Microsoft aims to save $1B this fiscal year

Microsoft Corp. customers have heard the vendor profess that its software allows them to "do more with less," but now it's Microsoft employees' turn: The company is cutting back on benefits.

Microsoft plans to save nearly $1 billion through efficiency improvements and cost-cutting in its 2005 fiscal year, Microsoft Chief Executive Officer (CEO) Steve Ballmer said in his annual strategy e-mail message to employees on Tuesday. The company's new fiscal year started on July 1.

Over the past three years, expenses at Microsoft have grown faster than revenue. "This is obviously not a trend we can continue," Ballmer wrote. The company's plan to save money includes better coordinated marketing, which should save hundreds of millions of dollars, according to Ballmer.

The efforts to reduce costs have also hit Microsoft employees. The software maker has made changes to employee benefits. However, salaries will go up consistent with inflation and superior performers will receive bigger raises, he wrote.

"Other companies have been severe in tightening costs in the last few years -- layoffs, major benefit reductions, etc. We have not done these things and want to be prudent now so we avoid severe measures later," Ballmer wrote.

One of the changes in employee benefits at is reduced coverage for prescription medicines, a Microsoft spokesman said. Employees now have to pay part of the cost of brand name drugs if a generic alternative is available, he said.

Microsoft has to overcome its "big company ills" with a "strong focus on accountability for results with customers and shareholders," according to Ballmer. The CEO called upon employees to set clear and measurable goals and deliver on those commitments.

"It would be clearer what we can do and we could plan accordingly," Ballmer wrote.

In the past, driven by Microsoft culture, employees had the tendency to overcommit, the spokesman said.

The e-mail message from Ballmer reflects the overall state of the company, said Rob Enderle, principal analyst with The Enderle Group, in San Jose, California.

"Microsoft is buttoning down for what undoubtedly will be a period of tough growth, and Steve is getting the troops ready for the belt-tightening to come," he said. "They clearly are concentrating more and more on margins and are setting some aggressive targets."

In the e-mail message, Ballmer also laid out focus areas for the company. The list contains no surprises and includes all of Microsoft's current product groups. The key to growth is innovation, Ballmer wrote.

On the list of focus areas, Ballmer includes continued PC market growth, selling more software to Office users, marketing its improved Windows Server software and offering software that makes it easy to create, manage and integrate applications.

Although there have been some rumblings inside Microsoft that the company might not be as exciting a place to work as it once was, Ballmer's e-mail message should be seen as a rallying of the troops, said Matt Rosoff, an analyst at Directions on Microsoft Inc. in Kirkland, Washington.