- On 18 January Microsoft announced 10,000 layoffs and on 20 January Alphabet, Google’s parent, announced 12,000.
- Digital demand soared with the pandemic and companies hired at the pace of that growth expectation.
- The lesson for the mid-sized business: grow headcount at the pace of recurring revenue, not expectations.
On 18 January 2023 Microsoft announced 10,000 layoffs, and two days later, on 20 January, Alphabet, Google’s parent, announced another 12,000. Big tech was trimming its workforces after the rapid growth of the pandemic years, in a move that surprised both by the scale of the numbers and because it came from companies with vast resources.
The news mattered beyond the technology sector. These companies are a reference for how work is organised and growth is planned, and their adjustment raised an uncomfortable question for any business: how sustainable is a workforce sized for an optimistic scenario once the environment returns to normal? The episode also recalled that a company’s reputation as an employer is built in the adjustment phases too: the way it communicates, supports those affected and explains its decisions leaves a mark for years.
Why it happened
During the pandemic demand for digital services soared and many companies hired at the pace of that expectation. It was assumed that the extraordinary growth of the moment would be the new normal, and cost structures were built to sustain it. Hiring in a phase of euphoria is relatively easy; the difficulty comes when the pace moderates.
When growth normalises, the cost structure ends up oversized and the workforce adjustment arrives all at once rather than gradually. Revenue adapts within months, but fixed costs, and staff costs in particular, have far greater inertia. That difference in speed is why corrections, when they come, are so visible. On top of that, growth expectations tend to be formed by looking at the recent past: if the latest quarters were exceptional, it is easy to project them forward without asking how much of that demand was one-off.
A lesson for the mid-sized business
Not even the most profitable companies escape cycles. For a mid-sized business, the lesson was to grow headcount at the pace of recurring revenue, not expectations. An optimistic sales forecast may not be met, while a monthly payroll is a certain commitment. When the two drift apart, room for manoeuvre narrows quickly.
Staff costs are also the hardest to reverse: because of severance, internal morale and the knowledge that walks out of the door when someone leaves. A layoff also affects the spirits of those who stay, the relationship with customers who relied on that team and the ability to hire again when activity recovers. For a mid-sized company the margin for error is smaller than for a large technology group, because it has fewer reserves and fewer alternatives for redeploying its team if the pace of sales changes.
What is worth reviewing
It is worth testing each new hire against revenue already contracted and not just forecast, and keeping some flexibility in the structure: external collaborators, well-justified temporary contracts or projects with closed budgets. The point is not to give up on growth, but to decide which part of it rests on firm commitments and which on hopes.
It is also useful to ask, together with the employment and financial advisers, how long the company would last if revenue fell unexpectedly and which decisions would be taken first. A workforce sized to the cycle protects both the company and the people who work in it. A useful exercise is to simulate what would happen to profitability if revenue fell by a moderate percentage for a year, and to decide now, calmly, which costs could be adjusted first and which would have to be protected.
Growing slowly is not growing little: it is growing with room to be wrong.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
