ARE LAYOFFS A CONFESSION OF BAD MANAGEMENT?

Tech CEOs who are blaming their layoffs on the staffing up they did during the boom years of the pandemic should ask themselves some tough questions.

- GEOFF COLVIN

WHEN MARK ZUCKERBERG declared 2023 "the Year of Efficiency" for Facebook parent Meta Platforms, several questions seemed unavoidable: Aren't companies supposed to be efficient every year? If this is the Year of Efficiency, what were all the previous years-the Years of Squandering? Is Zuckerberg suggesting Meta can return to profligacy in 2024?

Most pointedly: If Zuckerberg had discovered efficiency a few years earlier, would the 21,000 layoffs planned or carried out since last November have been necessary?

Similar questions nag other tech giants-Alphabet, Amazon, Microsoft, Salesforce-plus other players that in total have announced layoffs of more than 150,000 employees in the sector in 2023. We heard little talk of efficiency when tech stock prices were rocketing to giddy all-time highs in the waning days of 2021. Now many of those companies' CEOs are suddenly embracing belt-tightening and other business virtues taught in Management 101. Were those CEOs guilty of self-delusion, of refusing to confront hard reality?

"Layoffs are definitely a confession of poor management," Jeffrey Pfeffer, a professor of organizational behavior at Stanford Business School, told me. His reasoning: Research shows that generally, layoffs don't improve a company's fortunes. Quite the opposite: They don't reliably raise a company's profits or stock price, but they do reliably reduce remaining employees' morale, commitment, productivity, and trust. University of Colorado professor Wayne Cascio, who has spent a career studying layoffs, concludes, "As a group, the downsizers never outperform the non-downsizers."

Contrary to widely held belief, layoffs are not inevitable. Some companies-Patagonia, Toyota, and others-have avoided layoffs for decades, and have thrived.