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Business News/ Opinion / Columns/  Meta layoffs reveal the end of US tech sector exceptionalism
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Meta layoffs reveal the end of US tech sector exceptionalism

During the global tech sector’s pandemic-era boom, employee headcount became one of the reigning barometers of success

Tech firms must apply the same rigour to firing that they did to hiring (Photo: iStock)Premium
Tech firms must apply the same rigour to firing that they did to hiring (Photo: iStock)

During the global tech sector’s pandemic-era boom, employee headcount became one of the reigning barometers of success. Quarter after quarter, alongside traditional metrics like revenue growth and operating margin, companies across Silicon Valley in California, US, proudly reported to analysts and investors the thousands of workers they had added to their ballooning payrolls.

A prime follower of this more-the-merrier hiring approach was Facebook, Instagram and Whatsapp’s parent company Meta Platforms, which for the last three years grew its employee base at a dizzying pace. Between the end of 2019 and its peak headcount in 2022, this American company nearly doubled in size to some 87,000 employees. That’s a blistering pace.

The hiring sustained its ambitious (and in some cases seemingly ill-fated) projects like its big bet on the so-called metaverse. But it also let the company take an aggressive stance in the sector’s talent wars, as it scooped up skilled tech workers rather than watch them migrate to competitors. Recently, a former Meta employee who was laid off in the first round of cuts, said in a video posted on rival platform TikTok that it “seemed like Meta was hiring us so other companies couldn’t have us and then they were just kind of hoarding us like Pokémon cards."

But now in a serious case of corporate whiplash, Meta Chief Executive Officer Mark Zuckerberg on Tuesday said that the company would slash an additional 10,000 employees on top of the 11,000 in cuts announced in November. Taken together, that’s a nearly 25% reduction of its workforce from the company’s peak just six months ago. Investors sent the stock up 7.25% Tuesday, though the shares are still hovering at around half the value reached during their 2021 zenith.

The intense tech hiring boom has now turned into a hiring bust—less euphemistically known as mass layoffs. On the surface, these deep staff cuts are about all the usual things that layoffs are meant to signal: controlling costs, making Wall Street happy, etc. But they also reflect a deeper shift in thinking about the metrics that matter in a tech sector that has long been able to make up its own rules.

During the pandemic, as tech CEOs accelerated their empire building, a massive and growing headcount somehow became equated with a company’s overall health—a sign that it had cash, clout and big ambitions. Apple Inc was unique in avoiding a pandemic-fuelled hiring binge, and thus big layoffs. But for the rest, a mammoth employee base now means bloat and a lack of discipline, hence why Zuckerberg has dubbed 2023 Meta’s “Year of Efficiency."

Tech companies are instead turning to more traditional ways to measure success. This is partly because that’s what Wall Street demands as the economy and their performance sours. At Salesforce, for example, CEO Marc Benioff for years was able to defy calls to grow the company’s profitability alongside revenue. Now, as he faces off against a half dozen activist investors, he has cut his workforce by thousands and has zeroed in on profit margins. For Zuckerberg, broad restructuring also lets him quietly pull back on business ventures that don’t seem to be going anywhere, such as his misguided efforts to sell virtual reality (VR) headsets to employers.

One source of inspiration for slimming down comes from none other than Elon Musk, who has decimated Twitter’s staff since acquiring the social media platform last year. It has gone from 7,500 employees to about 2,000, with reportedly an additional 10% of employees cut as recently as last month. That Musk has somehow been able to keep the social media platform running—many would argue just barely, though—on a demoralized skeleton crew has likely given other tech CEOs license to reevaluate the scale of their own operations and their ability to do more with less.

Silicon Valley enterprises tend to work in a herd mentality. They hire together as a pack and they fire together. That’s one reason why so many of the initial cuts across the sector fell in the 6% to 10% range of a company’s overall head count. There doesn’t appear to be any real magic to those numbers, other than that’s what the other guy was doing.

With Meta now hitting a nearly 25% staff reduction, there is a real likelihood that others in the world of technology [at least firms based in the hire-and-fire-happy US], will follow suit. But if there was ever a time to break free of tech’s groupthink mentality, this is it. The companies that apply more rigour to their layoff decisions than they did to their freewheeling hiring will be the ones that reap the greatest benefit in the long run.

Beth Kowitt & Parmy Olson are, respectively, Bloomberg Opinion columnists covering corporate America and technology.

 

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Published: 16 Mar 2023, 10:54 PM IST
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