Xbox's Asha Sharma comments on the company's restructuring plans, stating that "We simply spread ourselves too thin"

Asha Sharma, the head of Xbox, has provided further insight into the company’s latest workforce reduction plan, which will see 3,200 employees laid off. Speaking with Fortune, Sharma explained the company took several risks to expand. However, this strategy diverted attention from their primary operations.

Sharma emphasized that the effectiveness of a strategy is reflected in resource allocation, admitting the company had spread itself excessively thin. To concentrate efforts on its central functions, Xbox will offload five of its studios. Compulsion Games and Double Fine are set to become independent entities, while Ninja Theory and Undead Labs will pursue new ownership and financial backing. Arkane Lyon will undergo a review to determine strategic alternatives.

The company's strategy overhaul also comes in response to recent financial downturns and a need to simplify its managerial hierarchy. Sharma highlighted that Microsoft invested over $20 billion into Xbox over the last five years. Despite these investments, revenue reportedly fell by approximately $500 million annually.

In a memo addressed to employees, Sharma discussed operating margins that are significantly lower compared to similar businesses, pointing out that Xbox entered the current console generation with fewer users and a costlier operational base. They invested heavily in Game Pass, multi-platform strategies, and various content offerings, which although valuable, did not expand rapidly as anticipated.

The expansion of Xbox's management tiers has made collaboration difficult, as the platform's team size grew by 40% while its customer base and playtime diminished. Sharma aims to streamline management to five layers, or preferably three, as current team structures can have up to 14 layers.

Sharma noted the fragmentation due to increased headcount, which led to independent operations by teams, studios, and functions, complicating unified goal achievement and decision-making processes.

Concluding her message, Sharma expressed the vision for a larger future for Xbox, aiming for the brand to engage over a billion people daily, fostering creativity and connection. She assured Xbox will regain growth momentum by 2027, reaffirming its legacy as a cherished name in entertainment, backed by its skilled global studios.