Almost every major tech company is experiencing a round of layoffs, even though most are making good profits. Many people have never seen vast layoffs like this, so the honest question is, why is this happening? Is it fashion, fatigue, or something more secular to blame? You can’t rule out fashion in a monkey-see, monkey-do way.
Since there’s reasonable overlap between many tech companies, especially those that harvest user data and sell it to advertisers, each will want to cut costs to remain competitive in the eyes of its shareholders. So you see companies lopping off roughly 10% of their workforces — about 200,000 in tech so far — presumably the least productive people.
But how did those people become so relatively unproductive? Two ways: gradually and all at once.
Many tech companies hired big during the pandemic, assuming we were headed for new workstyles. For the most part, those hires got inadequate onboarding and leadership from remote bosses, and many never got up to speed. That’s the gradual part.
The all-at-once part came when we decided the pandemic was over. Well, not really over, but we were out of patience for being patients — and we needed to come back to offices. We discovered that working from anywhere was not all it was cracked up to be.
So, although remote work is still ostensibly a possibility, management would like to see cubicles occupied in buildings they’re paying big bucks not to occupy. If you aren’t in the office for a good amount of time, you’re expendable.
The tech revolution of the 20th century also required a sizeable infrastructure buildout. True, businesses were the ones stringing cables throughout their buildings, and other businesses were building computers, routers, server farms, and, eventually, cloud infrastructure. But that buildout was real, and it took decades.
The recent shift during the pandemic had marks of another diffusion, this time, diffusing people back to their home offices. The industry hired big time to support the buildout. But then, mid-way through, everyone said wait a minute. The current great layoff (to pair with the Great Resignation) is partly a symptom of a great never mind from management.
We’re not dealing with an inventory system, so those last in do not necessarily comprise all the layoffs. The vendors presumably look at people with the best fit for the job ahead in their layoff deliberations, and the result is what we see.
It’s an inexact science which you can see from the nice round numbers that vendors are announcing. Part of the thinking will, of course, relate to what a company sees happening in the months ahead, and many are thinking about a recession.
However, there are recessions, and there are recessions.
Classic recessions happen when inventories build up, and businesses need to clear warehouses at discount prices. At those times, business needs fewer people to make things to fill the warehouses.
But the tech world isn’t looking at a classic recession scenario. Many make things that don’t ordinarily get stored; they aren’t tangible; they’re services, so the concern is reduced demand where greater productive capacity means turning a dial
The reason this is secular is that companies need to reduce productive capacity. In one way or another, many have concluded that they’ve built out their infrastructures as much as they need to, at least for the moment.
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