Salesforce to Cut 10% of its Workforce. How Not to Do Transformation

This week, Salesforce announced that it would be slashing 10% of its workforce, mainly due to over-hiring during the pandemic. While this is a trend we've seen across several companies, especially in the tech space, the Salesforce example is among the most dramatic.

During the pandemic, capital was cheap. Interest rates were at unsustainably low levels to prop the economy up during the crisis, and investors were chomping at the bit to pour money into anything with a pulse. Companies like Salesforce took on about as much as they could get their hands on, then went on a hiring spree as if gravity would never pull the economy back down to earth. I'm sure they knew that the pandemic would end at some point and the demand for cloud-based services like the one Saleforce offers would slow. Certainly, they predicted that interest rates would need to climb back up and the capital market would correct itself. So why would they choose to engage in strategy that would leave them with such an embarrassing black eye?

I totally understand being optimistic about the company's prospects for growth, but there's a point where blind optimism can badly backfire. Salesforce is a respectable company and has paved the way for cloud-based technologies, including Impruver . However, a 10% reduction in force in one week is a sign of a severe lack of agility at the strategic level. Let me explain. Companies fluctuate in workforce all the time. A healthy attrition rate is about 10% annually. This happens naturally due to retirements, people changing companies, terminations, changes in product or service offers, etc. This natural attrition buffer is enough to allow companies time to adjust to change and maintain normal operating conditions. In order to manage this effectively, a company needs to operate with a certain degree of agility so that it can adapt along with the market. This usually keeps them out of salacious headlines in the media, like the ones all over the internet today regarding Salesforce. When you see the type of drastic course correction that Salesforce is now experiencing, it's usually the result of a lack of agility. These companies create long-term forecasts that often end up being wrong and leave them exposed, creating an enormous waste of time and money in the process. According to Reuters, this exercise in poor agility will cost them about $2B in charges. This is just the bottom-line cost. There's a massive human cost of disrupting thousands and thousands of lives unnecessarily as well.

The alternative approach is building the agility to adapt to the market in real time instead of relying on long-term forecasts. The market did not drop 10% in one week, so why should Salesforce or any other company? In fact, Salesforce could have made the appropriate adjustment with natural attrition by not hiring new people and the company would have remained in lock-step with the market. Agile Strategy Execution is an approach where leaders set a long-term goal, then set and align on short-term goals and routinely iterate toward achievement. Every person in the company has a goal and continuously improves performance within their scope of responsibility. Leaders then behave more like coaches, involved in the play-by-play of strategy execution instead of taking the "create, delegate, and wait" approach that we see in the Salesforce case above. If Salesforce would have applied such an approach to strategy execution, they would have been able to improve their internal processes to a point where they didn't need to hire so many people to begin with. Additionally, they could more easily scale their workforce up or down gradually to match the changing market instead of making dramatic and consequential adjustments to achieve their goals.

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