Microsoft began its Indian operations in 1990 setting up Microsoft India Corporation Ltd. in New Delhi. Later, it expanded its footprint in India by bringing all six of its main units of business into the country. The headcount at Microsoft India Development Center at Hyderabad grew from 20 in 1998 to more than 1,500 by the end of 2008, making it the company's second biggest development center in the world. Microsoft India's Human Resource (HR) strategy focused on building organizational capability and strengthening employee engagement to leverage the limited human resources to achieve the company's mission. According to Microsoft India's HR growth model, HR was ultimately expected to be a change leader and business driver. Set in the context of a challenging global business environment, this case discusses the talent management and employee retention practices at Microsoft India, and its use of HR metrics to build accountability of the HR function towards business success.

In 2008, Microsoft India Corporation Pvt. Ltd. (Microsoft India), the Indian subsidiary of Microsoft Corporation (Microsoft), was ranked as number one in the list of `Best Companies to Work for in India' surveyed jointly by Business Today,Mercer LLC, and Taylor Nelson Sofres (TNS) Global. Microsoft India was also believed to be one of the most sought after companies for Information Technology (IT) professionals and graduates in India.

In early 2009, Microsoft announced the layoff of 5% of its workforce worldwide, as it reported its first drop in revenues in its history of business spanning over three decades. The companywide cost-cutting measures were applicable to some extent to its Indian operations, where the company laid off 1% (55 employees) of its total workforce. If the economic situation deteriorated further beyond a point, the company was prepared to prune its headcount further, globally as well as in India. Did the economic situation warrant a change in Microsoft India's HR practices? Or, were its strategic HR practices in alignment with the company's mission, values, and strategy?

Right from its humble beginning in 1975, Microsoft had been an innovator in computer software and related services. Its product portfolio included the Windows series of operating system software for clients and servers, the office productivity suite—MS Office, business applications software, games, and software for mobile phones and handheld devices. Apart from its software products, Microsoft provided online services for publishing and advertising, an e-mail facility for communication, and a search engine for information retrieval and decision support. The company's mission was: "To enable people and businesses throughout the world to realize their full potential"

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