Microsoft is cutting 3% of its workforce, equivalent to about 6,000 positions, as part of a broader organizational restructuring effort. The layoffs will affect employees across all levels, teams, and geographies within the company, according to a statement made to CNBC. The move is reportedly aimed at reducing management layers and increasing the ratio of coders to non-coders on projects.
The current layoffs differ from those in January, as they are not performance-related. Instead, they appear to be part of a strategic rebalancing of Microsoft’s workforce to better align with its focus on AI delivery and internal AI tool usage. Industry analysts view such periodic headcount reductions of 3-5% as routine for large tech companies like Microsoft, Cisco, Meta, Salesforce, and IBM.
“Technology companies like Microsoft are rebalancing workforces to align with AI delivery and their internal use of AI tools,” said Patrick Moorhead, founder and chief analyst at Moor Insights & Strategy. “Delivering AI tools requires different developer and data skillsets, and Microsoft’s AI tools are making employees more efficient.”
John Annand, practice lead at Info-Tech Research Group, noted that while these layoffs can be devastating for those affected, they typically have a minimal impact on customers unless entire divisions or product teams are eliminated. For stockholders, such reductions can even be seen as positive due to perceived increases in profitability.
The layoffs also serve as a demonstration of the effectiveness of AI tools in improving workforce efficiency, according to Melody Brue, VP and principal analyst at Moor. “For companies selling AI as a tool for workforce efficiency, a layoff of their own staff serves as a tangible demonstration that their technology delivers on its promise,” she observed.
Microsoft’s recent organizational changes, including discontinuing investments in HoloLens, creating a new CoreAI engineering division, and unifying AI under Mustafa Suleyman, are likely driving the current staffing adjustments. The company is recalibrating its talent and resources to focus on new products and services, according to Jason Wong, distinguished VP analyst on the digital workplace team at Gartner.
The reduction in middle management, in particular, is seen as a strategic move to streamline operations and increase efficiency, a approach that has been successful for other companies like Intel under Lip-Bu Tan’s leadership. Google has also been experimenting with modifying the expectations of middle management to achieve similar goals.
Ultimately, the layoffs represent a reprioritization of resources driven by AI, according to Jason Andersen, a VP and principal analyst at Moor. “What we are seeing in software development organizations is a reprioritization of resources due to AI,” he said. “Methods like scrum or other agile approaches can be significantly streamlined using AI tooling and AI-capable people, leading to less effort on reporting and data gathering.”
