It has been widely reported that Alphabet is laying off ten thousand Google employees based on results from performance ranking algorithms.
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Google follows in the wake of a number of major technology companies laying off staff, including Microsoft, Meta, Twitter, RingCentral, Salesforce, and more.
There appear to be various influences behind the decision to downsize, namely the economic downturn, which has particularly affected the technology sector recently, the trend for reducing ‘bloated’ workforces, and a letter from a billionaire investor urging Google to make cuts.
Christopher Hohn, Managing Director of TCI Fund Management Limited, said in a letter to Sundar Pichai, CEO of Alphabet:
“We are writing to express our view that the cost base of Alphabet is too high and that management needs to take aggressive action.
“The company has too many employees, and the cost per employee is too high.
“Management should publicly disclose an EBIT margin target, substantially reduce losses in Other Bets and increase share buybacks.
“During a period of high growth between 2017 and 2021, revenues increased at an annual rate of 23%, cost discipline was not a priority. However, cost discipline is now required as revenue growth is slowing.
“Cost growth above revenue growth is a sign of poor financial discipline.”
The letter went on to point out that many other notable technology companies were making staff cutbacks. Furthermore, former Alphabet executives have said that the company could perform better with fewer employees.
Hohn quoted Brad Gerstner, Founder and CEO of Altimeter Capital: “It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to uber could achieve similar levels of revenue with far fewer employees.”
Diagrams in the letter show Alphabet’s headcount at an annual rate of 14% between 2013 and 2017, followed by a rate of 20% from 2017 to the third quarter of 2022. Employee numbers have more than doubled since 2017.
Hohn also pointed to Alphabet paying some of the highest salaries in Silicon Valley. Its median employee compensation totalled $295,884 in 2021, 67% higher than Microsoft and 153% higher than the largest 20 technology companies listed in the US.
The letter went on to outline Hohn’s other key suggestions for the company, including establishing an EBIT margin target, reducing losses in Other Bets, and increasing share buybacks.
Performance Ranking Controversy
To reduce its numbers by ten thousand (6% of its total workforce), Google managers were asked to rank the performance of their staff and lay off the ‘poorest performers’.
The new system, which Google announced in May following employee criticism, is designed to improve morale and remove any suspicion of prejudice, make an easier path for promotion, and rid the company of its lowest performers. According to The Information, it has also been created to reduce the percentage of employees that can score a high rating.
Social media has already been abuzz with reactions to the digital termination system.
CNBC first reported in July that Google’s CEO, Sundar Pichai, issued a stark warning to his employees: “It’s clear we are facing a challenging macro environment with more uncertainty ahead.”
“There are real concerns that our productivity as a whole is not where it needs to be for the head count.
“We have to create a culture that is more mission-focused, more focused on our products, more customer-focused.
“We should think about how we can minimize distractions and really raise the bar on both product excellence and productivity.”
The status quo in the technology industry is shifting towards a slimmed-down and streamlined version of itself, with companies such as Twitter proudly blazing the trail. Whether this approach is the product of well-reasoned and thoughtful inquiry or a fearful overreaction to market conditions remains to be seen.
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