Large layoffs at IT companies show a desire to become more efficient

The year of efficiency in technology is already underway, but some organizations have more work to do than others to turn their fortunes around.

Since the beginning of 2022, more than 300,000 workers in the sector have been laid off as corporations learn that their economic gains aren’t durable and the economy slows.

Facebook CEO Mark Zuckerberg has spoken about the need to become “leaner” and flatter.” Amazon CEO Andy Jassy emphasized the need of simplification in a message announcing the firm’s second wave of layoffs. The two businesses have laid off a total of 48,000 employees in the last five months.

Keith Rabois, a PayPal mafia member, recently stated that it’s about time major corporations cut back after years of over-hiring, claiming that the top digital firms are bloated and inefficient, and he’s called for a refocus on one specific metric: revenue per employee.

This is a back-to-basics measure of efficiency and productivity that assigns a hard dollar value to individual workers by dividing a company’s annual revenue by the number of employees. A company may appear financially healthy if it has massive revenue — but if it has masses of workers and poor or waning profitability, low revenue per employee may signal inefficiency and bloat.

But how horrible is it really?

We crunched the numbers for major IT businesses between 2018 and 2022, and the results illustrate why so many are slashing employees.

  1. Tech behemoths expanded but did not become more efficient.
    Computer firms grew in the years leading up to and during the epidemic, but more people didn’t always equal more money.

According to the data, Amazon, Meta, and Twitter, in particular, hired substantially in 2018, but also faced diminishing income per employee; it’s no coincidence that all three businesses have been among the most ruthless with employment cutbacks in recent months.

Amazon’s employment increased from 647,000 to 1.5 million last year, during which time its revenue per employee fell 6.9% to $333,550, while Meta’s revenue per employee fell 14% as the company more than doubled its headcount. Twitter’s revenue per employee fell over 60%.

According to John Van Reenen, professor of economics at LSE, the pursuit of a larger staff may have hampered productivity. “It’s likely because often CEOs think ‘more is better,’ and it’s wonderful to establish an empire to look important,” he said.

  1. Size does not always matter
    And how have tech firms fared against one another?

Twitter made the least income per person at the end of last year – $317,333 — which isn’t surprising since the company only employed 7,500 people; by comparison, Alphabet generated $1.5 million per employee in 2022, with a workforce of 190,234.

According to the data, despite having tens of thousands more people, Amazon and Salesforce make nearly the same revenue per employee as Twitter: each Amazon employee made $333,550 in revenue last year, while Salesforce employees generated $394,911.

In Google’s example, annual rises in staff numbers coincided with minor gains in revenue generated by each person – until the market panicked. Only Apple, Microsoft, and Salesforce were able to enhance productivity over that time period by increasing revenue per employee while also increasing the number of their workforce. Companies can benefit from SEO Melbourne services to improve their online presence.

According to Van Reenen, this demonstrates that there was no expansion effort to satisfy the need for technology from “a major rise in online purchasing and software solutions designed to assist remote working.”

That was, in some cases, a mistake, as Meta CEO Mark Zuckerberg conceded when announcing layoffs.

“Many people expected this would be a permanent acceleration that would continue long after the pandemic stopped,” he stated in November, “and I did as well, so I decided to considerably raise our efforts.” Regrettably, this did not turn out as I had hoped.”

“What IT executives hadn’t completely anticipated was that there would be a switch back to the offline world as things returned to a sort of normal,” Van Reenen explained.

  1. A single corporation to govern them all
    Apple hasn’t had to make the severe sacrifices that its competitors have, and the figure below explains why.

When the outbreak began in 2020, Apple’s income per employee has increased from $1.9 million that year to $2.4 million in 2022.

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