The Newest Growth Trend: Layoffs

Ouch.

Headcount reduction now signals growth. This is new. In the past, bloated companies would announce layoffs and they would take a half a year or more to get back on track financially. But that's not what's been happening recently. In some cases, such as Meta, profits (and stock price) began soaring just as they showed 13% of their employees the door.

What's going on here, what are some of the likely consequences of this shift and what are the opportunities?

The recent story of Klarna, a Swedish buy now, pay later solutions company is a case in point. They announced that 700 customer service reps were no longer needed because an AI assistant was able to handle client support 24/7 in 35 languages. They claim that customer support satisfaction scores have remained the same since the change.

A.I. is definitely part of these unusual business shifts.

Klarna's CEO did the company no favors the way he announced these updates to the remaining staff. I won't quote the details, but it didn't land too well. Other companies have been choosing their words more carefully, trying to avoid saying that AI is replacing jobs but at the same time singing the praises of their A.I.-driven productivity gains. This word-salad will no doubt continue, especially as markets continue to reward cost-cutting.

The new formula for growth seems to be:

Headcount reduction + AI (or the potential of AI) = Higher Profits.

Sexy for some, scary for others, this corporate trend will no doubt lead to unintended consequences.

Sadly, leadership development investments have been included in the cost-cutting frenzy. One recent study found that training budgets are currently down almost 40% from prior years. Ouch.

Here is a starting list of some of these consequences and possible opportunities:

• Companies cut too deep. This leads to disruption which impacts clients and employees. Some comapnies are already announcing re-hiring initiatives, so recent unemployed should be closely watching out for those opportunities. In other cases, job cuts lead to more outsourcing, which has its pros and cons.
• Global companies consolidate local teams and have them manage regionally cause culture-clashes and expensive misunderstandings. This has happened in every recent downturn. Properly preparing employees to take on regional roles will save clients and strengthen future regional and global leaders.
• AI does not live up to the hype and causes more problems than it solves. (Don't tell the AI I said that)
• Recently unemployed executives will become consultants. Lord help us.
• Increase of contract work. The phrase “fractional” employer has become common in business circles. I wrote about the pros and cons of fractional work here .
• Reduced connection between companies and employees. Many of these mass layoffs have not been executed well resulting in a massive reduction of employee loyalty. This impacts employee engagement, turnover, the ability to recruit talent and customer satisfaction. Personally, I think there is a giant opportunity to help companies and teams overcome this trend. The teams that drive sincere team purpose and who have effective people-focused leaders will have a competitive advantage over competitors who focus only on their bottom line.
• What would you add here? Let me know!

For many of us there are opportunities in the bullet points above. For example, more companies looking to outsource means my team in the Philippines is growing. For executives looking for a thinking partner, I'm expanding my coaching practice. And while training budgets may be shrinking in some cases, the need for skills development is higher than ever. Sales training, team cross-cultural communication training are needed now more than ever.

Ultimately, humans are the biggest variable in the growth equation. What companies will rediscover this?

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For those of you who do not know me, I build sales pipelines and develop leadership training programs that help companies increase channel business across regions and prepare next-gen leaders for tomorrow's global threats and #hybridwork opportunities.

I wrote a book about the lessons learned, good, bad and ugly, when expanding into foreign markets called The Accidental Business Nomad: A Survival Guide for Working Across a Shrinking Planet. It makes fun of the hyper-growth expectations over the last few decades and won the Axiom Business Book Award and has been translated into traditional Chinese.