Tech firms can’t swing the axe equally

Technology giants are used to wielding power and influence. Now comes the axe. From Meta Platforms to Snap to Twitter there is a realization that the size of the workforce has gotten too big as an economic slump settles in. Some companies need more of a reset. But mass layoffs in other industries suggests that firms should be careful not to over-fire.

Mark Zuckerberg’s $253 billion outfit is preparing to slash thousands of workers this week, according to the Wall Street Journal. Twitter’s new owner Elon Musk is blaming a massive drop in revenue as the reason to cull half of the social network’s 7,500 employees. Snap plans to chop 20% of its headcount after disappointing results. Google parent Alphabet wants to keep a lid on costs and is eyeing slashing payrolls. Even Amazon.com, which has weathered the dot-com bust and the great recession, is hitting the pause button on hiring.

One fairly simple way to measure productivity is to calculate how much revenue a company earns per employee. For example, Meta increased its revenue 37% last year compared to 2020, to $118 billion, though its workforce jumped by nearly a quarter to nearly 72,000. Each of those employees represented $1.6 million in revenue – the highest amount in a five-year stretch. Twitter, conversely, hit its zenith in 2018. Even then, though, each employee represented $776,000, well under what Zuckerberg managed to extract last year.

So Twitter can afford to lose far more employees based on that metric. But there are risks associated with chopping the workforce. While it saves on labor costs, fewer people mean a lack of new products too, according to a study from the Society for Human Resources Management. For the tech business, that’s especially problematic. Their lifeblood, unlike a utility company, is innovation.

These tech firms, though established, are also largely untested through a downturn. But other industries are a cautionary tale. Take airlines, which slashed roughly 90,000 jobs in 2020, to levels not seen since the 1980s. Delta Air Lines, American Airlines and their rivals were caught flat-footed without enough staff when travel rebounded. The investment banking business is notorious for its ruthless firing practices, only to turn around and rapidly overpay for junior analysts when the market returns.

Advertising will snap back and tech giants want to be prepared. Zuckerberg, if he fires too quickly, could lose the edge in employee efficiency. Even Musk, who is in a different boat, was so hasty cutting staff on Friday that managers had to ask dozens to return, according to Bloomberg on Monday. Being mean and lean may sacrifice future growth.

Meta Platforms is planning wide-scale layoffs impacting thousands of employees, the Wall Street Journal reported on Nov. 7 citing people familiar with the matter. The Facebook-owner counted 87,314 employees at the end of Sept. 30.

Twitter on Nov. 4 laid off half of its staff, or around 3,700 people, Reuters reported. The company owned by Elon Musk reached out to dozens of employees who lost their jobs to return, Bloomberg reported on Nov. 6, citing people familiar with the matter. Reuters