to its consumers. The company has carried out over 60 acquisitions in the last fifteen years. Its 1999 acquisition of Hotmail reflected its strong belief in the business and HR strategic need to deliver high quality services to its customers, even in the face of strong competition. The approach has allowed the company to acquire competencies it may have lacked if it had followed a strategy of internal development, and allowed it to bring high quality products to market within a relatively short timeframe.

Concurrently, Microsoft has strongly pursued a policy of internal development, placing a high level of emphasis on research and development. The company state in its January 2009 quarterly report that the concept of serviceoriented, customized, and integrated innovation was key to strategy, which aims to deliver even greater value to customers. Hence, Microsoft has invested a great deal in product and service development.

SWOT Analysis

Strengths Existing market position Strength of brand Finance available ($60bn+) Network of Microsoft Certified Partners

Weaknesses Maturing markets Lack in credibility compared with some competitors

Opportunities Synergies Partnerships & alliances with PC producers Observed market changes

Threats Antitrust legal cases from rivals Threat from upcoming online brands Unauthorised/illegal trade in pirated goods

Reshaping Microsoft’s HR Agenda

Lisa Brummel, who took over as the HR Director in 2005, started the process of leaning and reshaping the processes and demographics at Microsoft. While the primary reason was the slipping company stock prices due to development problems with its key product Vista, the secondary reason was to plan for the very probable scenario of a slowdown due to growing presence of competitors like Google and Yahoo!.

As an HR Director, Lisa started surveying 33 all of Microsoft’s upward of 80,000 global employees for picking up trends about work culture and employee skills and competencies, and started mapping that with the business forecast for the next few years. Some of the changes 34 that were introduced at Microsoft since that time have resulted in business machinery operating on leaner labour costs as compared to in most part of the last 20 years.

33 Source: Source: Ankur Gupta, Talent Acquisition Manager, Live Search, Redmond, Response dated 12 Feb, 2009 (Actual figures disguised)

34 M Sill; Jan 29, 2009; ‘Running Head: Microsoft Corporation’

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One of the recent headlines about Microsoft downsizing by 10% its global workforce generated a strong response from various quarters. However, in terms of HR strategy, this is an environment which is helping Microsoft achieve its strategy of becoming leaner and more efficient – a move that was started by Lisa and her team a few years back. It may be noted that the full time employees who are planned to be laid off only comprise 35 30% of this total cut, which about to about 2,400 – coming into a phased plan spread over 2 years, this amounts to 300 employees per quarter. Most of the brunt will be felt by the electto work, parttime, and vendor contracted workers. In terms of HR strategy, this can actually work in favour of HR department since the full time employees at Microsoft would get the underlying message that the company values their full time staff, and even in difficult times of recession, almost all of them were left untouched. Another underlying advantage is that all those employees who were not being seen as a value proposition with the future business strategy could be laid off in the name of recession.

What was not noted by the media from the announcements that came from Microsoft same week helps to affirm my belief there was an announcement that Microsoft would be moving 30% of its vendors off Microsoft owned location, and that Microsoft would not be renewing its leases in over 70 locations worldwide – a move, which in my opinion, shows that Microsoft is looking forward to become most costvigilant and costconscious organization than it is traditionally being seen as.

Conclusion

An effective HR department not only acts as a business partner of the organization, but also helps in shaping the business strategy. The way the business and HR strategy have been intertwined at Microsoft is an example of how the businesses that are run with common goals and vision make money for their investors and employees. The amount of investment that Microsoft has done for its employees and how well the HR Managers have been able to align the work culture to the business strategy is clear from the results the company has posted year after year. From being a geek’s playhouse in 1980s to being a company that is a household name everywhere in the civilized world, Microsoft is a company which is admired and envied by even its most ardent rivals.

Recent changes that have happened at Microsoft, sometimes attributed to recession, indicate a move that could change the way Microsoft is looked at. The results of such activities can only be seen once the economy is back to upward motion. However, for the time being, the practices and principles that Microsoft stands by can be admired and acknowledged in true earnest. The loss of public face and reputation 36 is a parcel of any layoff exercise, but an organization which could stand and survive through such times must have doing something right which others did not.

35 G Challenger, C Inc; 2009; ‘EEs so far Escape the Rising Tide of Layoffs’; 3

36 DJ Flanagan, KC O'Shaughnessy Journal of Management, 2005; ‘ The Effect of Layoffs on Firm Reputation’; 74

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