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The tech firms that are laying off workers will regret it because the cuts can leave lasting damage

Satya Nadella, CEO of Microsoft.Satya Nadella, CEO of Microsoft, has announced plans to cut 10,000 jobs, amounting to 5% of the company’s workforce.

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  • Major tech firms including Google, Meta, and Amazon, have recently laid off staff.
  • But layoffs take the sheen off big tech firms’ brand image, experts told Insider.
  • Not only do the cuts hurt their reputations as employers, they also dent morale and innovation.

Tech firms that are slashing jobs and laying off staff are making a “major mistake” because future job candidates will remember how those organizations managed amid economic uncertainty and how they treated employees as they showed them the door, tech and strategy execs say. 

Big Tech companies including AmazonSalesforce, Spotify, and Meta, have shed tens of thousands of workers in recent weeks, citing a slowing economy. Google cut 12,000 staffers and Microsoft cut 10,000 jobs, amounting to 5% of its workforce.

In many cases, these firms have operated solely during tech’s bull run, raising huge amounts of cash, going public, and hiring expansively. For ambitious tech jobseekers, these companies were seen as employers of choice.

But the mass layoffs and the way they’ve been handled will remove some of that sheen, experts say. Not only will the layoffs hurt the companies’ brand reputations for future recruiting, they will also deflate the morale of remaining workers and dent innovation.

“Every time I see a notice in the news that such and such technology company has cut X percentage of their workforce, I don’t forget that,” Danny Allan, chief technology officer at software firm Veeam. “So you’re sending a message that also has a brand impact that you don’t necessarily want to be associated with.

“Employees remember and people looking for jobs remember how organizations acted during the economic downturn.”

Layoffs do more than strip people of their livelihoods

Research published in the Harvard Business Review shows that a layoff’s short-term cost savings to a company are obscured by the negative press, loss of institutional knowledge, reduced engagement, higher voluntary turnover, and lower innovation — all of which hit the company’s bottom line.

One possible explanation for recent spate of mass layoffs is irresponsible hiring, according to Richard Mabey, CEO of contract automation platform Juro, driven by firms over-extending during the boom times.

“The layoffs that are now happening seem to be, not in all cases but in some cases, corrections to that behavior of excess which has happened over the last couple of years, while money has been cheap and easy,” he said. 

Mabey said that cutting certain teams blindly will lead to slow growth in those areas, affecting future revenue negatively because it’s “short-term cash saving, medium-term pain.” 

Even if layoffs are financially sensible, they can hurt a company’s reputation and longer-term growth.

“One is simply the loss of innovation, cutting resources,” said Allan. “You’re cutting your investment in future technology, that’s number one. Number two, when you cut 10% of your workforce, you’re sending the message to your employees that we care more about money than we do about you. 

“And employees have a long memory, so if you’re cutting people that uncertainty is very disconcerting.” 

Clare DeNicola, a principal at the10company, a strategic communications consulting firm, told Insider that the recent tech layoffs are likely to harm these companies’ employer brands because of the way they’ve been mismanaged, which has drawn bad publicity.

One engineering manager at Google who’d been with the company for more than 16-and-½ years wrote on LinkedIn that he found out he’d been laid off via an automated account deactivation at 3 a.m. He said he hadn’t received any other “information” or “communication” about being let go. Even if he did receive communication, he was unable to access it because of the deactivation. Other accounts echo this experience.

“These seem to be particularly cold layoffs,” said DeNicola. “It’s surprising to me that these employers think it’s OK to do that.”There are steps they could have taken to make them more humane. 

A lesser brand and lower morale

Studies show that layoffs tend to raise surviving employees’ levels of stress and anxiety and to lower their morale and sense of job satisfaction. New research suggests layoffs might also push them out the door. Visier, a human-resources analytics company, found that when employees were laid off or terminated, the likelihood that their direct colleagues would quit was 7.7% higher than if those employees had remained. 

Instead of taking a hardline cutting and savings approach, tech firms should refocus on retaining loyal employees and cultivating talent, experts told Insider.

“The strength of the companies is on the talent you have as it’s a people-based world,” Allan said. “While it is true that we build technology, it’s also true that technology is written by people. So the long-term sustainable differentiation of any company is the strength of the people.”

He added: “Giving your employees confidence and clarity of what your future holds is probably the best thing that you can be doing during any kind of economic challenge.” 

Mabey agreed saying that “radical” honesty is the best approach. He gave an example of sharing Juro’s cash balance with the employees to show what the company is spending on. He said that it helped “give people the context of the realities of the tough things that are going on.” 

If layoffs are unavoidable then empathy is vital, both agreed. 

Mabey said: “It starts with understanding how extremely painful that is for an employee. It’s only a little bit painful for a company, and a little bit painful for a CEO.” 

Allan added: “I always say that employees are not resources to manage, they’re individuals to value. So if you do need to lay off employees, and sometimes you do and it’s the hardest part of my job, you want to help them land in a place that is good for them. 

“First of all, recognize they have a family and a life and are dependent on you for for for a paycheck, so help them to the maximum extent possible.”

An earlier version of this story appeared on November 15, 2022.

Read the original article on Business Insider