The Double-Edge Sword of Efficiency: The Lingering Dangers for Employees AND Leaders
Since we reduced our workforce last year, one surprising result is that many things have gone faster. In retrospect, I underestimated the indirect costs of lower-priority projects. – Zuckerberg, Meta’s Year of Efficiency, March 14, 2023
Meta’s Year of Efficiency (1) focuses on improving organizational efficiency and financial performance in a challenging environment. In the coming months, Meta plans to flatten org structures, cancel low-priority projects, reduce its workforce, and slow hiring rates.
From my perspective as a Lean and Agile coach, Zuckerberg’s statement evokes mixed feelings. On the one hand, I appreciate his recognition of the potential pitfalls of overstaffing and working on too many lower-priority projects. On the other hand, I am disheartened when leaders pursue strategies that result in suboptimal financial outcomes and subsequently resort to large-scale layoffs to rectify the situation.
The “Surprising” Benefits of Limiting Work-In-Progress
Lean and Agile practitioners may recognize Zuckerberg’s statement as a real-world example of Little’s Law at work with the associated benefits of limiting work-in-progress (WIP). Little's Law is a fundamental equation in queueing theory that states the average number of items in a system (L) is equal to the arrival rate of items (λ) multiplied by the average time each item spends in the system (W), expressed as
L = λ x W
A reworked version of this equation in terms of WIP, cycle time (the average time an item spends in the system), and throughput (the item completion rate) or
WIP = Throughput × Cycle Time
By lowering work-in-progress (WIP) while maintaining constant throughput, the average time each item spends in the system (cycle time) typically decreases. When Meta reduced the number of projects and kept their throughput steady, their delivery rate improved. Even if their overall throughput decreased due to layoffs, if the percentage reduction in WIP was more significant, a reduction in cycle time would still be expected. Company leaders at every level avoid surprise and instead carefully consider the important tradeoffs between WIP, throughput, and cycle time for their teams.
Lack of Respect for People
It deeply saddens me when leadership teams resort to mass layoffs as their primary countermeasure for addressing a company's financial troubles, especially when these issues stem from the leadership’s own misguided strategy and poor decision-making. It begs the question: why don't leaders embrace alternative approaches, such as natural attrition, hiring freezes, retraining, bonus and salary reductions, or accepting lower profit margins before choosing to upend the lives of laid-off employees?
"Respect for People" is one of the foundational principles of Lean Thinking. (2) This concept emphasizes cultivating a culture that values every individual, encourages empowerment, and nurtures the growth and well-being of employees and stakeholders alike. Let's briefly explore the different aspects of this principle to provide additional context and reduce ambiguity:
Valuing employees: Company success is built upon the collective skills, knowledge, and efforts of its people. By treating employees with dignity, respect, and fairness, the company creates an environment where individuals feel valued and motivated to contribute their best work.
Empowering employees: Employees engage in problem-solving at all levels of the organization. By providing the necessary training and tools, the company empowers employees to identify and address issues, promoting continuous improvement and innovation.
Developing people: Leaders are committed to the personal and professional growth of employees, investing in their development through ongoing training and mentorship. This focus on human development not only benefits individual employees but also strengthens the overall organization.
Respect for stakeholders: Respect for People extends beyond employees, to include customers, suppliers, and communities in which the company operates. The company strives to build strong relationships and act as a responsible corporate citizen, contributing to the betterment of society as a whole.
Mass layoffs are clearly at odds with the Respect for People principle, as layoffs erode trust, undermine employee morale, and disrupt workplace culture. Such actions suggest that an organization places a higher priority on short-term financial gains rather than fostering long-term investment in its people and their development.
In stark contrast, Toyota is a company renowned for its unwavering commitment to treating employees with respect, striving to retain and retrain them rather than resorting to layoffs. Even during the 2008-2009 global financial crisis, Toyota refrained from laying off full-time employees, despite facing significant financial challenges. The company instead implemented cost-cutting measures, reduced working hours, and retrained employees for different roles. However, it is important to note that Toyota's dedication to avoiding layoffs primarily extends to full-time employees, with temporary workers and contract employees receiving less job security.
Sword of Damocles
Mass layoffs combined with a disregard for Respect for People have far-reaching and subtle consequences that extend well beyond short-term financial gains. The Sword of Damocles is an ancient Greek parable that tells the story of Damocles, a courtier who envied the power and wealth of his ruler, Dionysius. Dionysius offered Damocles the chance to experience his life as a ruler, but with a catch: a sword hung by a single horsehair above Damocles' head, symbolizing the constant threat and uncertainty that comes with power.
Mass layoffs and their lingering effects on company culture are like the Sword of Damocles, as they create a climate of fear, uncertainty, self-centeredness, and mistrust that can have far-reaching consequences for the organization's success and long-term stability. This pervasive sense of vulnerability and even dread results in diminished morale, decreased productivity, eroded trust between employees and management, increased unwanted attrition, and subpar team performance.
Mass layoffs also lead to the troubling consequence of “silent quitting” where remaining employees mentally and emotionally limit their engagement with work. Disheartened employees may attend work meetings and complete their tasks, but they limit their discretionary effort, and enthusiasm, and don’t go above and beyond for their role, team, or organization. The negative effects of mass layoffs linger with the employees that remain. Rebuilding trust requires consistent efforts from the company's leadership to demonstrate commitment to employee well-being, transparency, and stable financial health.
Advice for Company Leadership
To avoid resorting to mass layoffs, company leadership should consider implementing these sensible strategies that, while common sense, are often not widely applied:
Reserve funds to support employee payroll during challenging times
Be cautious about overhiring; carefully staff medium and low-priority projects and products
Prioritize employee retention, retraining, and repurposing for roles with higher value instead of resorting to layoffs
Leverage natural attrition, implement hiring freezes, reduce bonuses, incentivize early retirement, cut salaries and overtime, and curtail discretionary spending
Accept responsibility AND the associated consequences for short-term financial difficulties and take a disproportionate hit to executive compensation
If leadership teams have not thought through these considerations, perhaps it’s time to start. What are the right levels of financial reserves? How would we know if we were overhiring? Do we have the systems in place to retain, retrain, and repurpose talent from low to high-priority work?
Advice for Employees
Employees must prioritize their own well-being and career development. Loyalty is often a one-way street, with individuals being more loyal to companies than companies are to them. People can be loyal, but companies rarely are.
During my early career, I worked in the highly-cyclical semiconductor industry for Intel Corporation. Amid the Dot-com bubble bust, one of the guiding pieces of advice employees shared with coworkers was to "stay close to the wafers." Semiconductors are produced on silicon wafers, which are Intel’s core products. “Staying close to the wafers” implied that if your role did not directly contribute to the company's core products or value streams, then there was less job security than a position more directly connected to the core business. For instance, it was more advantageous to work in a support organization for a core process than in a secondary support organization (i.e. a support team for another support team). If your team is two or more steps removed from the core business or if your team is working on a highly speculative initiative, then consider making a move closer to the core.
"You own your own employability" was another concept widely advocated across Intel. This means that individuals need to take responsibility for their career development and job security. Employees should actively invest in their skills, knowledge, and professional network to maintain or enhance their value in the job market, rather than relying solely on their current employer for job stability or career growth. This principle promotes self-reliance, resilience, adaptability, and a proactive approach to career development.
In his book Only the Paranoid Survive, (3) Andy Grove, the CEO of Intel, wrote, "Nobody owes you a career," emphasizing the idea that individuals are responsible for their own career growth and development. Andy’s brutally honest advice for employees rings true today in the face of economic uncertainty, rapidly evolving technologies, and the rise of artificial intelligence:
If you are an employee, sooner or later you will be affected by a strategic inflection point. Who knows what your job will look like after cataclysmic change sweeps through your industry and engulfs the company you work for? Who knows if your job will even exist and, frankly, who will care besides you? Until very recently, if you went to work at an established company, you could assume that your job would last the rest of your working life. But when companies no longer have lifelong careers themselves, how can they provide one for their employees? As these companies struggle to adapt, the methods of doing business that worked very well for them for decades are becoming history. Companies that have had generations of employees growing up under a no-layoff policy are now dumping 10,000 people onto the street at a crack. The sad news is, nobody owes you a career. Your career is literally your business. You own it as a sole proprietor. You have one employee: yourself. You are in competition with millions of similar businesses: millions of other employees all over the world. You need to accept ownership of your career, your skills and the timing of your moves. It is your responsibility to protect this personal business of yours from harm and to position it to benefit from the changes in the environment. Nobody else can do that for you.
To ensure job stability and employability, particularly for those working in companies with a history of mass layoffs or facing financial difficulties, employees should consider these recommendations:
Establish an emergency fund covering at least six months of living expenses.
Remain connected with or move closer toward the core revenue streams of your company
Commit to yourself and your craft - invest in personal growth and skills development rather than relying on the company for job security
Explore new job opportunities proactively, even before it becomes a necessity
Cultivate and maintain a strong professional network outside your current company, as it will prove invaluable when needed
You’ve Been WARN’ed
To stay informed and prepared for potential job loss, employees should monitor their state's Worker Adjustment and Retraining Notification (WARN) reports (4) which require employers to give a 60-day advance notice before initiating a plant closure or mass layoff, allowing employees and their families time to prepare for potential job loss, explore alternative employment opportunities, and, if needed, acquire new skills or retrain to enhance their competitiveness in the job market. These reports can be found on individual state government websites.
At the time of writing, the companies with the highest number of upcoming layoffs after today (April 3, 2023) are shown in the table below from WARNTracker.com. If you happen to work for one of these companies, you know what to do.
May the odds be ever in your favor.
Zuckerberg, Mark. “Update on Meta’s Year of Efficiency.” Meta Newsroom. March 14, 2023. https://about.fb.com/news/2023/03/mark-zuckerberg-meta-year-of-efficiency/
Womack and Jones. Lean Thinking: Banish Waste and Create Wealth in Your Corporation, 2003.
Grove, Andrew. Only the Paranoid Survive, 1998.
Worker Adjustment and Retraining Notification (WARN) reports. WARN Tracker website. https://www.warntracker.com/