Deciding Where to Lay Off People

I just read a message in the news that a company which, among other things, runs an online job portal for software developers, plans to lay off staff for that portal. The argument made in the news interview, was that this line of business was particularly affected by COVID-19 and to save costs 30 people would be fired. The organization in question, and that is a critical point for this post, has several business lines, and some of the less affected are operating in markets with far less growth potential. Or in other words: they are the core business.

This is a classic example of sacrificing a company’s future and long-term success for some quarterly or yearly goals. Of course there can be situations, which are so extreme that this is the only option. But, frankly, this usually also means that not one but ten things have gone wrong and that also over a longer period of time. So in the majority of cases such an approach is simply an example of what I consider incompetent management.

Let me come back to the reasoning (as per the aforementioned interview) for this job cut. Since when is it a good idea, unless the company is at the brink of bankruptcy, to look primarily (or even only) at the contribution to the financial bottom link for making such decisions. It is in my view at the core of good management to balance the present and future of the organization. And the job market for software developers is certainly something I consider to grow substantially.

I also want to come back shortly to the idea of “core business” and what its properties are. The most important one is certainly financial contribution. But this is more a consequence of a number of underlying properties (think balanced scorecard). In this context the most relevant one is that it is an established business. Or in other words: living off the past. Of course there are exceptions, but for non-startup organizations core business usually means a mature market, investments that are largely written off, well established processes and procedures, etc. Also innovation is hardly found in such an environment.

For a well-run company the approach is always that the current revenues fund the investments for the next big thing. Cutting back on emerging business either means that people have meanwhile realized that it is not such a great idea as initially thought, or that the situation is really bad. But I think it is mostly about personal bonuses of managers and nothing else. Yes, that sounds cynical. But if you have looked the history of businesses in the last couple of decades, it is the most probable cause.

 

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