My Take on the current lay-offs in the tech industry

As leaders we are always told to focus on positives and not get too caught up with overall macro since you have no control over it. There is of-course lot of merit in this approach because a leader is supposed to be a source of inspiration and certainly can’t come across as weak devoid of ideas. But with so much happening, it is impossible and in-human to not get distracted and start questioning your business model, your cost base, your team composition, your leadership impact and business outlook and forecast.

Being in the IT staffing industry, I can perhaps speak as an insider because much of the talk of the economic slowdown started with the news of lay-offs in the tech Industry. The trend has continued in this year and would probably continue for another 3-4 months. In the last 70 plus years history of liberal democracy when states and nations were conceptualised, there has never been a single instance where all the economist in the world were able to accurately predict recession. Therefore in Q-3 of last year when there was a unanimous consensus that world will go into recession, I was truly surprised. But as it has happened so far, US and Eurozone have avoided a recession, infact have grown mildly. China has completely opened up and India and Middle East will continue to grow. Suddenly the outlook for global growth has brightened and has changed from deep recession to mild growth. Once again economist have got it wrong. Labour market on the other hand continues to be super tight, inflation is bottoming out and yet in the midst of all of these, we continue to hear about lay-offs with Tech and now banks joining the bandwagon. So let’s step back a little and de-construct what is really happening now and what should be the relationship of business and talent going forward.

• Inflation at one point in time became 10% plus, should not come as surprise because this is exactly what trillions of dollars of free money doe. Simple economic principal taught in “economics for dummy”
• Tech industry laying off thousands of workers should not come as a surprise because if you do an abnormal amount of hiring( Doubling and tripling your headcount in 2 years), you are bound to realise honeymoon is over once technology demand normalises.
• Demand environment appearing soft should not come as a surprise because this is exactly what policy makers want by raising interest rates. They want supply to match demand.
• Lay-offs at tech does not suggest that people are using less technology than 2 years ago. It simply means that use of technology has normalised with most other complimentary sectors having opened fully.
• Mistake that most tech companies did was to assume that break neck pace of technology consumption will continue forever and hired at break neck pace distorting wages and creating a retention and talent acquisition nightmare. Almost all of them were guilty of adding excess capacity putting pressure on non-tech and small companies.
• Lay offs at tech companies should be differentiated from lay-offs of techies. Only 30-40% of all the lay-offs have happened to those with tech skills. It is the non-tech skills such as marketing, HR, recruitment, media, content etc that have suffered most. Once again anyone who builds excess capacity in areas which is not core to them is bound to go through correction.
• Despite all the lay-offs , what explains tight labour market and still high consumer spending? Once again reasons are easy to find. Talent/Skill shortage and pent up demand in sectors other than technology. Pent up demand is temporary in nature, Talent shortage is structural and will continue to be the case for next 10-20 years.

Relationship between Talent and Business in this environment

So having established that none of what we are seeing should have come as a surprise and yet I see several businesses reacting to the current economic uncertainty as if it’s a shock from the sky and therefore they must re-calibrate their business model, go into shell, preserve cost and assume that the mis-match between demand and supply of talent has eased with lay-offs. The lack of empathy shown by companies while firing thousands of employees over night over an email has been considered a difficult but right decision in the best interest of the business. The role of HR has over night changed from being the catalyst of retention and talent acquisition to expulsion and redundancy. Granted that hiring is cooling off, a sense of stability in job hopping and wage expectation is returning but let this not create a sense of false complacency that skilled talent is no longer in demand and that business no longer needs to do proper workforce planning, invest in up-skilling, make investment punt into strategic areas and treat employees with a culture of empathy and engagement. Once again the reasons are obvious

1)    Declining population, ageing workforce, changing nature of skills and large number of workers deciding not to return to workforce post Covid means that talent shortage will continue to persist for foreseeable future.

2)    Just because retail store is open or a travel agency is open, does it mean people will no longer do online shopping or book flight and hotel over a website? Certainly not. The consumption of technology will return to the pre-covid levels.

3)    There is nothing to suggest that demand for cloud, cyber, AI, ML will come down anytime soon. Yes the days of hiring at 80-100% pay increment is probably over and soon the candidates though in demand will temper their expectation.

4)    Technology alone will remain as the enabler of cost savings in near future. Business are likely to increase its adoption to eventually reduce cost in near term. Labour shortage in IT will continue to plague the industry. Hence, business that are interested in creating long term value will continue to do workforce planning and battle for the talent war.

5)    Different workforce models may emerge like contingent staffing. Business while navigating the current economic uncertainty may prefer hiring qualified talent on contract instead of permanent rolls.

In world riddled with structural phenomenon such as talent shortage, demographics collapse, declining population, change of skills, talent with relevant skills will continue to remain supreme. Creating a culture of empathy, establishing a sense of purpose, flexibility of targets and expectation with changing environment, treating employees with the same sensitivity as shareholders will have to continue to be important. What the last 2-3 years have taught us is that ebbs and flows happen in business now a days more frequently than they used to happen in past. Therefore who is better prepared to capitalise on the positive trend coming soon and who adapts faster to the downtrend will make all the difference between a successful and un-successful business outcome. If business makes the mistake of thinking that replacing talent is easier than investing in them, they will be doing themselves dis-service. The relationship between Business and Talent was critical and will continue to be more critical in future.