It started earlier than I thought. In January, I wrote an article making predictions for 2023. One of my subheadings was “A Year of Doing More with Less,” where I argued that companies need to look for focused, strategic areas of investment to increase efficiency. We’re now seeing significant layoffs in the technology sector. Year to date, Google has laid off 12,000 workers, Microsoft 10,000 employees, and Salesforce 8,000. Unfortunately, these companies are taking a short-term view of efficiency that will damage their long-term success. Instead of finding areas where technologies can work together to provide multiplicative value, these CEOs are chasing short-term gains over long-term efficiency. I would argue that this quest for efficiency may decrease real efficiency.
Aggressive Headcount Reduction Limits Cross-Selling
Customer acquisition has its limits. Eventually, continued growth requires selling additional services to existing customers. Gathering revenue figures from sales is a trivial task, but it is challenging to pinpoint how much customer satisfaction with the service of existing products plays a role. The difficulty attributing hard figures to servicing makes these areas prime targets for headcount reduction. Why would a customer consider making another purchase when the business cannot provide support for products you’ve already bought? Platform lock-in has limits, and customers will eventually move to a competitor. Headcount reduction decisions are often made with the flawed assumption that all other variables will remain constant—productivity gains elsewhere will offset the smaller workforce. But this is seldom true unless the reduction is minimal.
The Inefficient Process of Gaining Efficiency
A consequence of chasing efficiency is its opportunity cost—its drain of resources that would have promoted real efficiency in the long term. Isn’t it curious that many companies most aggressively pursuing efficiency at all costs are often stuck making incremental improvements to existing technology? Why aren’t they most often responsible for radical, groundbreaking innovations? Why do comparatively small startups with different organizational values often make these genuine innovations? Companies with aggressive management directives to slash costs and reduce overhead often fail to invest in areas that produce innovation. In the long term, this lack of investment profoundly impacts company culture, often precipitating an exodus of forward-looking employees. Our industrial society values rapid and predictable returns on investment and neglects the necessarily inefficient process of innovation—shareholders see it as wasteful. This is the crux of the paradox; the quest for “friction-free” processes may be slowing the discovery of more fundamental changes that would have a much more profound impact on efficiency.
Our society views imagination with a strong sense of ambivalence. Humans are naturally short-term thinkers, and it takes an abundance of thoughtfulness to understand how a series of decisions made today will make a larger impact tomorrow.