Many major IT firms, including Google and other companies, are downsizing or reducing the number of their personnel during the past few years. Although the motivations for these measures can differ, several similar elements support these reduction attempts.
Cost-cutting is one of the primary justifications for downsizing. Salary, perks, office space, and other overhead expenses are only a few of the enormous costs large businesses like Google face. These costs may become unmanageable as companies expand and become more complicated. One strategy to lower expenses and boost profitability is downsizing. Companies can save money on salaries and benefits by reducing the number of employees, as well as on office space and other overhead costs.
A change in the company’s priorities is another justification for downsizing. Companies might shift their priorities as they expand and develop. For instance, a business can decide to grow into new areas or put more emphasis on research and development. Downsizing might be required to free up resources and reallocate them to these new priorities in these situations.
Downsizing can occasionally be a reaction to shifting market circumstances. Companies may need to adjust and restructure their operations to be profitable as industries become increasingly competitive. There can be several reasons that companies are downsizing:
Overstaffing of COVID:
Because of the COVID-19 pandemic, IT companies have hired more people because of the massive rise in demand for their products during the global lockdown. For instance, Google swiftly altered its video conferencing service, Google Meet, to support additional users during the pandemic. Also, Meta made fast changes to WhatsApp’s video conferencing feature. Because of the necessity for skilled professionals like product managers, engineers, and others to handle the quick changes, businesses have continued to grow their workforces. To keep up with the times, companies are trying to reduce their personnel because, since then, the products have advanced, and significant changes are no longer required.
After announcing the layoffs of 12,000 individuals, Sundar Pichai referred to this in a message to the staff. He remarked that there had been times of extremely rapid growth in the last two years.
Fund managers and early investors are putting pressure on major internet companies like Google, Meta, Amazon, Twitter, and others to act quickly to reverse the halt in their development.
In October of last year, Mark Zuckerberg, the founder and CEO of Meta, received a letter from Brad Gerstner, chair and CEO of Altimeter Capital, proposing employee reductions and corporate reorganisation.
The letter claims that because Meta has “too many people, too many ideas, and too little urgency,” it has “drifted into the zone of excess.” This lack of attention and fitness is concealed when progress is swift and straightforward but becomes fatal when growth slows, and technology develops.
Maturing of The Technology Sector
For the previous three decades, the tech sector has experienced fast expansion, and many think the latest job layoffs are a sign of the sector’s maturing following its period of hypergrowth.
We’re witnessing at Amazon, Apple, Microsoft, and other corporations that the clock has run out on hypergrowth, and they are now making cuts across the board, says Dan Ives, MD of Wedbush Securities. This investment firm manages funds totalling over $4 billion. Its cost structure rationalisation prepares for periods of slower growth.
New Investments With Negative Cash Flows
The huge giants of Silicon Valley have started many new investment ventures that have failed. The virtual reality and metaverse business of Microsoft, AltspaceVR, the robotics section of Amazon, and Bulletin, a rival to Meta’s Substack, are all in some respects futuristic industries that demanded huge investments yet swiftly depleted the funds. Due to the financial burn, businesses have also been striving to cut expenditures.
A few of these investments by nig technologists have negative cash flows, as explained by Ray Dalio, a seasoned investor and CIO of Bridgewater Associates. That suggests that they lacked the resources to support their high pricing. Also, they frequently needed more income.
Downsizing is a tactic that many sizable IT organisations are using to cut expenses, refocus, adjust for market shifts, and appease investors. The COVID-19 epidemic and the maturation of the technology industry also influence the downsizing tendency. Even if downsizing could be necessary to preserve profitability, businesses must treat the impacted employees with respect and understanding. It will be interesting to see how companies deal with the shifting terrain while balancing the needs of their stakeholders in the tech industry, which is continuously changing.