The Layoff Bubble
The world has seen many bubbles burst. While early 2000s saw the burst of dot com bubble, the 2008 financial crisis saw the bubble of real estate being burst. The boom of the internet and tech giants like Google, Meta and Twitter resulted in a large pool of extremely talented people who had honed their skills to serve these organizations in the best possible manner while benefiting themselves in terms of learning and monetary compensation. This has led to a huge influx of talented engineers and management students across multiple firms around the world. However, just like cycle of life, some troughs are always expected to come along with crests. A similar situation is now arising in the world of business with massive layoffs being announced across the world.
While Meta laid off 11000 employees, Twitter not only laid off employees with Elon Musk taking over the reins. A lot of the employees left the firm as well. At the same time, Google is presumably going to lay off over 10000 employees and Cisco has already announced a reduction in its staffing. There is a common trend of tech firms announcing such layoffs, but the harsh reality is that the industry can’t escape this phase. Only the magnitude of impact will vary across domains. What remains hidden is also the number of layoffs or cost cutting happening at startups as well. With such a gloomy scenario, it is important to understand what went wrong and how the world of business can bounce back to establish normalcy.
1. Excessive hiring during pandemic: Revenues at majority of the tech firms was on the up till 2019 and they underwent a significant boost during the pandemic owing to people utilizing the services from their homes. This required significant manpower to be able to build new services/features and have a good support structure in place for operations. This resulted in excessive hiring during the pandemic where the companies were not only scouting for the best talent, but the talent was also looking for significant pay hikes to sustain themselves. This caused a surplus in the capacity which had to be trimmed down with time as the world became normal and growth rate of the companies normalized or even declined.
2. Too many moonshots in one plate: Startups and big tech giants always have a component of individual contributor to enable moonshots to come to fruition. While this is a good thing to have, the top line has negligible impact with such work unless it generates great consumer reviews. To build more revenue, companies started putting a lot of focus on moonshots with introduction of different components of metaverse or even augmented reality which was not a string consumer need. This caused a lot of people to turn o moonshot projects which started becoming defunct as we entered 2022 owing to a strong need for the business to protect their base in the present financial crisis and ensure that basic needs of the person are met via their products. This resulted in over capacity of personnel who could ultimately not be fit into the core teams which were bringing majority of the business.
3. Lean is the new trend: By firing multiple stalwarts of Twitter and over half of the staff leaving the company, Elon Musk’s decision was seeming to be a disaster. However, Elon Musk has defied that lean teams are the new trend as Twitter continues to run without interruption with a lean team. This has caused companies to rethink their strategy on the headcount of people casing even more layoffs.
4. Lack of capacity planning and consumer demand expectation: People around the world were glued to their laptops and TV since 2020 owing to the pandemic which made companies focus a lot on the digital realm to capture more audience and generate interest and awareness to ultimately result in purchase of goods and services. The growth that was experienced in 2020 and 2021 would have caused the companies to hire more people in the hope of sustaining such a consumer demand. However, consumer demand took a U-turn as things became normal heading into 2022 with less time being spent on OTT platforms or on the laptop. Many people starting exploring the real world by going to vacations or even going on digital detox. This forced the businesses to rethink their focus and caused them to close out on a lot of teams which were working on the segment focusing to capture the audience resulting in massive lay off.
The layoffs are inevitable and are bound to stick for some time. To ensure that people are not affected extensively in future, companies will have to do detailed capacity planning considering not only their business scenario but also the world events. Businesses will ounce back to their usual growth, but the sustenance will be dependent on how accurately they forecast the capacity. On top of that, companies will also have to take a high ground and admit to lower growth amongst their employees and mitigate high salary raises and limit hiring to ensure that they get the best out of their stars. One would not be surprised that the same companies which are laying off so many people may start a hiring spree again. Th best solution around for the companies would be to mitigate the salary hikes while working closely with all its employees to explain the rationale and win their confidence so that they stay motivated and do not lose out on the supreme talent. The layoff bubble has started and with due course of time and rationale actions, it can be burst very quickly as well.
