Necessity is mother of invention at Microsoft

October 5, 2009

Microsoft CEO speaks of economic reset in LondonMicrosoft has adopted a tough mantra for an age of austerity, arguing that innovation must take a back seat to cost-cutting and productivity gains when it comes to selling technology.

“Things have come down. I see them staying down and slowly growing,” Steve Ballmer, Microsoft’s chief executive, said today in a speech to British business leaders.

But does Microsoft’s “New Efficiency” slogan describe the future of the technology industry?  Or just the software giant’s own subdued outlook?

In recent years, Microsoft has settled into managing mountains of cash and established customer relationships in late middle age. Its share price has also been less than dynamic, down 30 percent since the beginning of 2008.

But instead of making big bets on future growth, Ballmer contends that  innovations must be funded based on their prospects for helping customers become more lean and efficient. The company recently froze funding for research at $9.5 billion — still the world’s largest such budget.

“I believe the new normal requires a new kind of efficiency built on technology innovations that enable businesses and organizations to simultaneously drive cost savings, improve productivity, and speed innovation,” Ballmer argued in a manifesto published last week.

Ballmer acknowledges that the “New Efficiency” is partly a marketing message to underscore the potential productivity benefits of Microsoft’s upcoming products — the next version of its operating system Windows 7 and Exchange Server 2010.

Microsoft suffered its first-ever drop in annual revenue during its fiscal year ended in June — a decline of 3 percent. Wall Street forecasts revenue growth of just 1 percent in revenue for fiscal 2010 and flat to modest growth of 5 percent in profits in the coming year.

But the company insists that there is a silver lining in its new focus. Refocusing technology innovation around efficiencies can help job growth, taxes and the creation of small businesses, Ballmer says.

Microsoft recently commissioned market research firm IDC to study how spending on technology and jobs compare with the economy at large in 52 countries around the globe.

Technology spending in the European Union is forecast by IDC to grow by 2.1 percent and employment increasing by 559,000 jobs between 2008 and 2013. By contrast, overall gross domestic product and employment in the EU is set to decline slightly.

The IT sector will create 5.8 million jobs worldwide over the next four years. Even in the European Union, where economies are still in decline, technology spending is set to rise and create more than half a million jobs by 2013.

Still, there will be no more innovation for its own sake, Microsoft says. New technologies will be funded from savings wrung out of less efficient ways of doing things or they won’t survive.

Microsoft’s message is in tune with times of slumping economic growth and organizational budget-cutting. But it is also a convenient one for a company that may have run out of disruptive new ideas.

You can read some of Eric’s recent columns here.

(Photo credit: Reuters/Eric Auchard)

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