Why Are the Tech Companies Laying Off People in Hordes?

In the past few months, we witnessed the announcements about major job cuts by technology companies. Cisco plans to cut about 14,000 jobs, Intel announced plans for laying off 12,000 workers, companies like Dell, IBM, and HP Enterprise are planning to continue the spree of downsizing.

Technology companies in the United States have shed about 63,000 jobs, according to outplacement consultant Challenger, Gray & Christmas.

These announcements have striking similarity with two phenomena we have experienced in the past: recession-driven contraction of workforce and the wave of globalization-driven offshoring or displacement of jobs. But they are not; the recent job cuts are the result of disruption in the tech industry.

The ‘resizing’ of the tech industry is being driven by tumultuous change in the complexion and landscape of the tech industry. The fundamentals of the tech industry are changing, new rules are being written. Therefore it needs lesser people of the older kind. In the short term.

Though the new rules are all very familiar and known, we had not yet factored in the people angle till now. This is playing out now. Tech companies are forced to scale back on jobs for the following reasons:

  • Cloud computing has got mainstream; people are buying lesser equipment, setting up fewer data centers. Newer companies go on the cloud from the start. Traditional IT vendors no longer need that many people to design, develop, sell, and support traditional IT equipment.
  • Virtualization and software-defined technologies have changed the way the traditional line-up of enterprise hardware is looked at. Much of the hardware has been compressed into software and software is developed and sold differently. Traditional IT vendors no longer need that many people to design, develop, sell, and support giant hardware equipment.
  • Many of the large organizations, especially the Web-scale companies like Facebook and Amazon, which are technology companies themselves, run on machines that are designed and manufactured in-house.
  • Agile development, DevOps, SaaS, crowdsourcing, open source platforms, and other such newer practices have changed the methodology, architecture, and process of software development and software procurement.
  • Technologies such as robotic automation, machine learning and AI, augmented reality, etc. are changing business processes by making them more productive with fewer hands at work. This is especially true in the services industry where the industry has been talking about decoupling revenue growth from headcount growth (famously called non-linear growth). So, while outsourcing and offshoring would continue, increasingly lesser and lesser people would be added per unit of growth in revenue.

Does this mean that the tech industry is permanently down to fewer numbers of people? No. The universe of tech talent is getting reordered. The action in tech has shifted to new areas: data scientists and analysts, customer experience design, digital engagement, machine learning and IoT, security analysts, fintech, blockchain and more. These are the areas that badly need lots of fresh talent.

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