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Executives Should Think Twice Before Jumping Onto The Layoffs Bandwagon

Originally published in Forbes on March 14, 2023 as Forbes Technology Council post

After laying off over 200,000 tech workers since the onset of 2022, many companies are now experiencing a short-term boost in share prices. But focusing on these gains is short-sighted.

Increasingly, chief executives are being questioned for their “boneheaded decisions” and “serious strategic blunders,” and I believe it’s completely fair to put them in the hot seat. Even as CEOs claim “full responsibility” for their decisions, these leaders are disrupting employees’ lives and careers with relative impunity. The details of some of these layoffs are especially concerning, with high-performing employees and company veterans—including a 20-year Googler—losing their jobs.

I know no one relishes doing layoffs. It’s one of the most stressful undertakings most leaders go through, not to mention a PR nightmare and large-scale morale hit.

And after that short-term boost to stock prices wears off, there’s ample evidence that layoffs hurt company performance going forward. As Adam Grant recently pointed out, companies that conduct layoffs wind up less profitable than those that tighten their belt in other ways, such as through unpaid leaves or executive pay cuts. “Layoffs bleed talent & breed guilt+anxiety,” Grant tweeted on February 4. “They should be the last resort.” This sentiment is backed by data that shows significant declines in performance, satisfaction and commitment among employees who are not affected.

Whether you’ve recently conducted a layoff or not, current events have thoughtful leaders taking stock to avoid finding themselves in the same situation again.

The first step is to avoid overhiring, which appears to be at the root of many of these recent actions. Too many leaders got ahead of themselves in the last few years as they extrapolated pandemic-era growth into the future, resulting in overzealous expansion, a bloated workforce and an unsustainable cost structure. Now they’re overreacting by overcorrecting, risking sustained degradation in organizational performance.

Apple, which hired conservatively when other companies were hoovering up talent—and made far more revenue per new hire than other tech giants—has yet to conduct large layoffs. Neither has Cloudflare, Nvidia, Palo Alto Networks or numerous others. I’m proud to count ActivTrak among that list of companies, thanks to how data-oriented we are when it comes to headcount planning and resource investment.

Even if you overhired, layoffs are not the only way to weather the storm. This next step may sound obvious, but it is actually much harder to achieve.

Learn How Employees Use Their Time

Employers also need to understand how employees actually spend their time. In any organization, some teams are overutilized, and others are underutilized. Too many leaders rely on guesswork to understand how teams operate day to day, hour by hour. Workforce analytics, project management tools and better communication practices can illuminate where there may be slack in the system—and where more headcount investment is needed to achieve goals and avoid burnout. For example, a logistics firm we work with identified where they could shift work from one group of employees at risk of burnout to others with more bandwidth, leveraging the slack on one team to alleviate the burden on another. In doing so, they addressed burnout and engagement by making a single strategic decision—informed by data.

Look Into Better Tools And Processes

Finally, companies can unlock massive productivity by investing in better tools and processes. The goal shouldn’t be to throw more people at a problem but to find more efficient ways of operating. This often requires challenging conventional wisdom about how a process needs to work. Resistance may come from the “because we’ve always done it this way” crowd or even well-intentioned business leaders who don’t yet see the power of automation.

When I led the business operations practice area at a consulting group, I had a chief revenue officer raise his voice in a meeting with me and his CEO, exclaiming, “You mean to [choice word here] tell me that an operations project is going to dictate how I run my sales org?” When it comes to driving productivity? Yes, yes, I do.

A year and a half later, that same CRO was on-stage at an event calling the project the “greatest gift” that group had given his company for “enabling us to transform our business.” Unlocking productivity and efficiency through this type of adaptation will continue to be crucial as labor markets remain tight for years to come.

Ultimately, it is the CEO’s responsibility to guide and set the direction for an organization, with one eye on navigating near-term conditions and the other focused firmly on long-term value creation.

Knee-jerk reactions to the bottom line are not the answer: As leaders, we should take this time to regroup and carefully consider the optimal way to run our businesses. Yes, maybe layoffs are unavoidable. But maybe not. Focusing on making data-driven workforce planning decisions and driving continuous improvement of processes and technology investments will build long-term value while navigating whatever challenges—or opportunities—tomorrow may bring.