Article Written By: Vijay Govindarajan and Anup Srivastava
Arecent series of mass layoffs in the tech sector, including Amazon and Meta’s dismissal of tens of thousands of workers, has created an incredible opportunity for companies that previously aspired to grow their ranks but couldn’t because of the lack of talent. Traditional firms that previously struggled to modernize business processes now have access to some of the best talent in the world. The same traditional firms, that could never afford to compete with recruiters from jazzy Silicon Valley companies, can now swoop in and offer career lifelines to dismissed tech workers.
We believe that the current layoffs have created a great opportunity for traditional companies. By recruiting and hiring from the former ranks of the world’s leading digital companies, they can gain access to new talent in a less competitive market. This talent can help turn their stagnant business models into digitally agile models, to prepare for increasingly turbulent business environments. In this article, we identify the reasons for these layoffs. We then explain what companies that operate outside of the technology sector can do to benefit from the sudden influx of talent.
A Reversal of Overhiring
We are witnessing a mass reversal of the overhiring that took place during the pandemic. Meta CEO, Mark Zuckerberg wrote, in a message to employees regarding recent layoffs, “At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic … Unfortunately, this did not play out the way I expected.”
Stripe’s CEO, Patrick Collison, wrote a similar statement explaining a 14% reduction in staff: “At the outset of the pandemic in 2020, the world rotated overnight towards e-commerce. We witnessed significantly higher growth rates over the course of 2020 and 2021 compared to what we had seen previously … The world is now shifting again.”
The tech sector was not prepared for such a sudden increase in interest rates, which dramatically reduced the valuations of companies whose profits would arrive in the distant future. This occurs because the discount rates that go into valuations increase with the interest rates. The tech-heavy NASDAQ has declined by about 30% in the last year. More aggressive tech-heavy funds, such as that of Cathie Wood’s Ark Innovation fund, have lost 65%. Many fintech funds and crypto funds have gone bankrupt. Start-up activity has come to a standstill, and initial public offerings have dried up. This affects the growth plans of capital-hungry tech companies, which are now winding down their hiring in anticipation of growth plans.
But these challenges shouldn’t impact traditional companies with sound fundamentals, at least not to the extent that they affect young, tech start-ups. Unlike other recessions, when employers cut roles no longer critical to business operations, the recently dismissed employees offer a wide range of highly sought-after skills. Amazon laid workers off from its Alexa division, which handles voice technology, artificial intelligence, and automation, among other technologies. Twitter cut workers from its ethical AI, data science, machine learning, and engineering teams.
An Opportunity for Traditional Firms to Modernize
The pandemic also ushered in a new era for how businesses function. Organizations realized the need to transform business processes to become more flexible. Remote work, for example, requires more than conducting Zoom conferences from home. Managers are now just as capable of managing a bank’s entire currency trading platform from home as they are from a corporate office.
This permanent and deeper shift towards hybrid work requires new human resources systems, a restructuring of workflows, new and updated e-commerce platforms, improvements in engineering, improved cyber security, and more. Companies that were too slow to build these systems during the pandemic can now capitalize on an influx of talent to show them how it can be done.
A year ago, an aspiring, young, software engineer would probably be more inclined to join a crypto exchange than the e-commerce division of a bricks-and-mortar retailer. Now, with technology companies reducing staff, a bricks-and-mortal retailer, or any company with sound fundamentals that has yet to completely modernize, can now outcompete tech companies in hiring the talent it needs.
Who Should Your Firm Hire?
Traditional firms should focus their hiring on employees who can help them achieve the following: the transition to a remote workforce, analysis and optimization of the customer journey, automated customer service, the collection and use of AI-driven insights to improve sales efficiency, automating employee performance management, improving supply chain management, and optimizing human resource planning.
Successful digital transformation stories include Target, Nike, Home Depot, Hasbro, and Best Buy; failures include GE, Ford, and Procter & Gamble. In each case, employees were the determining factor in whether the transformation efforts succeeded.
If you work at a traditional firm, you should use the recent layoffs as an opportunity to pursue employees with the following skills:
- DevOps
- Customer experience
- Cloud
- Automation
- Product and platforms
- Data management
- Cybersecurity and privacy
Economic volatility always creates business challenges, but most of today’s challenges can be mitigated with digital transformation. If we do enter a recession, for example, and the current inflationary environment continues, customers will be forced to change their discretionary spending. Retailers can develop and use technologies, such as machine learning and agile systems, to identify shopping patterns, understand buying behaviors, adjust promotions and special offers, personalize product recommendations, tweak pricing on the fly, and balance supply with fast-changing demand and customer preferences.
This opportunity exists in some form or fashion across every industry. But you can only benefit from it if you have the employees who can implement these technologies. Luckily, tens of thousands of these workers just hit the market.
Poach Employees from Tech Companies
Recently laid-off employees aren’t the only source of talent. Companies should also look to poach employees who still have jobs but want to leave tenuous positions at tech companies. As tech firms cut R&D and new projects, reduce head counts, and cut employee salaries and bonuses, and as declining stock prices pull stock options under the water, employees are now looking for steadier employment opportunities.
Tech workers in the U.S. who are from countries such as India and China are only allowed to stay in the country on H-1B Visas. If they’re laid off, they must find new employment within 60 days or they must abandon their visa and leave the country. Many of these workers who haven’t already been dismissed are likely concerned about the prospect.
Acquire Struggling Tech Companies
This is also an opportune time for traditional organizations to acquire tech companies and buy assets at fire-sale prices, especially those firms that are struggling to raise funds to sustain operations. Some acquisitions can take the form of acquihires, that is, acquisitions for the sake of hiring talent. Some start-ups possess patents that turn out to be valuable resources for the acquirer. Some start-ups have developed new business ideas or even created an upcoming brand but lack the financial and marketing muscle to launch them on a big scale. Companies can now acquire those valuable assets at discounted prices to unlock their value.
History has shown us time and again that downturns and challenging times create winners among those that capitalize on the opportunities and acquire the right assets, customers, talent, and competencies at the right prices. The recent spate of layoffs represents such a time.
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Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth College’s Tuck School of Business, an executive fellow at Harvard Business School, and faculty partner at the Silicon Valley incubator Mach 49. He is a New York Times and Wall Street Journal bestselling author. His latest book is The Three Box Solution. His Harvard Business Review articles “Engineering Reverse Innovations” and “Stop the Innovation Wars” won McKinsey Awards for best article published in HBR. His HBR articles “How GE Is Disrupting Itself” and “The CEO’s Role in Business Model Reinvention” are HBR all-time top-50 bestsellers. Follow him on LinkedIn and Twitter @vgovindarajan.
Anup Srivastava holds Canada Research Chair in Accounting, Decision Making, and Capital Markets and is a full professor at Haskayne School of Business, University of Calgary. In a series of HBR articles, he examines the management implications of digital disruption. He specializes in the valuation and financial reporting challenges of digital companies. Follow Anup on LinkedIn.
c. 2022 Harvard Business Review. Distributed by The New York Times Licensing Group.
