“These are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn’t adapt to platform shifts,” wrote Satya Nadella, Microsoft’s CEO in a recent blog explaining why the company was cutting around 10,000 jobs in the coming months.
Microsoft, which claims that 2022 was a record year financially, is one of many tech firms that have committed to redundancies. Some are more eye-catching than others. For example, fast-growing payments firm Stripe announced at the end of last year that it was cutting 14 percent of its workforce, blaming over-hiring. Salesforce, the poster child for the SaaS industry, is cutting around 10 percent of its employees, with CEO Marc Benioff claiming, “as our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that.”
The numbers are stacking up, but as tech redundancy tracking site Layoffs.fyi shows, this is not just about the Big Tech players. The site claims that already this year, 122 tech businesses have laid off over 37,000 employees. While over-hiring during the pandemic may be one reason for cutting headcount, the breadth of the layoffs suggests something more seismic.
Maybe Nadella is right to say that this is more about a platform shift, perhaps with tech firms predetermining the challenges around AI and automation and using economic uncertainty as an additional reason to shed staff. We’ve seen it before. After the dot-com boom and bust in the early noughties and the banking meltdown in 2008, technology trends, such as cloud computing, business process management and virtualization were shaping the industry and creating new opportunities for growth.
As Jaco Vermeulen, CTO at tech consultancy BML Digital suggests, hiring and firing can be “competition tactics”, adding that “the Big Tech firms are actually more rightsizing than responding to macro-economic shifts, and this is linked to innovation projects and products not progressing”. Vermeulen adds that this is also “a reaction to stimulate profitability and share figures” and that by the end of 2023 “you will see this cycle complete”.
Redundancies and rep
While some see redundancies as a short-term solution to balance the books, others will see it as a long-term opportunity to consolidate and pivot. It feels like a leveling-of-the-playing-field moment, where companies are jostling for positions to take advantage of new technology trends. These are usually moments in tech history where new entrants emerge, or even new leaders.
Redundancies dent my confidence – Richard Speigal, N Brown Group
Despite the redundancies, this is not an industry in recession. Gartner is forecasting a 2.4 percent increase in IT spending this year, to $4.5tn (down from a previous forecast of 5.1 percent but still in the plus column), with distinguished VP analyst John-David Lovelock claiming that “enterprises continue to increase spending on digital business initiatives despite the world economic slowdown”.
On the surface at least, the redundancies can paint an alternative picture, one where headline redundancy figures can impact brand perceptions.
“Redundancies can signal de-investment and a likely slowdown in feature releases, which ultimately influences our procurement decisions,” says Richard Speigal, head of data visualization at N Brown Group, an online retail business managing brands such as Simply Be and Jacomo. “If we’re already using this software, will competitors overtake it and force us into a re-tooling decision later?”
Speigal adds that Salesforce’s recent redundancy round has “certainly shaken Tableau’s place on our list of potential strategic BI tools,” pointing to the likes of Qlik and ThoughtSpot as alternative contenders.
“We invest heavily in using this type of software, not least in recruiting and training people to use it, so I can’t fail to factor in feature trajectory as part of our decision,” adds Speigal. “Redundancies dent my confidence.”
Speigal is not alone in his reaction to sweeping tech redundancies. There is a reputational issue here, certainly if redundancies are mishandled or in large quantities. As recruitment firm LLH Recruitment Solutions writes, “significant damage can be done to a company’s reputation, including far-reaching consequences such as harm to the organizational culture and investor confidence”.
Lloyd Davey, a partner at the employment law firm Stevens & Bolton recently said, “Businesses should think about the long-term risks to their reputation of a rushed or flawed redundancy process. This is particularly the case for any business in the public eye as redundancy processes can significantly damage a brand and reduce customer engagement and loyalty.”
There is some truth here. Regardless of the reasons, these redundancies unsettle the market and could certainly influence buying decisions and even investment. In fast growing areas such as business intelligence tools where there is increasing competition, this could be a factor in longer-term buying decisions.
Small brands, big talent
However, there is a flip side to all of this. At a time when tech skills are in short supply, the market is being flooded with people with Big Tech experience. One company’s loss can be another’s gain.
“2023 will be a prime opportunity for smaller companies to snap up some of the best tech talent,” says Mark Chaffey, co-founder and CEO of technology recruitment firm hackajob. The company claims to have seen a recent 38 percent increase in candidates joining the platform from Big Tech businesses.
It’s an amazing chance for SMEs to snap up some of the UK’s best talent – Mark Chaffey, Hackajob
“It’s an amazing opportunity for smaller businesses – across retail, education, banking, fashion – to snap up some of the best talent in the UK,” adds Chaffey. “In previous years, there was no way these companies could compete – but 2023 marks a new era of tech recruitment.”
As Speigal hints, the upheavals we are seeing in tech employment can have a knock-on effect. While it may shake confidence in product updates and support, would it force a complete change of direction towards new entrants and disruptors?
“Rarely,” says Speigal. “If it’s for anything more than a Miro board, enterprise procurement is a long process. We need reliability, scale and genuine ease of integration with partners we trust. We’ve all been burned by hasty decisions to buy the latest cool thing and I’m happy to let others jump first.”
That’s the challenge for any enterprise software business looking to break into new sites. Reputation and trust are important and take time to build, something which new entrants struggle with by their very nature. But, as we know, reputation can also be harmed quickly.
As Speigal says, it comes down to “productivity” and whether or not a tool can make things go faster and people work better. But if businesses start shedding people and making noises that they are worried about the economy and how they are going to handle it, it’s not a good look. As Gartner’s numbers suggest, this is not a market in retreat. Businesses are looking for help, positive support and ideas about how to manage their own economic challenges.
All change in 2023
Certainly, there is concern among CEOs that they are not up to speed when it comes to technology and skills. As PwC’s global CEO survey of 4,410 CEOs recently found, there is widespread concern about the long-term viability of their organizations. Almost a quarter of UK CEOs believe their business will not be economically viable within 10 years, if they do not make significant interventions to change course.
“Businesses have already undergone massive change this decade, with hybrid working and cloud computing among the big shifts. But this is the tip of the iceberg – many CEOs believe their current business models are unsustainable and this means more change ahead,” says Kevin Ellis, chairman and senior partner, PwC UK.
In the UK alone, 40 percent of CEOs believe their company’s tech capabilities lag behind the demands of their strategic objectives. According to Ellis, this is going to trigger “fundamental changes” this year with “big investment in people, skills and technology”.
That should be an incentive, particularly for enterprise technology vendors. IDC claims that enterprise applications sales will have a five-year compound annual growth rate of eight percent through to 2026, supporting businesses with their objectives.
Many CEOs believe their current business models are unsustainable – Kevin Ellis, PwC
So, how does this fit with the image of tech redundancies? Out of all the major announcements, Nadella’s is the most intriguing. The recognition of how technology is evolving quickly, specifically in the cloud, through automation and even in the potential of the metaverse, can be seen in Microsoft’s Gartner report of top strategic tech trends for 2023. But it’s a balancing act. This year is not expected to see huge shifts in the sorts of technologies businesses want to buy. Digital transformations are expected to continue across all sectors – but customers are making different demands. They want outcomes delivered through ecosystems of partners. These changing relationships with customers are going to impact how vendors deliver products and services and the sorts of skills they will require to make it happen. Reputation counts.
As CompTIA warns in its IT Industry Outlook 2023, “In the year ahead, the expanding vendor landscape is going to prod both new and established players to up their game to stand out among the rest. Greater choice and the ubiquity of technology will also have an impact on established business practices across the digital economy.”
This has a knock-on effect, regardless of economic outlook. Redundancies to trim staff for short-term economic gain is one thing. To make redundancies citing industry change is another. As recruitment firm Hays suggested recently, recruitment in tech is as strong as ever, but demand for certain roles is changing. Skills gaps are not a thing of the past but how tech firms manage recruitment this year is critical. Not just to fuel change and realize opportunities but to also improve reputations. After all, shedding employees is never a good look, no matter how you spin it.