Why Layoffs are Good for Business (and Bad for Innovation)

The figures are undeniable. 2023 was a good year for big tech stocks and a bad year for big tech employees. The logic is impeccable: a wave of redundancies represents a sizable reduction in costs, and if the revenue stays largely unchanged, that's a golden Profit & Loss statement right there. For big tech leaders who have directly linked their pay to share performance, this is a huge boost to their personal fortunes.

The Nasdaq Composite rose 35% in the last 12 months. But the bounce in share prices for the biggest players was even more pronounced.

Alphabet - 57% annual gain - 13,000 layoffs

Amazon - 60% annual gain - 17,000 layoffs

Microsoft - 63% annual gain - 11,000 layoffs

Meta - 174% annual gain - 21,000 layoffs

Admittedly, there's more going on here than a direct correlation between layoffs and share price, as all these companies desperately try to integrate AI alongside their broader belt-tightening. But check out their intern recruitment pages if you want to see which way the wind is blowing for the Summer of 2024. The lower rungs of the ladder have been kicked out, and the lava is rising fast.

And here's the catch: the real cost to the companies is their loss of culture. For those advocates of the mantra, "culture eats strategy for breakfast," that is cause for concern.

I've been out of Google for some 6 months now, but I still chat with ex-colleagues, and the mood is pretty somber. No more long lunch breaks. No more coffee with friends from other teams. No 20% side projects. No product area migration. No new headcount or backfill for natural attrition in addition to the now annual cull.

That sounds like a potential productivity rise right there - no more "goofing off" for the lucky 1%? But it also sounds like the loss of the kind of cross-pollination that leads to fresh, cross-domain insights and brand-new product areas. When everyone is "crushing the day job," and any time spent outside of that is seen as a distraction or, worse, a liability, the culture of innovation dies.

I hold a considerable amount of Google stock. I never sold a single share from the last 16 years of vested benefits. What I lost in salary, I made up for many times over from the rise of the share price. But this comes at the cost of a long-term ability to weather uncertainty, at the cost of fostering trust amongst teammates and management, who now seem like competitors and bean-counters in ways they never had before. The cost of a company's soul?

Google needs to be thinking ahead - it has to envision a working business model in a future where screens disappear, voice interactions are the norm, product discovery is made on Netflix or TikTok, your shopping list is sourced by your AI agent, and delivery is fulfilled by vertically aligned disintermediators. Right now, Googlers are focused on surviving the next round of re-org and product area wind-down.

I truly hope somebody is having conversations about the long term and what organizing the world's information and making it universally accessible and useful looks like when everyone has a large language model in their pocket and an always-on headset. Because if Google doesn't start innovating here, you can be sure its competitors will.

Reference

Google layoffs continue with ‘hundreds’ from sales team

Google Cuts Hundreds of Jobs in Engineering and Other Divisions

Why Layoffs Can Actually Lift a Company's Stock Price

Look Before You Lay Offw