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Why It’s Smart for Microsoft to Get Out of Failing Businesses

Microsoft has made two strategic moves to get out of businesses that weren't performing. And in doing so, the company and CEO Satya Nadella has taught

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Microsoft has made two strategic moves to get out of businesses that weren’t performing. And in doing so, the company and CEO Satya Nadella has taught small and medium-sized business owners an important lesson.

In the past week, Microsoft has announced plans to shutter both its Mixer game-streaming service and its retail stores. In statements to press, the company has said that the divisions didn’t align with its broader strategy and it decided to move on.

While some were surprised by Microsoft’s decision, Stifel analysts told investors that the moves “demonstrate the company’s commitment towards not chasing good money after bad.” Microsoft can now invest “towards higher growth opportunities” without wasting resources on underperforming divisions.

There’s a major takeaway for business owners here–especially ones who run companies smaller than Microsoft. Shuttering failing divisions and walking away without shame, is something that many more companies should consider, especially with coronavirus continuing to wreak havoc around the world.

As challenging as it is, the current crisis offers an opportunity for companies to truly analyze their divisions and decide which are performing well and in line with broader company goals and which, simply, are not. What are the long-term implications of keeping or ditching a division? Is there something the division is missing that could make it grow, or is there no way to make that happen?

Before making any decisions, consider the financial, personnel, and business impacts of ditching a division. Can resources–and people–from that division be dedicated elsewhere to drive broader business goals? Is there a way to drive the freed-up capital into more profitable businesses?

Too often, companies fall into the trap of believing that because they dedicate time and resources to a project, it warrants survival. As Microsoft is showing, when time and those resources are gone, it may be best to cut your losses and move on.

It’s never easy to pull the plug on a failing (or flailing) division, but it’s sometimes necessary. And although the optics of those moves may not always be great, in the long-run, it could mean the difference between a company’s success or failure.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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