Layoffs...really?

 

 

The recent news has brought a flurry of layoff notices, especially in the tech sector. Companies such as Google, MicroSoft, Amazon, Salesforce, Meta, Shopify and Netflix have all announced layoffs of up to 10% of their workforce.  These decisions are not made without significant financial implications but are generally meant to signal to a specific segment of the population, the investment community, that management is actively addressing potential problems.  They want to be seen as anticipating business downturns rather than reacting to them.  But a careful examination of the facts suggests otherwise. 

I will use MicroSoft as an example, but it is applicable to many of the others as well. 

Any announcement of layoffs is regarded negatively by people inside and outside the company.  So how could this notice have been handled differently?  Here are a few observations. 

1. According to Mercer, one of the world’s largest consulting firms specializing in HR, the average personnel turnover is about 20%.  Statistically MicroSoft could adjust their workforce within six months simply through disciplined hiring. 

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2. MicroSoft is taking a $1.2 billion expense to cover the severance costs.  That equates to $120,000 per person.  Why not make an announcement that says something like “...MicroSoft today announced that they are investing over $100,000 per person in the employment future of up to 10,000 employees...”.  The bottom line is the same, but the messaging is entirely positive. 

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3.  About the same time as the layoff announcement was made, MicroSoft also had Sting perform a private concert in Davos for about 50 key personnel and then a few days later announced an investment of up to $10 billion for a stake in ChatGPT. This clearly demonstrates that the layoffs were not inspired by financial pressures but rather to clean up some poor business decisions, aka, skeletons in the closet. 

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4.  Layoffs are announced by executives, people who never get their hands dirty at these events.  No, the axe gets handed to mostly middle managers and others in HR, who routinely engage an outplacement firm to further distance themselves from the actual message. Executives typically are cowards when it comes to enacting the decisions.  It is a skill many have mastered by avoiding responsibility while climbing on the efforts of others to their positions of authority... 

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Expedience should not be seen as the panacea for poor decisions of the past nor the fear of future events. Recessions come and go; they are part of the business cycle. But they seldom last more than a few months and are almost past before economists declare them to have occurred. My advice is to run your business with compassion, intelligence, integrity and passion. If you only pander to investors, who have an audience of one, your decisions will be shortsighted and more often detrimental to your long-term health.