Career and Workplace

Layoffs Surging in a Strong Economy? Advice for Navigating Uncertain Times

Layoffs have been on the rise in some US industries as tech and professional services companies grapple with slowing demand and mixed economic signals. Sandra Sucher, Frances Frei, and Maria Roche offer insights for leaders managing through the turmoil.

Featuring Sandra J. Sucher, Frances X. Frei, and Maria P. Roche. By Rachel Layne on November 1, 2024.

From tech to media to management consulting firms, layoffs are back.

Downsizing during a healthy economy can help lay the foundation for efficient growth or make space for new roles that harness newer technology, such as artificial intelligence. Companies such as Dropbox and Intel have also announced staff cuts in reaction to slowing or declining demand.

US government data from October suggests that employers remain cautious, adding just 12,000 new positions in the month as unemployment remained steady at 4.1 percent, edging up from 3.8 percent a year earlier. While recent hurricanes and strikes dampened hiring, employers still created fewer jobs than economists expected, according to reports.

Losing one's job can be a shock, raising questions like: “Should I start my own business?” and “What about my benefits?” For managers and employees who remain, layoffs can exacerbate anxiety and burnout. Amid the uncertainty, Harvard Business School faculty share some research-backed insights for leaders, people managers, and job seekers.

Sandra Sucher: Tech layoffs—It doesn’t have to be this way

Tesla earned a Wall Street Journal front-page story in September detailing the automaker’s lagging expansion plans for its Supercharger EV station network. The number of new charging ports opened from May through August tumbled 28 percent from the same period a year earlier.

The reason? “Widespread layoffs in April gutted the team responsible for installing new electric-car chargers and stations,” the Journal reported.

Doing a layoff for the right reason is not just smart strategically, it’s smart organizationally.

Two months earlier, in July, Intuit CEO Sasan Goodarzi published a note in the financial software firm’s internal blog titled “Investing in our future.” The post described why the company decided to part with 1,800 Intuit employees, or about 10 percent of its workforce: The company was redirecting staff to two “big bets” in AI.

These examples, coupled with tracking data showing tech layoffs moved from “pandemic” to “endemic” status at a pace of 10,000 to 20,000 layoffs each month in 2024, mean it’s time for tech leaders to ask themselves three questions about layoffs.

1. What is this layoff for?

HR teams do not decide who to lay off—that’s the job of tech company leaders. They do it either badly or well. Research confirms what seems obvious: across-the-board layoffs lead to mistakes that undermine companies’ corporate goals.

Doing a layoff for the right reason is not just smart strategically, it’s smart organizationally, since employees are more likely to stay engaged and work through the negative feelings that a layoff inevitably causes if they can see that their leaders have a realistic, rational, and focused path to the future.

2. How well are we treating the people who are being laid off?

Intuit’s blog is worth reading for the care it demonstrates for the feelings and well-being of employees who are being laid off. Financial support, reemployment support, benefits continuation, and visa support are all indications to remaining employees and future hires of how they might be treated in the future.

Intuit managed communication well: By 9 a.m. PT, all employees impacted by the changes received a calendar invite from their manager titled, “Leaving Intuit Discussion.” That ended the uncertainty of who was and was not being laid off. Financial support was fair, with layoffs timed to enable employee vesting schedules for company stock and annual bonuses.

3. What message are we sending?

Intuit’s CEO described the “layoffs while still hiring” situation many tech firms grapple with. His statement, “We do not do layoffs to cut costs,” is a clearer message for employees who see the staffing up as well as the laying off, especially in light of the vast sums tech companies are putting into their race for AI market share and growth.

On the other hand, Intuit said that 1,000 of its 1,800 layoffs were for performance reasons. This is a hard tag to put on someone who needs a new job who may have to explain whether they were cut for performance. It’s also a dangerous conflation of ordinary performance management, which should happen all the time to maintain high standards and efficiency.

Leaders of firms from start-ups to tech giants should give themselves the room they need to manage employee performance while shifting headcount to match strategic priorities when the need arises.

Sandra J. Sucher is the MBA Class of 1966 Professor of Management Practice in the General Management Unit at HBS.

Frances X. Frei and Anne Morriss: Managers, it’s story time

The tech sector continues to shed workers after hiring prodigiously during the demand peaks of pandemic living, a shift that markets have rewarded with higher stock prices.

But with the layoff research of our colleagues as a touchpoint, we are troubled by the potential long-term costs of this trend, including reduced innovation, lower team engagement, and attrition of talented people. The path to competitive excellence isn’t littered with layoff announcements.

There’s an architecture to effective leadership storytelling. Think about it directionally as past, present, future.

If you’re left holding the bag as a manager at a company that’s laying off its employees, what should you do? We suggest telling a clear story that bridges the company from its current challenges to its future success. Make it make sense to your best people, the ones you’re counting on to deliver that future.

As we explored in a recent article, there’s an architecture to effective leadership storytelling. Think about it directionally as past, present, future:

1. Own the past. We advise companies laying off employees to acknowledge the fact that they made a historic mistake. Something went wrong in your internal forecasting, either the demand you over-confidently predicted or the strategy you assumed would work. That mistake was costly, both for the good people leaving and the good people staying.

2. Tell us the plan. Layoffs are a blunt instrument with real collateral damage. So what else is the company doing to position itself to win? For example, what investments are being made, either in time, focus, or capital? And what isn’t changing? People aren’t afraid of change; they’re afraid of things getting worse. Tell us about your plan for better.

3. Convince us of the future. According to research from Gallup, just 15 percent of US employees “strongly agree” that their organization’s leadership makes them enthusiastic about the future. In our experience, that number plummets to low single digits during layoffs. Tackle this challenge head-on by describing the future in vivid, specific, and optimistic language—and make a data-driven case for why the company is likely to get there.

Finally, repeat this story—all three parts—wherever you get the chance, from team meetings to one-on-ones, to digital messaging. Your storytelling challenge isn’t over after one grim layoff email.

Frances X. Frei is the UPS Foundation Professor of Service Management at HBS. Anne Morriss is a leadership coach. Their latest book is Move Fast and Fix Things.

Maria Roche: Making an informed decision about entrepreneurship

Starting your own company after a layoff is a significant decision. While it may seem like an opportune time, research suggests there are some important considerations.

Entrepreneurs coming from high-tech sectors such as biotechnology or medical devices may face unique challenges when starting a company after a layoff.

Here are three risks to weigh carefully and one actionable step if you decide to proceed:

1. High risk of lowering the bar

Research provides compelling evidence that worsening labor market conditions, such as those that accompany layoffs, tend to push individuals into starting ventures out of necessity. When this happens, aspiring entrepreneurs often lower the threshold for the quality of the business ideas they pursue. Companies founded during such periods often display weaker financials and suboptimal innovation outcomes.

2. Resource availability risk during economic downturns

During economic downturns or periods of high unemployment, capital may be scarce. Support structures typically needed to grow a business—like financing and mentorship—might not be as readily available. This can make scaling a new venture more challenging.

Entrepreneurs coming from high-tech sectors such as biotechnology or medical devices may face unique challenges when starting a company after a layoff. These industries require significant upfront investment in time, intellectual property, and human capital.

3. Reduced innovation

Startups created under pressured circumstances, such as a layoff, are also less likely to be innovation-driven. These firms tend to underperform in creating patents or bringing breakthrough ideas to market because they often prioritize existence and survival over innovation. This long-term innovation gap can become a disadvantage compared to firms started during more stable times.

Take action: Leverage co-working and social spillovers

If you do decide to start your company after a layoff, it’s important to be near other entrepreneurs, research emphasizes. Working in co-working spaces or hubs where interaction and knowledge exchange happen frequently can significantly increase the chances of success. Being physically close to other entrepreneurs fosters social interaction, leading to knowledge sharing, the development and early assessment of new ideas.

Importantly, early idea exchange can help founders pivot to potentially better ideas before investing too much time and other resources. Such pivots can be especially helpful in offsetting the challenges posed by a lack of formal resources and in ensuring the new business reaches a quality threshold.

By considering these factors, you can make a more informed decision about whether starting a business post-layoff is the right path for you.

Maria Roche is an Assistant Professor of Business Administration in the Strategy Unit at HBS.

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Feedback or ideas to share? Email the Working Knowledge team at hbswk@hbs.edu.

Image: HBSWK

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Layoffs Surging in a Strong Economy? Advice for Navigating Uncertain Times

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