Big Tech layoffs are a sign of them finally growing tf up

[mastermind]

Stock prices are a function of the earnings of the business and / or the growth of the company....of the latter is flat or down you better improve the former. Laying people off improves margins and thus earnings.


For those individuals and the main street economy it isn't. This however:



Was always unsustainable and fukked up the hiring marketplace for everyone in tons of industries. I know MANY people who left finance for tech in the last 18 months who are stressed or already gone now. And all were bragging about the culture and how other people were suckers.

The health piece is that tons of these companies were never profitable in the first place or segments of businesses were loss leaders, living off the strength of cheap capital. Those days are done and the dominos are falling.

They're growing up...both the 25 year olds like those in the clip above, and the companies who realize they actually have to have positive net income or at least EBITDA

These companies have never been profitable and don’t seem to want that.

 

[mastermind]

Here is an article from this stanford professor on why they are laying off employees. (They are copy cats)

What explains recent tech layoffs, and why should we be worried?

As layoffs in the tech sector mount, Stanford Graduate School of Business Professor Jeffrey Pfeffer is worried. Research – by him, and others – has shown that the stress layoffs create takes a devastating toll on behavioral and physical health and increases mortality and morbidity substantially...

news.stanford.edu

What explains why so many companies are laying large numbers of their workforce off? The answer is simple: copycat behavior, according to Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business.

Here, Stanford News talks to Pfeffer about how the workforce reductions that are happening across the tech industry are a result mostly of “social contagion”: Behavior spreads through a network as companies almost mindlessly copy what others are doing. When a few firms fire staff, others will probably follow suit. Most problematic, it’s a behavior that kills people: For example, research has shown that layoffs can increase the odds of suicide by two times or more.

Moreover, layoffs don’t work to improve company performance, Pfeffer adds. Academic studies have shown that time and time again, workplace reductions don’t do much for paring costs. Severance packages cost money, layoffs increase unemployment insurance rates, and cuts reduce workplace morale and productivity as remaining employees are left wondering, “Could I be fired too?”

For over four decades, Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior, has studied hiring and firing practices in companies across the world. He’s met with business leaders at some of the country’s top companies and their employees to learn what makes – and doesn’t make – effective, evidence-based management. His recent book Dying for a Paycheck: How Modern Management Harms Employee Health and Company Performance–And What We Can Do About It (Harper Business, 2018) looks at how management practices, including layoffs, are hurting, and in some cases, killing workers.

…

Why are so many tech companies laying people off right now?

The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing. If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it. Layoffs are the result of imitative behavior and are not particularly evidence-based.

I’ve had people say to me that they know layoffs are harmful to company well-being, let alone the well-being of employees, and don’t accomplish much, but everybody is doing layoffs and their board is asking why they aren’t doing layoffs also.

What are some myths or misunderstandings about layoffs?

Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm. Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty. Layoffs do not increase productivity. Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue. Layoffs are basically a bad decision.
Companies sometimes lay off people that they have just recruited – oftentimes with paid recruitment bonuses. When the economy turns back in the next 12, 14, or 18 months, they will go back to the market and compete with the same companies to hire talent. They are basically buying labor at a high price and selling low. Not the best decision.

People don’t pay attention to the evidence against layoffs. The evidence is pretty extensive, some of it is reviewed in the book I wrote on human resource management, The Human Equation: Building Profits by Putting People First. If companies paid attention to the evidence, they could get some competitive leverage because they would actually be basing their decisions on science.

 

[Ed MOTHERFUCKING G]

These companies have never been profitable and don’t seem to want that.

...they didn't care about profitablity because they were growing with public investment and cheap credit. So they could just grow and grow, and feed the growth with hiring.

Since cheap capital is done, investors are looking at growth rates flat or down and aren't investing as much or going elsewhere (plus savings rates being higher and people stashing cash instead of investment), their house of cards is falling.

They have to be profitable in order to grow now. And layoffs are a way to do it. It's always why costs of services and fees in tech platforms have been rising.

 

[mastermind]

...they didn't care about profitablity because they were growing with public investment and cheap credit. So they could just grow and grow, and feed the growth with hiring.

Since cheap capital is done, investors are looking at growth rates flat or down and aren't investing as much or going elsewhere (plus savings rates being higher and people stashing cash instead of investment), their house of cards is falling.

They have to be profitable in order to grow now. And layoffs are a way to do it. It's always why costs of services and fees in tech platforms have been rising.

These companies are still awash with capital.

 

[Ed MOTHERFUCKING G]

Here is an article from this stanford professor on why they are laying off employees. (They are copy cats)

What explains recent tech layoffs, and why should we be worried?

As layoffs in the tech sector mount, Stanford Graduate School of Business Professor Jeffrey Pfeffer is worried. Research – by him, and others – has shown that the stress layoffs create takes a devastating toll on behavioral and physical health and increases mortality and morbidity substantially...

news.stanford.edu

…

I straight up disagree with the article. There are material flaws:

Specifically it cites an article which cites the following research

A study of 141 layoff announcements between 1979 and 1997 found negative stock returns to companies announcing layoffs, with larger and permanent layoffs leading to greater negative effects. An examination of 1,445 downsizing announcements between 1990 and 1998 also reported that downsizing had a negative effect on stock-market returns, and the negative effects were larger the greater the extent of the downsizing. Yet another study comparing 300 layoff announcements in the United States and 73 in Japan found that in both countries, there were negative abnormal shareholder returns following the announcement.


Layoffs don't increase individual company productivity, either. A study of productivity changes between 1977 and 1987 in more than 140,000 U.S. companies using Census of Manufacturers data found that companies that enjoyed the greatest increases in productivity were just as likely to have added workers as they were to have downsized. The study concluded that the growth in productivity during the 1980s could not be attributed to firms becoming "lean and mean." Wharton professor Peter Cappelli found that labor costs per employee decreased under downsizing, but sales per employee fell, too.

The research is 20-40 years old. Before the industry at hand even existed. Furthermore, it discussed the mental health impact of layoffs which is irrelevant to this discussion.

I don't share too much about what I do but I've worked in commercial banking and lending for 16 years. I know first hand the immediate impact of cutting overhead thru layoffs in 1Q alone. And companies in 2020-21 saw thru extremely necessary layoffs ways to improve efficiency and have survived with lower overhead, improving profitablity.

I respect you coming with a legit article though.

 

[JetFueledThoughts]

I think it’s healthy tbh.

There’s still a lot vacant jobs in “tech”. I get hit by recruiters fairly regularly.


But it’s mainly for hybrid/ in person gigs.

This. I wasn’t in the labor market in ‘09 but all I heard were stories of people being laid off then having trouble finding a new job for 9-12 months.

I’ve seen hundreds of co-workers and people in my tech network laid off the last 6-9 months, and I see the majority of them pop up on LinkedIn with a new job in the industry in like 60 days or less.

 

[Ed MOTHERFUCKING G]

These companies are still awash with capital.

The access to cheap capital doesn't apply as much to the big guys like meta, Google, Amazon, they are cutting people's they have unprofitable LOBs. Spotify for example:

Spotify cuts 6% of its workforce — read the memo CEO Daniel Ek sent to staff

Spotify announced it is cutting 6% of its global workforce, as the music streaming giant contends with a gloomy economic environment.

www.cnbc.com

"In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our employee base by about 6% across the company."

To offer some perspective on why we are making this decision, in 2022, the growth of Spotify's OPEX outpaced our revenue growth by 2X. That would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap. As you are well aware, over the last few months we've made a considerable effort to rein-in costs, but it simply hasn't been enough. So while it is clear this path is the right one for Spotify, it doesn't make it any easier—especially as we think about the many contributions these colleagues have made.

Everyone over hired for planned growth and expected continued investment. And why is that problematic?

Tech firms faced a reckoning in 2022 as interest rate hikes from the U.S. Federal Reserve made shares a less attractive bet for investors.

Less access to cheap capital, and improved savings returns make unprofitable tech companies with huge overhead unattractive.

 

[CrimsonTider]

These companies are still awash with capital.

Still all of this is forward looking.

 

[Apollo Creed]

The access to cheap capital doesn't apply as much to the big guys like meta, Google, Amazon, they are cutting people's they have unprofitable LOBs. Spotify for example:

Spotify cuts 6% of its workforce — read the memo CEO Daniel Ek sent to staff

Spotify announced it is cutting 6% of its global workforce, as the music streaming giant contends with a gloomy economic environment.

www.cnbc.com

Everyone over hired for planned growth and expected continued investment. And why is that problematic?

Less access to cheap capital, and improved savings returns make unprofitable tech companies with huge overhead unattractive.

yeah I hate people loss their jobs, but the Employee Count boom that happened during covid was crazy (meaning 2021 and 2022, as anything that happened in 2020 was based on planning done in 2019, and the main actions I saw in 2020 were companies promising to not lay any one off during the pandemic/a few months.

Lotta folks bragging about having multiple remote jobs and not really looking at it as a quick lick but thinking this could last.

 

[Ed MOTHERFUCKING G]

https://www.bizjournals.com/seattle/news/2023/01/22/avalara-layoffs-private-equity-acquisition.html

 

[JLova]

Healthy my ass.

 

[NZA]

big tech growing up

 

[Starski]

I forgot which big tech company it was (want to say Microsoft) but they increased headcount 30%+ from ‘19 - ‘21

Whatever adjective you want to use to describe what’s going on (healthy /unethical/ whatever) things always revert to the mean and ‘20/‘21 were the outest of outliers.

 

[Apollo Creed]

I forgot which big tech company it was (want to say Microsoft) but they increased headcount 30%+ from ‘19 - ‘21

Whatever adjective you want to use to describe what’s going on (healthy /unethical/ whatever) things always revert to the mean and ‘20/‘21 were the outest of outliers.

more so 2021/early 2022 when everything happened.

 

[mastermind]

I straight up disagree with the article. There are material flaws:

Specifically it cites an article which cites the following research


The research is 20-40 years old. Before the industry at hand even existed. Furthermore, it discussed the mental health impact of layoffs which is irrelevant to this discussion.

I don't share too much about what I do but I've worked in commercial banking and lending for 16 years. I know first hand the immediate impact of cutting overhead thru layoffs in 1Q alone. And companies in 2020-21 saw thru extremely necessary layoffs ways to improve efficiency and have survived with lower overhead, improving profitablity.

I respect you coming with a legit article though.

My issue is you think big tech is different from other companies. The underlying issues addressed in that study still exist for layoffs Today.

here is another article from HBR on corporate layoffs:

What Companies Still Get Wrong About Layoffs

Research has long shown that layoffs have a detrimental effect on individuals and on corporate performance. The short-term cost savings provided by a layoff are often overshadowed by bad publicity, loss of knowledge, weakened engagement, higher voluntary turnover, and lower innovation — all of...

hbr.org

Layoffs negatively impact companies in real but hard-to-measure ways.​

Since 1990, researchers have studied the effects of layoffs on firm performance to understand whether planned-for improvements are realized in practice. The results are less clear than one would expect.

The findings of two decades of profitability studies are equivocal: The majority of firms that conduct layoffs do not see improved profitability, whether measured by return on assets, return on equity, or return on sales. Layoffs are especially hard on the performance of companies with a high reliance on R&D, low capital intensity, and high growth. Market response to layoffs was also less positive than might be expected, with three-day share prices of firms conducting layoffs generally neutral. Higher valuations were given for layoffs perceived as helping firms in financial distress return to profitability as well as those that were strategic and forward-looking. Layoffs undertaken only for the purpose of reducing costs tended to lead to drops in share price.

Another study focused on Fortune 1000 firms between 2003 and 2007 — a period of economic prosperity — to try to minimize the confounding effects of layoffs undertaken during different economic conditions. Replicating earlier longitudinal studies, it found that layoffs do not, in general, offer immediate financial improvements. Firms conducting layoffs underperformed firms that did not conduct layoffs for the first two years, achieving comparable performance by year three on measures of return on assets, profit margin, and economic growth. The authors conclude, “For downsizing companies to gain a competitive advantage to outperform their competitors, it probably will take even longer.”

Layoffs have direct costs, including severance and the continuation of health benefits which can lead to substantial restructuring charges that eat into hoped-for margin improvements. As a thought experiment, multiply the salary of 11,000 Meta employees by four months — increasing it perhaps to five to account for an open-ended extra week of severance for every year worked. Add to that the cost of extending health benefits for six months … you can see how the numbers can add up.

But those year-one costs would not fully explain why companies that conduct layoffs underperform for nearly three years longer those that do not. The reasons are in the well-researched hidden costs of layoffs. Employees who survive the layoff may struggle with anxiety, insecurity, low morale, sadness, and survivor guilt, which lead to disengagement and hinder job performance. Research shows show that anxiety about job security, grief for coworkers who were let go, and overwork can reduce innovation. Quality may decline as employees focus on improving productivity to keep their jobs. Managing talent becomes more difficult as existing staff resign. Reputational damage may make it harder to attract high-quality new hires.

The breadth of these effects explains how post-layoff underperformance happens — and how it can be missed, since the impacts are dispersed throughout the firm in activities and functions that might not appear at first to relate to layoffs. There are many important reasons for restructuring and workforce reductions, including ownership changes through divestitures and M&A activity, efficiency improvements, down market conditions and financial challenges, and geographic and market changes.

The underperformance does lead, however, to an inescapable conclusion: Layoffs — and workforce change in general — still can be done smarter and better.