Will AI and Digital Technology Speed Up the Trend of IT Layoffs ?

The motivations behind transformation for company executives throughout the world are largely the same as they have always been: to open up new sources of value for customers, or to operate as efficiently as possible, and to ward off challenges from disruptive competitors—in this case, digital entrants. Organizations that are undergoing transition are enhancing their competitiveness in the digital era. Through their capacity to develop products, services, and experiences in line with rapidly evolving consumer behavior and technological advancements, they are creating businesses that can influence business results.

It's critical to draw a line between a digital business transformation and the current crisis affecting major technology companies, many of which are generating news for the first time in their company histories due to job cuts that include a significant number of employees. The goal of digital business transformation is to build the capability to identify and realize value through digital for your customers and business and continually adapt at pace with the changes taking place in the world. As they bridge the gap between what consumers demand and what their conventional business models could provide, it is a growth-oriented strategy that will ultimately drive success for those organizations that become digital at their core.

Economic cycles and fluctuations in consumer demand are largely to blame for the sudden and significant number of layoffs carried out by big technological corporations last year and extending into the first quarter of 2023, with predictions of upwards of 120,000 jobs lost. While demand from consumers originally remained high after the lockdown and technology companies across the board experienced extremely strong growth throughout the epidemic, that demand appears to have naturally levelled down.

Because some industries have experienced greater volatility in the peaks and valleys of consumer demand than others, there has been an asymmetrical effect of reducing demand. While businesses engaged in home entertainment or videoconferencing have seen a levelling off because people have started to return to workplaces and hospitality venues, companies in the travel and hospitality industries enjoyed an immediate strong increase in revenue following lockout restrictions.

The failure of large technology companies to accurately predict the correction point in their respective industries led to a series of disappointing earnings calls that preceded and contributed to the current round of layoffs. This is perhaps the worst accusation that could be levelled against these companies.  

The reaction and influence of the markets cannot be underestimated as a causal effect of the recent job reduction. As investors’ favor turned away from growth stocks and toward value stocks and safer asset classes, technology firms found that shareholder sentiment has changed. The quest for growth at the expense of profit, along with the promise of ‘jam tomorrow’, is out of favor with investors, and technology companies now have to address their rising cost base in response. Qualms in the markets have been exacerbated by the higher valuations of certain technology sectors where the availability of generous funding for longer-shot ideas initially drove rapid scaling-up within those operations but is now cooling off.

The rapid historical growth that the tech giants have attained must be weighed against all of this as an example of what it takes to be a leading digital business: clarity on the need they are addressing, unwavering focus on the value to the customer and their own business, emphasis on designing a quality experience, an engineering mindset, and a restlessness to continuously improve what they do using data inputs and AI. These are the actions that well-established businesses are trying to imitate as they develop the skills required to produce effective digital goods, services, and experiences.

To be clear, those times when "digital" referred to technology that was incidental to the rest of the business have long passed. There will never be a day when businesses will grow in terms of sales, profits, or employment by becoming more analogue and less digital. Therefore, it is incorrect to assume that the current layoffs are a result of the technology boom and bust. Long after the current economic downturn, the technological giants and well-established businesses that stay relevant by investing in the capacity to realize value through technology will continue to be growth drivers and employment creators.

In this context, the recruitment reversal by technology giants will be temporary and newly available talent will be swept up by those companies in ‘traditional’ sectors that are most advanced in their digital transformation journey. For a market such as India—forecast to become the world's most populous country with 1.515 billion people by 2030, according to the United Nations' World Population Prospects—digital will fuel growing domestic demand, the value of its technology exports and global demand for digital talent from a country that represents an increasingly large proportion of the world’s working population.

The pattern is the same when we look at the jobs that are expected to grow the quickest in developed countries by the end of the decade. Technology roles will predominate. Software development and data science positions are among the top 20 fastest-growing professions, according to the US Bureau of Labor Statistics. The US unemployment rate for the IT sector is still low, at roughly 2%, compared to a national unemployment rate of 3.7 percent, despite headline layoffs. The Global Talent visa is being actively promoted in the UK as well as other markets to draw in professionals in digital technology.

These are not mixed signals from the technology employment market, but evidence that the recent high-profile job cuts belie the more solid foundation for digital businesses across the full range of traditional industry sectors. The good news for tech workers who have recently been laid off is that they need not be out of work for long. Their skills are exactly those that established companies have struggled to fill in recent years as they have lost out in the competition with the tech giants for talent.