Are the Recent Layoffs in the Tech and Other Industry Firms Justified? Some Perspectives

Are Mass Layoffs in Recent Weeks Justified?

The news these days is full of how tech and service sector firms as well as manufacturing sector resorting to mass layoffs at all levels of the hierarchy.

Starting with the Automotive sector firms and then extending to the tech firms such as Cognizant and Infosys and including HSBC, Wipro, Uber, and WeWork, these firms have either announced that they are laying off thousands of employees or are doing it silently.

With so many firms resorting to downsizing, a legitimate question to ask is whether these layoffs are justified. Indeed, considering the fact that there are multiple instances of mass layoffs, it is also pertinent to note that there can be structural reasons behind such downsizing.

While the Automotive firms are laying off workers because the economy is in the doldrums, the other firms are ostensibly engaged in what is known as restructuring.

Moreover, some of the firms that are laying off employees are doing well financially and hence, it is more the reason for us to investigate whether such mass layoffs reveal less and hide more about the true extent of the problems plaguing industry.

It’s the Economy, Stupid! The Economic Justification for Layoffs

To start with, the economic justification for layoffs is usually touted as a weak economy or a recessionary economy forcing firms to downsize workers.

The reason is that whenever there is a recession, orders are hard to come by due to weak or nonexistent demand and hence, firms run the risk of becoming loss making ones if they do not cut costs.

In this context, it is worth noting that the Automotive firms such as Maruti Suzuki and Bajaj and other biggies are entirely justified in firing their workers as the automotive sector is really in the doldrums.

Having said that, this is no justification for Tech firms to resort to layoffs as the Tech sector is doing reasonably well and hence, there are no fundamental economic reasons for doing so.

On the other hand, financial services firms such as HSBC are partly justified in laying off employees as the financial sector is struggling a bit.

Moreover, even the automotive firms need to ensure that the rights of workers are protected by providing them with generous severance packages.

Therefore, the point here is that while there are strong economic reasons for laying off workers, at the same time, corporates must proceed with caution lest they end exploiting the workers.

Cutting Flab and Staying Healthy: Layoffs as Part of Becoming Lean

The other justification given for layoffs is usually financial and strategic wherein firms tend to lay off workers because they are in the red or in other words, have run into losses.

For instance, this is the case with firms such as HSBC that are not doing that well and hence, the management decides to lay off workers to cut costs.

The industry parlance or the jargon for this is that the firms are “trimming the flab” or like an obese person engaging in weight reduction and fitness regimens, they undertake periodic layoffs to “stay fit and healthy”.

Even WeWork and Uber are laying off employees as such start-ups are now facing the “moment of reckoning” wherein they have to show profits to their investors long used to easy funding from the latter.

Having said that, it is our view that even when the financials are ok or for that matter, decent and not dire, firms should not arbitrarily lay off workers as it can be counterproductive to them.

In other words, one would not really like to cut ones fat in Toto but merely would want to lose it organically.

Are the Layoffs also to do with Structural Reasons and the Onset of the Digital Revolution

A third and potentially more worrying reason behind many firms laying off workers is that the structural composition of their organisations needs to be changed if they have to keep ahead of the market conditions.

For instance, Infosys has long thrived on cheap and “race to the bottom” pricing to bag contracts and that too, in lower value adding work such as maintenance and bottom end coding.

Now that the Digital Revolution is forcing tech firms to “move up the value chain”, such firms realise that their business model needs to be tweaked or completely overhauled and hence, this is the reason why they are laying off workers.

Indeed, the term that corporates use for this is “restructuring exercises” wherein they approach the future with a changed organisational structure and a completely new way of doing business.

Therefore, the rationale here is that they need to get rid of those employees who are working in outdated technologies as well as not adding value.

However, it is our view that even in these cases, all efforts must be done to ensure that such employees are retrained and then redeployed or at least, given some chance to fit into the new paradigm.

Concluding Arguments

Last, performance related downsizing is now considered de rigor for the corporates as they do not exist for charity but to make profits and hence, poor performers necessarily have to be shown the door. Indeed, among other reasons, Infosys has officially declared that a majority of the employees being laid off are for performance related reasons and we need to admit that this is a strong justification that cannot be contested much. To conclude, it is the case that there are different justifications for layoffs and all efforts must be done to smoothen the shock of being asked to pack up and leave.

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