Executive Summary
Recent years have been good times for the tech industry, seeing high growth and scaling through the global covid pandemic, but now the party is over. Growth has slowed due to economic forces reducing investment opportunities and limiting consumer spending. The resulting hire and fire approach has damaged some organisations financially and reputationally. To avoid this situation, it is time for organisations to rethink their approach to growth whilst establishing a more balanced means to achieving it. Through investment in existing people, innovation and lean accounting, organisations can continue to grow – like Toyota and Apple – to avoid boom and bust whilst decoupling themselves from being at the mercy of the global economy.
Paul Featherstone
Principal Consultant at Digital Product
Good time growth is over
There has been a lot of pessimism around the tech industry lately, with more layoffs globally in the first quarter of 2023 than in the whole of last year according to research by Finbold. Losing 166,000 jobs in just 3 months1 is sobering in any sector, so the negativity is understandable.
57,000 of these layoffs come from the top 5 tech giants1 as illustrated below:
Source: Finbold
For those based in the UK, we still have a lot to feel positive about in 2023 with the tech sector having finished first in Europe and third globally in 2022, in terms of volume of high growth companies2. There were record numbers of unicorns, (144 startup companies with a value over $1 billion) futurecorns, (237) startups, and scale-ups (85,000+ combined)2.
According to ONS statistics, there are also currently three million people working in UK tech, making it the fourth biggest sector, behind health, retail, and education.
The economic outlook is relatively weak with UK GDP only growing by 0.1% in the first quarter of 2023 whilst investment opportunities started to dry up. VC investment and deals fell to $3.6 billion in Q1 and capital became more expensive due to rising interest rates.
Market demand also slowed after an unprecedented period driven by the pandemic causing rapid adoption of technology – indeed, many companies went on a hiring spree with Amazon and Meta doubling their headcount between Q3 2019 and Q3 2022.
B2C is now feeling the pinch from reduced consumer spending and certain areas of B2B are now experiencing because of cost cutting. Although it is thought that certain fintech, greentech and automation scale-ups will be more resilient in the coming year, times have certainly changed for most.
The good time growth is over so it is time to re-think the accepted definition of growth whilst establishing a more balanced approach to achieving it
The good time growth is over so it is time to re-think the accepted definition of growth whilst establishing a more balanced approach to achieving it; only by challenging this convention can organisations avoid boom and bust and protect themselves and their employees from the negative effects of global economic trends.
Hire and fire is costing your organisation
The culture of over-hiring in the good times and scaling-down in the bad times can create a number of issues.
Mass layoffs are bad for internal morale, sowing the seeds of a ‘who’ll be next’ mindset, this can be distracting for employees and impact performance. Many of us have been through this process and know the detrimental effect it has on mental health and employee wellbeing.
Employer and consumer brands can also be significantly damaged, I’d personally much rather work for, use the services of, and purchase from an organisation that invested in its workforce for the long-term.
In the UK, REC research shows that it costs a business on average £132,015 for a mid-level manager who leaves the business, this is potential lost investment in other areas of workforce development. In contrast, a 2019 World Economic Forum report estimated that “on average it would cost £16,600 ($23,400) to reskill a worker at risk of being displaced out of their current role into a viable new role.”
This approach is symptomatic of other issues such as failure to invest in existing employees and failing to balance short term workforce growth with longer-term investments in developing and nurturing existing people. It shows a culture of mass hiring and firing rather than careful and considered people development.
It leaves many people’s future careers with their employers at the mercy of global economics and many organisations slaves to the economy. Having to fire tens of thousands of employees is a real failure of business leaders to successfully plan for the future which invariably involves economic fluctuations.This approach shows that there isn’t the strategic capability or motivation to match workforce requirements with product demand and financial performance, it also shows a lack of ability to successfully accept that ‘exceptional’ events affecting the operating environment can be quite common.
If being part of boom and bust cycles of growth can cause significant pain and risk, then the focus must be on breaking out of the cyclical pattern of growth and contraction. Hire and fire needs to be replaced by more sustainable people strategy, cost centre financial models need to move to lean approaches and there needs to be investment in long-term innovation to support diversification and differentiation in the consumer markets organisations operate in.
It’s time to re-think! A better approach to growth
Not all organisations hire and fire in line with economic highs and lows, Apple is a notable example of a tech giant who has not had a recent cull. The reasons for that are thought to be due to their relatively slower headcount growth during the pandemic and continued demand for core products, specifically upgrading of iPhones3, 4. Apple is also benefiting from their ability to innovate and create “hardware, software, and services that seamlessly work together”5 which delivers the kind of UX brand devotees constantly go back to. Growth is delivered by innovation in the area of product development with constant new iterations of existing products, development of new and penetration into new markets such as China.
Toyota are also well known for their rather different approach to dealing with downturns including various ways of flexing their workforce to adapt to significant change events like crashes and pandemics without the need for peaks and troughs. Toyota’s approach to growth is one built on stability and continuous improvement over drastic changes to their workforce or underlying management framework.
But many organisations fail to invest in the key areas required to enable sustainable, stable growth, there are some key strategic building blocks required.
Firstly, strong leadership is required to define and communicate a strong vision of a future based on a more stable and sustainable growth strategy. The vision should be delivered through strategic goals which put quality ahead of revenue, for example at Toyota the priorities are stacked around product first: “first safety, second quality, third volume, and fourth profit-making”6. A framework of goals and measurements should enact that strategy in a way where every individual can clearly demonstrate their personal and team’s contribution towards that growth.
Secondly, don’t just throw money at hiring when you have the money, develop a sustainable people strategy and invest in training and development of existing staff. Look at developing academies and fostering a good workplace culture.
Managing Director of people centric recruitment, coaching and consultancy services provider to the technology sector Exalto Consulting, James Milner underlines the importance of this approach. “Despite the recent economic dip and cost of living challenges, I believe that for the foreseeable future there will still be challenges sourcing digital, data and technology talent in the UK. Whilst this will mean that organisations will need a good reactive strategy to fill gaps, react to market conditions and build project teams, the companies that take the time to build long term talent strategies will end up in stronger positions over time.”
“The companies that take the time to build long term talent strategies will end up in stronger positions over time.”
Exalto MD James Milner
Finally, focus on developing lean and product led growth skills which help drive innovation in your organisation and help your employees get really good at problem solving through training and coaching. Getting good at innovating provides the armour that will protect your organisation through supporting diversification and enabling differentiation in the consumer markets your organisation operates in.
If you can grow and scale in a downturn then the right foundation stones are there for the good times. As Toyota and Apple have found, resilience does not come through taking a boom and bust approach.
References:
[1]: Finbold. Massive tech layoffs: 166,000 jobs axed in Q1 2023, more than entire 2022
[2]: Department for Digital, Culture, Media & Sport and Paul Scully MP. UK tech sector retains #1 spot in Europe and #3 in world as sector resilience brings continued growth
[3]: CNN. Apple is weathering the economic downturn better than fellow tech giants
[4]: CNN. Apple is the only US tech giant to have avoided significant layoffs. Will it last?
[5]: Monness, Crespi, Hardt. Monness, Crespi, Hardt
[6]: Jeffrey Liker, thejemba.com. Managing through a Crisis The Toyota Way