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Satya Nadella

When Satya Nadella was named Microsoft’s CEO earlier this year, one of the concerns among investors was that the company veteran would maintain the status quo, largely sticking to the gameplan laid out by his predecessor, Steve Ballmer.

This morning Nadella made it clear that won’t be the case, cutting 18,000 jobs in the largest layoffs in Microsoft history — the first step in a broader plan to streamline the company’s engineering operations, and become faster and more nimble, boosting Microsoft chances of thriving in a technology world ruled by mobile devices and cloud services.

Microsoft shares are up on the news, building on a 14-year high posted yesterday as anticipation of the cutbacks mounted on Wall Street.

Although a large portion of the layoffs (about 12,500) are related to Microsoft’s acquisition of Nokia, the more meaningful impact could be the 5,500 jobs that Nadella is cutting in its core workforce. And that’s where Nadella’s experience as an engineer is coming into play.

Microsoft’s previous round of major layoffs, in 2009, were largely in response to the economic recession, designed to appease Wall Street. But Nadella, after five months on the job, is going for something more meaningful with these changes.

He writes in his memo to employees today that Microsoft will “have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers. In addition, our business processes and support models will be more lean and efficient with greater trust between teams.”

One example is the past use of separate engineering and testing positions inside product development groups. That might have made sense with three-year Windows development cycles but now Microsoft is aiming to consolidate those functions, and others, and the people most likely to survive these cuts are those who can take on multiple functions.

In some ways, the cutbacks are the easy part the company, as difficult as they will be for the individual employees. The real challenge for Nadella and Microsoft’s engineering teams will be to actually implement this new vision.

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