Tech layoffs seen as a “knee-jerk” reaction

As the tech layoffs send ripples through Silicon Valley, some industry insiders have said they could’ve been avoided.

Amazon, Meta, Microsoft, Pinterest, Spotify and HubSpot are just some of the tech companies that have all cut staff and have blamed the economic downturn for these redundancies.

Brian Ferreira, VP and managing executive partner, board and c-suite advisory at Gartner told Digital Nation that depending on the company’s attitude toward its digital growth, organisations may have been able to predict these cuts.  

“Depending on what the revenue assumptions and Covid assumptions were, some people would have not seen this coming and other people would have planned for it," he said. 

“If a tech leader had an assumption that working from home and the way that it played out in Covid times is going to stay the same or scale, they would have not seen this. If a tech leader said this is going too far too quickly, somehow there's going to be a natural pullback and a new normal."

“So people will probably spend lots of money for things like working from home and other devices, suddenly we don't need all of that,” he added.

Professor Barney Tan, head of the school of information systems and technology management at UNSW Business School said these layoffs are a knee-jerk reaction.

“Most of those that have done the big layoffs are companies that have experienced phenomenal growth during COVID-19, which led to an increase in the demand for online services,” he explained.

“Now, a confluence of number of factors is behind the current situation, which includes over hiring during the pandemic, a decline in demand post-COVID, rising inflation and interest rates, and an uncertain economic landscape.”

Ferreira said that these layoffs are a result of having cheap debt.

“What we're seeing globally is that the knock-on effect of business performance is now playing out from Covid. There was cheap debts and a lot of companies, especially tech companies, got ahold of cheap debt to try and grow their business,” he said.

“But now that the cycle is over, what we see in the tech companies is what they thought they would build out of cheap debt, they thought it would continue and get the growth and the margin and the profit through post COVID.”

These companies however, haven’t hit the numbers they had two years ago and Ferreira said these organisations are “pushing down” on IT spending in some shape or form.

From a longer-term perspective, the fundamentals of the tech sector needing more workers remain sound, Tan said.

“This is because we are likely to see the tech talent from these large tech firms move to start-ups, as well as ‘traditional’ businesses that have been struggling to attract tech talent for some time,” he said.

“For instance, many younger people may have been drawn to the larger tech firms because they want to work at the cutting edge of innovation. But there are a good number of innovations that are actually driven by smaller tech start-ups, which have traditionally found it hard to compete for talent as there are constraints on the material and pay incentives they can offer.”

A period of adjustment

Tan said the tech market is not shrinking, rather it is readjusting.

“Those organisations that were more attractive to tech talents and had the resources to hire almost indiscriminately during a period of boom, are now finding that they have to let them go,” he said.

“The impact on Australia of all this is likely to be minimal because we still have many large businesses that have been crying out for tech talent. If anything, this global development may see a greater availability of tech talent for Australia as the talents displaced from the US, Europe and the UK may now be forced to move.”