Why do tech companies lay off employees at the same time?

In early 2023, Microsoft and Google announced they were laying off 10,000 and 12,000 employees, respectively, worldwide. IBM also laid off nearly 4,000 employees and Spotify reduced about 6% of its workforce. Previously, Meta, Amazon, HP… also slaughtered thousands of people. Experts say companies can copy each other and learn some of each other’s solutions.

Equivalence in the subtraction operator

In accordance edgeparallels can be found in the statements of large technology companies. Most said they’ve grown rapidly during the pandemic, but so far demand has fallen, forcing them to cut staff.

With 11,000 layoffs late last year, Meta says it’s generating huge revenue as the world quickly goes online during the Covid-19 e-commerce boom. “Many expect the acceleration to continue even after the pandemic has passed. Me too, so I decided to increase my investment significantly. Unfortunately, the results weren’t what I expected,” said CEO Mark Zuckerberg.

In its statement, Microsoft cited “increased digital spending by customers during the pandemic.” So far, customers are turning to optimization and reducing digital costs, which is also forcing companies to change.

Appropriately, Google CEO Sundar Pichai also mentioned a phase of strong growth in the last two years. “To offset and support that growth, we are hiring for an economic reality that is different from the reality we are currently facing,” he said.

Similar content is also mentioned in ads from Amazon, Stripe, Spotify or Salesforce. edge see layoffs in technology companies as a trend these days. I’m doing this because other companies are doing the same.

Why cancel at once?

Among companies that have cut thousands of jobs, analysts are stating one fact: neither side is on the brink of bankruptcy. Some even still have good sales and earn a lot of money after the pandemic.

According to Michael Cusumano, dean of the MIT Sloan School of Management, this could be due to changes in the way investors evaluate company performance. In the past, when a company increased its sales by 20-30%, nobody cared about profits. However, the period of strong growth was over and people had become even more cautious. Now, one of the metrics that measures the value of investing in a business is revenue per employee. The increase in the number of employees during the pandemic caused this indicator to decrease.

Cusumano cites software companies like Microsoft that “should have an income per employee of $500,000 or at least $300,000.” “If the numbers fall below that level, they worry about overstaffing. So it needs to be monitored every year, even quarterly,” he said.

In theory, layoffs should help companies cut costs like salaries. But in fact they had to pay a lot of money to sign contracts. That number could be in the billions for companies like Google and Microsoft.

According to Stanford University professor Jeffrey Pfeffer, downsizing doesn’t necessarily help companies cut costs. Citing previous research, he said there was little evidence private rebates helped companies increase profits or boost stock prices. “But there is evidence that they have affected the profitability of the company,” he said.

He called the layoffs “stupid” and “tech companies copying each other.” According to this expert, however, layoffs can increase the stress of leaving and staying at a company, leading to decreased productivity. “Normally, companies do not have a cost problem. You have an income problem. Laying off employees does not increase sales, but reduces them,” said Pfeffer.

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