Microsoft is a large international corporation that holds one of the leading positions in the global technological market along with a substantial market share. However, ever since the 1990s and well into the mid-2000s, it has been experiencing a problem with retaining its key employees and motivating the rest to perform. The issues were forced by expansive company growth, employee package cuts in 2004, and the antitrust lawsuits against Microsoft, which have effectively dropped its stock prices by more than 40% (Chakraborty, 2010). As of 2005, the company has been implementing new and innovative ways of retaining their employees and reducing turnover rate. An analysis of existing systems reveals areas of potential improvement. Suggested measures of improving employee motivation and morale include reducing bureaucratic barriers, promoting individual retention strategies, and introducing fixed-term contracts as a means of curbing turnover rates.
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The major issues plaguing Microsoft since the late 1990s are employee retention and employee commitment (Chakraborty, 2010). The ability to grow and retain talent is important for success in the highly competitive technology industry, and the problems faced by Microsoft are not unique to the company itself. Reduced employee commitment and high retention rates are the results of either underlying issues within the company or external factors outside of its control. Either way, both problems present danger to Microsoft in several important aspects. High turnover rates are associated with additional expenses on recruiting, training, and adapting new staff to the working environment, potential loss of important data regarding company projects, information leaks, and reduced productivity within the rest of the staff, as well as the possibility of chain turnover effect.
The immediate issues that can be addressed within the context of this case are internal factors that influence employee retention rates, such as employee morale, workplace engineering issues, career opportunities, company bureaucracy, employee benefit packages, and salary policies. While Microsoft, due to being a technological giant, possesses a better ability to influence external factors in the market, its capability to reduce turnover rates from the outside is limited. The urgency of the issues is not immediate, as employee turnover collapse is an unlikely event to happen at Microsoft. However, the issues are still important and critical to the company’s long-term profitability, competitive advantage, and employee morale.
To understand the reasons behind high turnover at Microsoft, and how this issue came to be, one must analyze not only the history of the company but also the history of the overall industry itself. Microsoft did not experience issues with high turnover rates until the late 1990s. How does Microsoft of 1994 differ from Microsoft of 2005-2010? There are several key points of contrast.
Firstly, Microsoft of 1994 was a much smaller company than that of 2005-2010 (Chakraborty, 2010). Working in a smaller company means a more familial environment, a lack of various bureaucratic barriers, and freedom of decision-making and project execution. It is an environment where creative minds thrive, as they do not need to go through numerous steps to advance their initiative along the extensive corporate ladder. Microsoft of 2005-2010, in comparison, was a large corporation with thousands of employees and many foreign offices. Having to organize large numbers of people in a corporation inevitably brings about a strict corporate hierarchy, which stilts individual initiatives and hinders growth. This is a process issue, as the introduction of a bureaucratic apparatus significantly influenced the existing communication, feedback, and idea promotion processes present in the company.
Secondly, the employee benefits package that Microsoft offered throughout the 1990s was indeed spectacular. Very few companies offered the same amount of benefits to their workers as Microsoft did, at the moment. However, at the point when its turnover rates skyrocketed, these benefits, while still decent, were not exceptional anymore. Microsoft of 2005 had several competitors to deal with, such as UNIX, Apple, and Google as well as various mobile phone companies, such as Nokia, who was the leader of the mobile phone market at the time. Despite the claims made in the case study, the provided employee benefits after the cuts, while still decent, were not overly exceptional to the industry anymore, which is one of the reasons the employees reacted so harshly towards budget cuts. The issue of reducing employee benefits package was and is a resource issue, as even a giant such as Microsoft was unable to support the extensive benefits package for its growing number of employees, especially in the wake of antitrust and racial discrimination lawsuits initiated during the same period (Chakraborty, 2010).
Thirdly, the competitive strategies of the technological market have changed between 1994 and 2005-2010 (Chakraborty, 2010). They have become much more aggressive. Raising and nurturing talent takes time and effort, and tech corporations are actively engaged in hunting for talented individuals to recruit. According to the 2015 Employee Engagement Organizational Report (2015), employees within the technology industry for the past ten years have proven to be historically disloyal, willing to change companies for as much as 10% in a salary increase.
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All of these issues affect employee commitment, happiness, and retention rates. The first two issues significantly influenced employee commitment and happiness, as the inability to convey ideas and provide feedback to the higher-ups generated the majority of the problems that Lisa Brummel encountered during the initiation of her Microsoft initiative in 2006. This initiative was aimed at receiving feedback from employees, restating some of the employee benefits lost during employee benefit cuts of 2004, ensuring a clear and concise path to building a career, and creating a friendly working environment. These measures helped improve turnover rates, making a marked drop from 10 % in 2005 to 8.3% in 2007 (Chakraborty, 2010). However, Lisa Brummel’s program overlooked some areas about employee dissatisfaction, such as the presence of corporate bureaucracy. While an improved feedback system helped the employees relate their concerns to the managers, it does not qualify for a system aimed at reducing bureaucratic obstacles when promoting new product ideas and projects.
The effectiveness of measures proposed and implemented by Lisa Brummel, however, is questionable. As it was stated, Microsoft had talent retention issues from as far as the late 1990s, which means that the company suffered from turnover rates of 7-10% for about 8-10 years. During this time, an estimate of 50-70% of employees familiar with the old system of inter-company communication and Microsoft’s generous employee package would have left. Thus, the decrease in turnover rates in 2007 may have been associated with a physical decrease in the number of old employees inclined to leave.
Lastly, the situation regarding Microsoft’s turnover rates, while important, should be viewed as critical in comparison to the other companies in the industry. Employee retention rates often have very little to do with the corporate environment and workplace benefits provided to the employees. For example, Google, which has frequently been nominated for the title of the best company to be employed at, also has high turnover rates, which cap at about 7% as of 2015 (“Employee engagement organizational report,” 2015).
Key Decision Criteria
Two main criteria that are going to play an important role when analyzing and determining suggestions and alternatives for Microsoft’s employee motivation and retention dilemma are financial requirements, influence on employee motivation and morale, and increase or decrease in competitive advantage (Manson, 2014). The speed of implementation of suggested measures, while important, could be accounted for in costs and financial requirements. Reasons, why the aforementioned criteria are to be considered key when determining potential approaches to the problem, are obvious – financial and resource constraint constitutes for a primary requirement for any intervention, as the resources that could be allocated for it are finite. The influence on employee motivation and morale is the primary grading criterion for success or failure of the intervention. Increases or decreases in the competitive advantage of the company are to be considered the secondary grading criterion for the intervention, as retention and promotion of talent would have a direct influence on recruitment processes as well as Microsoft’s ability to effectively develop and promote new products and technologies. The speed of the implementation is a very important factor, as it determines how long it would take to implement a prospective suggestion or an alternative. Typically, however, implementation speeds are directly tied to costs and depend on the scale and scope of potential intervention.
The current system introduced and promoted by Lisa Brummel seeks to solve several problems regarding employee retention. Namely, it considers itself with reforming employee benefits packages, improving the existing and creating new channels for feedback between managers and employees, and creating a friendlier workspace environment. While it is true that since the introduction of the program the overall turnover ratios have decreased from 10% to 8.3%, the program has several weaknesses to itself, such as:
- Very little effort to reduce corporate bureaucracy. This issue was present in Microsoft since the late 1990s, and aside from the manager accountability program, nothing was done to address the issue directly.
- Microsoft’s working conditions and benefits packages are largely similar to those of its competitors and do not provide a competitive advantage. Creative spaces, glass offices, and other benefits are present in other companies such as Apple, Google, etc.
- There is no clear strategy of counteracting recruitment efforts performed by the company’s competitors. If a competitor offers a better salary, career plan, or working conditions, Microsoft is likely to lose a valuable employee.
I can see several potential alternatives for Microsoft that would allow it to improve employee dedication as well as recruiting advantage in the long-term perspective. These alternatives include:
- Individual approach to personnel retention. This approach involves taking every case of employee retention individually. Not every employee in the company is equally valuable. While some employees are key developers invaluable in various projects, the majority of cadres in a large corporation such as Microsoft are replaceable. An effort must be undertaken to dissuade these key players from leaving by presenting better offers. The rotation of regular employees is a constant process, and not a lot could be done about it beyond measures that are already implemented (Lo, 2015).
- Downsizing and deconstructing the company’s bureaucracy as means of attracting and retaining talent. Microsoft has expanded beyond measure during the 1990s – early 2000s because it was an effective monopoly in the software development industry. Now that Microsoft has strong competitors, its market share has diminished, and it is unable to sustain as many employees as it did in the past. Thus, reducing the number of non-essential employees would help save money without losing operational efficiency (Manson, 2014). At the same time, downsizing the employee number would also allow to decrease the number of bureaucratic formalities and help return Microsoft to what it was – a company of daring decisions and project autonomy, which should attract new talent looking to make a name for themselves (Graeber, 2015).
- Fixed-term contracts. Some researchers view the use of fix-term contracts as an efficient way to ensure personnel retention, as it obligates the employees to work with a company for a fixed period, after which the contract is either nullified or renewed. It is a good way to ensure that key personnel remains in place for the duration of important projects (Centeno & Novo, 2012).
Naturally, each of the proposed alternative interventions has its strengths and weaknesses. Individual approach to personnel retention, while effective at keeping key personnel, could potentially cause a backlash from the rest of the employees, who would feel that they are being mistreated in comparison to the employees considered valuable by the company. In terms of implementation costs, this measure will require a certain amount of finances to afford improved compensation packages. Microsoft would receive a competitive advantage in terms of recruiting specific talented individuals aiming for the “premium” package and salary (Lo, 2015).
Downsizing and bureaucracy deconstruction policy has the potential to save money and improve competitive advantage (Graeber, 2015). However, mass layoffs would inevitably cause a backlash in the press and further decrease satisfaction among the remaining employees. There is a possibility of turnover rates among rank-and-file personnel skyrocketing due to increased insecurity regarding their working places, which would, in turn, become an incentive for looking employment in other companies. The damage done by increased turnover rates could potentially outweigh the benefits of attracting key talent and saving money on salaries. Lastly, this intervention would take a while to implement, as a deconstruction of an extensive chain of bureaucracy is a slow process that ought to lead to a short-term decrease in production efficiency (Manson, 2014).
The introduction of fixed-term contracts is a double-edged sword. On the one hand, it will ensure that both key and support personnel would remain in the company for the duration of the contract would effectively reduce turnover from 8-10% to 2-3% (Centeno & Novo, 2012). On the other hand, while turnover would be reduced, there is a chance of a turnover wave happening at the end of every major project, with employees leaving en-masse as soon as their contracts expire. Also, it would introduce an element of a gamble to the recruitment process. The company might be stuck with unimpressive and mediocre employees for the duration of the contract unless there are procedures in place for that eventuality. Lastly, fixed contracts tend to scare away prospective talents, who would view the contract system as a way of restraining their freedom to choose.
Based on the analysis presented above, I propose several recommendations for Microsoft’s motivation and retention strategy. While none of the alternative strategies presented in this paper is without flaw, an amalgamation of all three has the potential to improve the situation while avoiding the majority of drawbacks that each method presents. Bureaucracy in the company is to be reduced without needlessly downsizing the number of employees. If downsizing is inevitable, it should be done slowly, to avoid a shock reaction. Individual approach to personnel retention could be coupled with the fixed-term contract system – additional benefits could be offered to key employees willing to affiliate themselves with Microsoft on a fixed contract basis, thus ensuring their presence and loyalty both through legal and motivational means.
Action and Implementation Plan
The individual approach to personnel retention along with a fixed-term contract system could be easily integrated into the existing system. The former would require an effort for the HR team, while the legal team would need to draft and prepare the outline for the fixed-term contracts to be implemented. The financial department would be in charge of allocating required resources for the advanced benefits packages. These measures can be implemented immediately after the preparations are complete. Dismantling the company’s bureaucratic apparatus, however, is a more daunting task. A full survey of existing processes and position is required, after which a comprehensive analysis is to be conducted to remove the unnecessary steps and increase the autonomy and initiative of leaders and project managers.
Centeno, M., & Novo, A. (2012). Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier System. Labour Economics, 19(3), 320-328.
Chakraborty, B. (2010). Employee motivation and retention strategies at Microsoft Corporation. Web.
Employee engagement organizational report. (2015). Web.
Graeber, D. (2015). The utopia of rules: On technology, stupidity, and the secret joys of bureaucracy. New York, NY: Melville House.
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Lo, J. (2015). The information technology workforce: A review and assessment of voluntary turnover research. Information Systems Frontiers, 17(2), 387-411.
Manson, B. (2014). Downsizing issues: The impact on employee morale and productivity. New York, NY: Routledge.