Understanding Business Objectives In The Chaos Of Corporate Layoffs

News of layoffs from Silicon Valley heavyweights and the startup world are grabbing headlines and eyeballs each day now. Professional social media platform LinkedIn is inundated with posts from laid off employees expressing anguish at the way they were locked out of company premises and office computer networks abruptly. There are several reasons for what has been happening but it would be better understood by first looking at business fundamentals and other underlying factors.

All companies aspire to grow their revenue and profit margins Year-On-Year (YOY) and this is the mandate of their top executives. Business strategies are created for both revenue generation and cost saving (money saved is money created) based on market analysis and macroeconomic conditions. This results in the initiation of projects which when executed results in the development of products, services, etc which can either be commercialized and monetized to generate revenue or used internally to increase efficiency and thereby reduce cost to companies. Bigger companies will have multiple projects and startups will be mostly working on developing a single product/service. Now, there are business evaluation methods (NPV, IRR) to establish if a project can be successful but there can be hurdles during project execution, introduction of similar products/services and other market changes, changes in macroeconomic conditions and availability of funds that can fail the project and failure of companies in case of startups.

There is a business evaluation model called PEST which is used to analyze macroeconomic conditions to determine the success or failure of a business initiative. PEST stands for Political-Economic-Social-Technological. PEST was later extended to PESTEL to include Ecological and Legal factors. Ecological can be largely divided into two factors – natural disasters and diseases. Companies have traditionally ignored ecological factors during business evaluations. The first time I came across ecological factor becoming relevant was after the devastating Mumbai flood in 2005. A client that had outsourced its IT operations to a service provider based out of Mumbai asked for a disaster recovery (DR) team to be set up in Bangalore. But diseases were completely ignored.

When the COVID pandemic struck in 2020 and countries went into lockdown, supply chains got massively disrupted. Companies were forced to modify their strategies and operations with immediate effect or close down. As the lockdowns extended, many of the ongoing projects became reduntant temporarily while new business opportunities started coming to the fore. Online home delivery and educational platforms popped up and thrived. Hiring increased substantially to implement and support new projects. It was evident that lockdowns had to end or would cripple economies of countries but where companies seem to have grossly mistaken is in their assumption that businesses would not or take a long time to return to pre-covid situation. My understanding is, if businesses had done their evaluation by considering ecological factors and specifically the factor of diseases and understood the implications, the world would not have had to go through what it had to for two years of the pandemic.

It is well known that majority of projects initiated by companies and majority of startups fail. Companies try to absorb employees in failed projects into other projects whereas startups are left with no option but to let go off their employees. But organizational consolidation amid fears of impending economic recession, disruption caused by Russia-Ukraine conflict and rising inflation and interest rates have resulted in the layoffs we are seeing now. There are different categories of employees that have been impacted now.

1) Employees on bench – Employees who are not assigned to projects or are out of projects and yet to get new projects are assigned to bench where they are trained on new technologies and topics while they continue to receive their monthly salaries. Normal practice is, most employees on bench get assigned to new projects and those who don’t are let go after a specific period of time. When layoffs due to consolidation is initiated, bench employees are the first ones to be affected.

2) New/recent joiners – When projects slow down or become redundant, new/recent joiners get impacted first when projects are shut down or team sizes are trimmed.

3) Senior employees – Yes and no surprises. All companies expect their employees to upskill themselves along with increasing experience and move up the ranks. While it is true that the corporate pyramid becomes thinner with increasing height, employees who choose to do nothing or continue staying in specific roles become redundant with time and replaceable. In a previous job, I have seen experienced people of a specific skill being let go and people with less experience of the same skill being hired to fill up those roles. Senior resources are needed in projects only till the time the projects become stable and all information is documented. Then projects can be run easily with a couple of senior people and team members with lesser experience who need to be paid far less salaries. This is also a way for the companies to reduce expenses and make the projects profitable. Moreover, new graduates are leaving colleges with the knowledge of latest technologies and who need to be paid only a fraction of what the senior employees are being paid. This is also making senior employees redundant and expendable.

Top executives are needed for businesses to ride through the storm so they will not be let go off now. In the recent past, some companies were offering high severance packages for top executives to take voluntary retirement because new and young leaders bring fresh perspectives into leadership roles.

It is important to note here that as employee headcount increases the number of internal staff in human resources, facilities and other departments also increase. These employees play no part in revenue generation and add on to cost to the company. Employee reduction also results in the reduction of internal staff count.

Do we need to fear or worry about layoffs? Lush green forests dries out in the summer heat and just a single spark of fire is needed to burn it to the ground. All that smoke and heat, in turn. rises up and brings rain. From the ashes, life springs up again. Life is cyclic and this is the Universal truth. Difficult times force us to introspect and is the time for reality check. These are the times which help us to understand if we want to learn something new and get back into the market or find our true passion and set our lives in a new direction. Any transition is difficult and no one is living happy, peaceful and stable lives which is what everyone is aspiring for. Challenges will come in everyone’s life at some point in time. Overcoming them and moving forward is what makes us truly successful. 

Understanding the Better.com layoff fiasco

A lot is being said and written about the layoffs at better.com and people I know are mortified by the way the CEO terminated the employees over a video call. When we hear such news, our natural response is to assess them with our emotions.

Business is all about revenue generation, profits and financial statements. Money and emotional quotient (EQ) never goes hand-in-hand. When business goes down, it is not the matter of if the business will bounce back. It is all about time. How long can a company sustain itself before business picks up again or it is forced to consolidate its finances is the burning question. Reducing the workforce is one of the ways to reduce the company’s expenses. Hire and fire is not the way to manage people but is a very efficient way to run businesses especially when the supply of people far exceeds the demand for them in the market.

It is not really lack of empathy on the CEO’s part, just that emotions cannot come in the way of doing business which is why he says in the video that he cried the last time he fired his employees and he hopes to be stronger this time. Termination over video call is undoubtedly terrible but it helps to keep the emotions out unlike in a physical meeting. If his job is to make the company profitable, consolidation is also his call. The timing is also not so bad I suppose because companies open up for recruitment in January.

This isn’t a one-off case, IBM closed down business units and terminated 15,000 employees globally in 2014 and WeWork reduced 20% of its workforce in 2020. We are not used to seeing layoffs in the traditional businesses but in the startup ecosystem we can expect to see a lot because its all about investment and ROI and companies are accountable to its investors for everything it does and doesn’t do.

The company receiving a cash infusion and supposedly going public according to this article is irrelevant in the context. An external cash injection is not necessarily the sign of a company bouncing back as exemplified by how a consortium of banks kept on infusing cash flow into the now defunct Indian airline Kingfisher when its business floundered and showed no signs of picking up. IPO is just an eyewash to cover the investments of the company’s investors and help them reap profits as this post about Zomato’s IPO journey illustrates.

So irrespective of all the backlash, after the global market devastation caused by COVID, expect this to become a precedent if market conditions do not improve.

4 years on, was demonetization a scam as it is still believed to be?

India’s economy has been on a downward slide from the time the knife of demonetization was struck deep into it’s heart in 2016. Everything that could go wrong has gone wrong from that time. 4 years on, majority of the people were struggling to get back on their feet when COVID-19 decided to make an uninvited visit. In Kerala, the Indian state where I come from, there is a saying about a man struck by lightning getting bitten by a snake. It is exactly such a double whammy that India has been subjected to. I still see people on social media cursing PM Modi for the demonetization fiasco and calling it the biggest ever scam in India.

Even I believed so for more than a couple of years till I started connecting the dots. I am admittedly not much of a finance guy because I believe businesses are run more by human needs and emotions than by numbers. But the aftermath and fallout of demonetization forced me to look under the hood. First of all, back in 2016 when I was in Bangalore, I had befriended a birder at a park. He was a retired bank officer with good knowledge about birds. One day, during a casual conversation he said government should demonetize its high value currencies. I was taken aback. I wasn’t able to wrap my brain around what he said at that time. I remembered this when demonetization happened but because of government’s constantly changing narratives about it I wasn’t able to do my own analysis clearly.

In order to understand demonetization it is necessary to understand the situation of the country’s banking system at that time. NPAs on every type of loans were mounting and banks had no option but to liquidate assets of borrowers to recover at least the principal amount of loans. The fallout of the financial meltdown of 2008 was simply not going away. Banks got pushed to the corner with the NPAs of corporate loans. When Kingfisher reported losses and Vijay Mallya told the banking consortium that things were spiraling out of his hands, they decided to top up on the existing loans expecting the airline to make a belated turnaround from its beleaguered situation. What the banks got in return was Kingfisher’s assets – office buildings, airplanes, etc. Banks are not in the business of selling buildings and airplanes. This is just one example. Essentially banks got stuck with a pile of assets they couldn’t liquidate.

But banks were already under the pump for a bigger reason. India’s economy is firmly divided into organized and unorganized sectors. The greatest challenge of successive Indian governments has been to rein in and control the unorganized sector and convert as much of it as possible into organized sector because of an important reason. I take money from my bank account, buy from a local grocery vendor and that money flows into the local market where it goes into circulation most probably without ever going back into the banking system. I have even heard of professionally employed people who refuse any large deposits into their bank accounts. People were using innumerable & innovative methods to evade taxes they are entitled to pay without realizing that they were inadvertently gnawing away at the banking system.

Trampled from two sides and cash strapped, banks needed an urgent ventilator. The problem was too big for the Reserve Bank of India (RBI) to solve. Government had to step in and the only way to let off the steam albeit temporarily was to pull back all the high currency notes from the unorganized sector. Demonetization was probably seen as the only solution. The bank officer had told me about demonetizing high value currency notes in 2015 when he was already retired. This means demonetization was being discussed for the past several years from the time of the previous UPA government.

The biggest giveaway about demonetization was the government’s changing narratives about it’s purpose. It initially said demonetization will stop black money hoarding and neutralize counterfeit money rackets. But then 97% of notes recovered by banks were found to be legitimate. Then they changed their narrative to terror funding. In this case it was not enough to demonetize only high value currencies. In both cases it made no sense to demonetize existing high value currencies and then introduce a currency of even higher value. To tackle terror funding, all currencies had to be demonetized in a phased manner and new currency notes introduced to replace the old ones. Then the government said it was for digitizing the economy. In a country dominated by the unorganized sector and 90% transactions done through cash, a fully digital India is a remotely distant dream.

Demonetization in itself was not a scam but the way it was executed created many scams. Banks knew about it in advance as did everyone with power and influence. They all legalized their black money well in advance. After demonetization was implemented, bank managers were openly helping people make their unaccounted money legal for a fee and made a windfall out of it. None of the currency notes were demonetized from the time of India’s independence after which they were introduced so it is scarcely believable that 97% of the currency deposited in the banks were clean.

With the government’s close proximity to some corporate groups, I assumed for a long time that demonetization was a direct offensive against the unorganized sector to diminish it’s control over the country’s economy. They may have had thought that this would be an outcome of demonetization. But demonetization was not an outright scam as many assume it was even now. Banks had to be rescued in one way or the other or the economy could have collapsed. The execution of demonetization was what turned out to be a complete disaster, why I call it DEMONetization & DeMo, the Mo an indicator to Modi.

Was demonetization necessary? Was demonetization the only way to rescue banks? Did the government have to put the entire population of the country in duress for months to demonetize two high value currencies? New notes for lower value currencies were introduced and for those currencies, new and old notes coexist now. The government has since then introduced a new currency note of slightly higher value and reintroduced one of the demonetized high value currency note with a new design. The present currency system makes no sense to me. The colours and patterns of the newly introduced currency notes are confusing as well. Other than hurling a wrecking ball on an already limping economy, the government seems to have achieved nothing from demonetization.

Economics in the time of pandemic

 

The world is going to take stock of it’s economic situation soon. The economic system we have created requires us to work to keep it moving. Only when people work will goods and services get created and the movement of which will allow money to flow and propel the economy forward. What will happen when a vehicle that was travelling at it’s full speed is brought down to complete halt in a couple of seconds? That was how lock down was implemented. But this time away from the life we have been living is very crucial for us. COVID-19 has opened many doors and windows for us to introspect on our lives and the world we have created.

First of all, this entire saga of the pandemic is totally our creation. No, this is not about the conspiracy theory of the virus getting leaked out of the virology lab at Wuhan. Its not about our health and immune system either. The fault lies with the medical insurance ecosystem we have created. The busy urban life and the taxing corporate world yanks away all our time and what we are given in return is money. When we started exchanging money for our time, we unknowingly gave away our health as well. On one side is the pressure to work more for more money which gives better social status. On the other side is the medical field taking rapid strides ahead with technology and telling us that healthcare has become so advanced and better. Health is wealth has subtly become wealth is health. The plethora of insurance companies and their policies have ensured that we do not have to bother about prevention being better than cure. So falling sick has been normalized for the working class, even cool to say “I worked so hard that I fell sick” and it is expected that older people in the family will fall sick. What has become alarming is how parents and grandparents falling and breaking their bones in their old age has also become normal. The amount of money getting spent and the effort on the family to take care of them is minuscule compared to their slow recovery and the physical pain and mental anguish they have to undergo at their age.

We are living in an alternate reality based on the concept of wealth in which insurance policies make us believe that when there is money all health issues can be treated, thereby implicitly and subtly pushing us towards diseases and getting us used to being sick. This is regardless of the facts that insurance cards are valid only in select hospitals and medical care centers, getting cashless insurance benefit during treatment is even tougher, only a certain list of diseases are covered by insurance policies, insurance companies either do not have policies for the older people or their insurance premiums cost much higher and most importantly, in spite of all the insurance cover, plenty of money is still required in hand because other expenses far exceed medical bills and getting insurance companies to pay out the insurance amounts is a lengthy and painful process. Only if everyone started to calculate the time and effort required for the entire insurance drama in terms of money.

There is a certain aura of invincibility we have created around ourselves in the belief that if we have wealth we will get access to advance healthcare and so we can fall sick and recover time and again. Diseases do not happen by accident or coincidence. Every being in nature is in the process of continuous evolution and at the heart of it is cell mutation. Microorganisms too evolve through cell mutation. The beauty of nature lies in the subtle fact that evolution is not synchronized among all the living beings. When they come in contact with one another in such an environment, biological conflicts arise. These conflicts are what we call as diseases. This is how a virus with a new mutation has caused a pandemic in our population. We will eventually evolve and adapt to the virus but not all of us will. This is where the rule of survival of the fittest becomes relevant and is one of the ways in which nature controls the population of each living being in it.

Now, two incidents to ponder over.

Even the faintest of thoughts about this would have had been ridiculed away as insanity at any other point in time. Oil prices plummeted to below zero for the first time in it’s history. That the cost of a barrel of crude oil finally settled at $-37 is incomprehensible. Twitter was so overwhelmed with tweets about it and it took me a while to figure out what had happened. Something that had become the most precious item for the entire world has become the butt of jokes in a day, the best being we are going to get paid now for using oil. To think that the entire Middle East region became what it is now because of the same oil. The higher we go before jumping into water the deeper we go inside water. Law of averages catches up with everyone and everything.

A few days back, this report from the Indian city of Agra about a truck ferrying milk falling over and a man collecting spilled milk on the road while some stray dogs were drinking milk some distance away created a lot of buzz on social media. Milk, a type of food being the common factor here, what separated the man and the stray dogs was money. When he could get the milk without having to pay money, he did what the dogs were doing. Simply put, we have reduced ourselves to the point where the only factor that separates us from animals now is money. With our higher intelligence, communication skills and ability to do critical thinking all we could achieve was to create our world based on money and wealth.

I hope COVID-19 will drive some sense back into people’s minds. The same disease that afflicts us can affect healthcare professionals too. Doctors and nurses can die, hospitals can get overwhelmed and all the insurance policies become useless when a pandemic hits us. Nothing much has changed from the medieval times of small pox and bubonic plague. Religious places of worship have been shut. The Gods seem to be helpless to protect us and we are not even able to pray to them at their places of worship. The foundation of society that has been built over thousands of years is being shaken. Why should people go to religious places anymore when we know that we can pray from our homes? When the Gods people went to pray to in religious places couldn’t stop them from dying, what’s the point in going there again?

Having no vaccine or medicines for COVID-19 is the primary reason why panic has spread among us and complete lock downs in countries had to be implemented as knee jerk reaction. Animals get attacked by scores of microorganisms every day. They don’t lock down their entire communities because they have discipline, something we have lost because of our arrogance of having superior intelligence. Animals know instinctively to self isolate themselves to prevent the disease from spreading. This makes food unavailable to them which is necessary because the entire resources of the body can be used for fighting the disease and does not have to be used to digest food. Crocodiles and turtles have survived an extinction event and many ice ages through millions of years of their existence. How many viral and bacterial invasions would they have survived?

The answers to diseases do not lie in vaccines, medicines, money, insurance policies and places of worship. Only the one that nurtures and sustains the planet can help us survive. Only in nature can our immune system evolve continuously to fight diseases. To understand this we have to first stop attacking and destroying nature and that will happen only when we stop looking at the economic value of nature’s resources. Till then more pandemics, lock downs and economic disasters like the present one will follow and if we still don’t learn, there is a mass extinction event waiting at the end of the road.