The last couple of years have been among the most dramatic and challenging for businesses and people. The world is in a constant state of flux, as seen by the emergence of COVID-19 waves, record-high inflation, and mounting worries of a recession.
Tech layoffs are dominating the business headlines in 2023, particularly those from tech giants that have experienced tremendous growth in recent years. A WaPo report estimates nearly 200,000 IT professionals have been laid off since November 2022.
But what has happened in the market of 2023
- Has the demand for tech workers gone down?
- Are we moving towards a large-scale recession?
- Is this a bellwether for more industries being impacted?
- What went wrong with workforce planning?
However, the important thing is that layoffs are not widespread throughout the economy and are instead focused in the technology sector. Even the hardest-hit positions, such as software engineers, recruiters, and product managers, still remain in demand. This suggests that employees laid off from these positions would have little trouble finding employment in the near future.
So, why then, are companies resorting to mass layoffs?
Let’s find out the state of tech talent, the causes of mass layoffs, and the origins of this instability.
Tech Layoffs: What’s the state of the Tech talent ecosystem?
Over 50,000 IT professionals have been fired in mass layoffs in 2023. Public and private IT enterprises were forced to eliminate over 107,000 positions in the past year.
Some of the leading companies that have eliminated their workforce in 2022 and 2023 are:
Amazon: Amazon is eliminating nearly 18,000 positions, the bulk of which are within the Amazon Stores, People Experience, and Technology Solutions divisions.
Google: Alphabet Inc., the parent company of Google, will eliminate around 12,000 positions, or 6% of its global workforce.
Meta: Facebook’s parent Meta Platforms laid off around 11,000 employees, or roughly 13% of their workforce in November.
Microsoft: As the software sector anticipates sluggish revenue growth, Microsoft is letting go of close to 10,000 people.
IBM: IBM Corp. is eliminating 3,900 job roles as part of some asset divestments. The Layoffs, related to the Kyndryl spinoff, will cause a USD 300 Mn charge in January–March.
Twitter: In addition to laying off over half of Twitter’s workforce (around 3,800 people), the company has now terminated at least 4,400 more contract workers.
Cisco: As part of a “limited business restructuring” announced in November of last year, Cisco is laying off nearly 673 employees.
Spotify: Spotify is also set to slash 6% of its workforce, which amounts to about 600 employees.
These are just the major companies we’ve considered; if we add together all the other companies in the industry, the overall number is an alarming 200,000+ people.
Why are the Layoffs happening?
While layoffs are common and even cyclical in some companies, the recent untimely & aggressive wave points to deeper issues that can be categorized into two aspects.
First, the dynamic macroeconomic headwinds are beyond control, and second, ineffective talent management has weakened organizations from within.
While tech giants saw record revenue gains during the pandemic, the momentum has not carried over to the “new” normal, which has just turned out to be a repackaged version of the same old normal.
Although firms such as Zoom and Cisco flourished during the remote work period, their usefulness did not last long. Many companies are now calling their employees back to the office, thus eliminating the need for a remote work management tool.
Customers liked home-delivery services and got almost addicted to instant gratification through online shopping and social networking. The availability of leisure during the pandemic accelerated the expansion of these means, but as individuals returned to their jobs, the time spent on these platforms was reduced. Brick-and-mortar stores are still in fashion & a significant chunk prefer those over online shopping.
While economic instability and recession fears are often cited as justification for job cuts, a deeper investigation into the market reveals a better answer to the question “Why?”
6 Major Reasons for Layoffs in 2022-23
Over-Hiring During the Pandemic:
The over-hiring during the pandemic was not especially data-driven and was mostly based on the worldwide assumption that the pandemic demand would last for a long time. The effect of this hiring binge, with the example of Microsoft, Google, and Amazon, has led to an overabundance of employees against the number of people actually required.
Mergers and Acquisitions:
Mergers and Acquisitions resulted in a melting pot of individuals and their corresponding skill sets, forcing the elimination of several employees who were no longer necessary. Even though Aqui-hiring is a significant step, considering the workforce often exceeds normal limits, many companies also laid off employees citing the same reason.
Fear of recession:
Many economists pointed out that a global recession was likely in 2023, while the International Monetary Fund (IMF) gave a similar warning. Due to this, IT companies began to reassess their expenditure and prepare for a future recession. Companies also recognized that geopolitical tensions might continue to influence the global economy, and more monetary tightening could be expected.
Weak Consumer Demand:
Since the beginning of 2022, the global business ecosystem has faced several challenges in the form of growing inflation and declining consumer demand. As the global economy was already reeling under the pressure of Pandemic-induced market dynamics, the conflict between Russia and Ukraine aggravated the problem by disrupting a major trade route.
Rapid Rate Hike:
Persistently increasing consumer prices have also compelled central banks to opt for monetary policy tightening. After a long hiatus, almost all central banks started raising key interest rates. The US Federal Reserve was the first to raise interest rates from sub-zero levels, and it continues to do so while the central banks of other economies did the same.
Workforce and Cost Cutting:
A workforce that is too large is detrimental not only to an organization’s productivity but also to its bottom line. An oversized talent pool drags away a significant chunk of the revenue from the company, and the quickest way for companies to minimize costs is to cut down the workforce. Since most businesses cannot immediately cut their product lines or other initiatives, the workforce is almost always affected.
Minimizing Layoffs & Maximizing Productivity with Data
Even though many external factors contributed to these layoffs, it can be said that Hiring sprees and ineffective workforce planning played a significant role in this. While external influences such as recession, inflation, or rate hike cannot be controlled, the organization can control its talent management systems.
Most talent management practices are data-driven, but only a chunk of global data is used to guide them. In 2023, HR has to look beyond its organization and industry and assess the viability of global trends before deciding to hire or fire.
At Draup, we understand talent management to its core, and the two major mistakes made by companies during the pandemic were:
- Lack of data-driven workforce planning
- Reduced efforts to drive internal Mobility.
Workforce Planning for effective talent management:
Strategic workforce planning involves determining current, and future staffing needs using relevant talent data. This process uses detailed data analysis and projections to assess if existing employees can address skill shortages and, if not, where new hiring is required.
Using a strategic workforce plan, companies can build stable staffing levels across departments while ensuring they have the right people with critical skills in the proper places.
The most significant advantage of workforce planning is the elimination of surplus talent, which ultimately restricts your recruiting efforts so that you do not hire more than necessary. Eventually, this will also avoid layoffs since you’re never overstaffed.
Internal Mobility relies on quality Reskilling
Our research indicates that reskilling an existing employee is 23% cheaper than hiring a new employee. Reskilling could be a game-changer for the next decade by infusing quality employees with specific skills that can fuel the success of any organization in this period. With Reskilling, businesses may never need to lay off employees since each person will take up a relevant position.
With a Reskilling strategy, you can facilitate internal Mobility by creating career pathways for your employees to transition to adjacent roles as necessary. This not only cuts down acquisition costs but also ensures the retention of your staff since they remain with the organization.
Draup delivers unique role-level and skill-level insights not available on any other platform. This helps talent strategy teams build strategic location and role-wise workforce plans. Draup’s powerful AI engine applied to a database of over 4500+ roles, 30k+ skills, and 750 Million+ profiles across 2500 locations can help HR leaders navigate the uncertainty of talent in 2023.