Saturday, January 31, 2009

Barry Diller is Right - Stop Laying Off People

Barry Diller speaking at the Reuters Media Summit opined that companies with healthy revenues and profits should not add to the economic misery by laying off people at exactly the wrong time - when its hard to find other jobs.

There is a certain perversity to the recent layoffs. In good times, smart companies like Google and Microsoft like to hoard talent - living up to the classic "Let's get the right people on the bus and we can then figure out where to go" theme. And it has served them well, mostly. Most graduates of my engineering college that I knew ended up at Microsoft and Oracle in early to mid 90s and this decade every one seems to have landed at the Googleplex (except the really really smart ones ;) ).

The current economic crisis has adversely affected every industry - even the one's that have little to do with mortgages, credit default swaps, or derivatives. But it seems like its the season to cull the ranks, stop questionable projects and trim the fat. While every business deserves the right to manage its workforce, it does seem rather cynical to be trimming fat that many businesses have been carrying for years. The question is not why but why now?

As Barry Diller points out:
The idea of a company that’s earning money, not losing money, that’s not, let’s say ‘industrially endangered,’ to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one’s counting is really a horrible act when you think about it on every level. First of all, it’s certainly not necessary. It’s doing it at the worst time. It’s throwing people out to a larger, what is inevitably a larger unemployment heap for frankly no good reason.

Are businesses laying off people because they don't have to justify the lay offs? Is it because sacrificing 3% of your work force is the equivalent of modern day sacrifice to please the Gods (on Wall Street)? Is it because what you as an executive are supposed to do?

My question is - what exactly do these companies stand for?

This question goes to core of long-term viability and building great companies. When I think of Google, I know it stands for 'organizing the world's information and making it easily available'. When I think of Apple, I know it stands for products that work and are appealing to the end-user. When I think of Dell, I think of getting value for my money and good quality products without unnecessary frills. The failure of Yahoo!, me thinks is that it has failed to find a mission for itself - and is in a me too race with Google. This is what the new CEO Bartz must fix first. Coming back to question of mass layoffs, its time businesses tried in good faith to find a way to keep as many people gainfully employed as possible.

So while the executives at most companies are asking one hard question: how many people can I lay off without adversely impacting my prospects? Let me suggest a few others:
  • What does our company stand for?
  • Does my product deliver real value so that customers will buy even in dire times? If not, why not?
  • How many board members and executives are delivering 10 or 100x what my average sales engineer is delivering? If not, why is he still here?
  • If I cut the salary of my top 10% earners by 20%, how many fewer people can I fire? How many more can I hire?
  • How do I take advantage of the current sale on talent? Buy low sell high?
  • Can I tweak my compensation package to reflect what's more dear today (cash) and what's less valuable (stock)?
What do you think?

(All opinions expressed here are personal. Read full disclaimer on my blog website.)


Anonymous said...

Quote: Is it because sacrificing 3% of your work force is the equivalent of modern day sacrifice to please the Gods (on Wall Street)?
This is 100% correct, as it happened to me (and 70 or so others) BEFORE this latest mess even started. They THOUGHT that the Wall Street analysts wanted to see a staff reduction, so they got one. And Wall Street responded with a 50% drop in the stock price.

Unknown said...

I am sorry to hear that. I am hearing similar stories from other friends too. It appears there is a blanket cultural permission to lay people off right now.

Anonymous said...

Companies, even those doing well at the moment, are not cutting extra fat only to please Wall Street. They are scared of these turbulent times when they have no predictibility whatsoever of their revenues two quarters from now. They are thinking ahead of the worst case scenario and cutting their costs so that their business does not suffer if and when things do really go south.

But this is a classic case of implosion (the reverse of the bubble). Bubbles are caused when everyone goes bullish and thinks there are great times ahead. Implosions are caused in a super-bearish mindset when everyone thinks the world is going to end tomorrow.

The only cure is if the government can instill some optimism.. that things will not be so bad.

Unknown said...

Raj - You are right. Good point.

LNIngram said...

Nice post, good talking points.

I especially like the idea of talent as stock; buy low, sell high. It makes sense that in an insecure climate, panicking companies might act like frantic investors - they sell (lay off) right when they should be buying (hiring).

Anonymous said...

Hi Anshu - interesting post. For what it is worth, here's another perspective: companies take advantage of bad times to take actions that would cause a revolt under "normal times."

If your company is fat and inefficient, it is difficult to reduce during good times because:

a) Good results mask bad decisions / operations.

b) The workforce will not accept the need for a reduction when "money is pouring in." Even if the (in this case presumed) wise leadership realizes the need, it would be difficult to get the layers below to accept this, let alone the rank-and-file masses.

c) Wall St. may view the reductions as a leading indicator of future problems and punish the stock price.

d) Layoffs in good times results in severely negative press which is likely to hurt future results. It is easy to "get away" with reductions when everyone is laying people off.

Food for thought...