Culture is at the forefront of most Human Resource leader’s minds when thinking about their critical attraction and retention strategies. Arguably even more so in technology companies which are often founder led and as they grow, grapple with how they retain the very best attributes of their culture. Over the last two to three years we have seen the impact of low interest rates, high unemployment and huge injections of capital into tech companies where we saw a dramatic increase in revenues and a subsequent ‘hiring frenzy’. It was difficult not to be caught up in the whirlwind and excitement of fast growth and global expansion. The attraction of tech company culture and the perceived fun, excitement, growth and wealth creation for potential employees meant these companies were, and are, super attractive. The culture of tech companies was what many people were striving for.
However, as global economies have done a complete U-Turn, these same companies now face glaring issues around affordability and sustainable growth, finding themselves burdened with high cash burn rates and high costs, often arising as a direct consequence of their swift growth during this period: ‘The post-Covid reality’.
With the global economy facing ‘multiple threats’, businesses around the world are now heading into cost-cutting mode to enhance their prospects of achieving long-term sustainability. This has been most pronounced in the technology sector.
Generally in a market downturn, and as pressure on costs rise, marketing expenditure is the first function to be cut (often a mistake). Next to go are the workforce. This is happening now and occurring worldwide, with international examples including Meta cutting more than 11,000 jobs and Twitter cutting nearly 50% of their global workforce under the new control of Elon Musk. In Australia, Menulog have recently reduced their headcount, whilst Deliveroo have pulled out of Australia altogether, leaving 14,000 drivers without work.
What are the repercussions for business?
According to a Medium article, the first reactions to occur amongst remaining staff following a layoff include confusion, anxiety, and uncertainty. Despite remaining employees feeling grateful they have retained their positions; they may also experience guilt and a constant fear their own positions may be next in line. As a result, there’s a high chance that employee productivity and engagement will decline, the Harvard Business Review reports that 74% of employees are likely to experience a decline in productivity after their colleagues have been laid off.
However, these reactions among remaining workers can be mitigated, or even avoided, through clear communication from management. It always sounds so simple, but management can make a tangible difference by communicating their rationale and motivation and being transparent as to why they have had to let people go. This level of transparency allows employees to understand why the decisions have been made, even if they don’t completely agree with them.
Could this have been avoided?
According to the Growth Cycle of a Business, those organisations in the “Startup” phase generally hire carefully, following which they progress to the “Rapid Growth” stage where they hire faster. These businesses will eventually reach a point of maturity and then decline (as a result of internal and/or external factors). It’s at this point where layoffs generally occur in order to revitalise the business. This business cycle speeds up exponentially in the fast growth tech sector as huge injections of capital lead to the boom/bust cycle of hiring and firing. As we have seen – this cycle can be as short as 12-18 months. This is not a wonderful experience for employees.
The lure of fast growth and ‘world domination’ should not be at the expense of sustainable profitability or the engagement of the workforce – whilst not all early-stage ventures are profitable, there is no reason why they can’t be sustainable. As organisations progress from “Startup” to the “Rapid Growth” phase, consideration should be given to the short term and longer-term hiring objectives with a view to bringing people on in an organised way. This is where HR can help. The importance of having access to competent HR advice is vital at this stage. Sustainable growth through a considered hiring strategy can help to avoid the serious impacts of redundancies on productivity, engagement and culture and hopefully minimise the boom/bust hiring cycle that we have seen in recent times.
How can this be resolved?
Put simply – the injection of capital and other forms of investment should not lead to a one-sided approach to managing the P&L. Expenses and revenue both need to be a focus – at all times; cash burn rates are important. Given labour (i.e. your workforce) are often the greatest expense (before or after technology costs), it pays to think carefully about who you are bringing on, when and why – not just because you can. I know this is stating the obvious, but we have all seen the results of this, with often little consideration for the lasting impact both reputation-wise and within the remaining workforce.
So, what can be done?
Clearly this sudden and comprehensive number of layoffs will have a severely negative effect on the remaining employees in these companies. However, according to HRSG, there are three things HR leaders can do to mitigate the impact of layoffs and they are all focused on the engagement of the remaining employees.
1. Use competencies – to drive talent management and to make better choices about where you allocate your people
2. Invest in Development – this goes a long way to building organisational capability aswell as strengthening organisational culture and engagement
3. Provide Career pathing – providing opportunity and visibility of unconventional pathways, providing individual growth and less reliance on external talent to fill roles
Whilst these strategies clearly won’t solve everything, they demonstrate to current employees that they are valued, and you are willing to invest in them and their future growth. Let us try to avoid the roller coast rides of hiring and firing which is costly and disengaging to those who remain and let us focus on building a competent, productive, and engaged workforce who will be loyal and committed as the organisation inevitably goes through the ups and downs of economic growth cycles and downturns.