In the era of tech layoffs, will digital and AI accelerate the trend?

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Digital business transformation is nothing but business transformation for the digital age. If that sounds simplistic, then it is for good reason. For business leaders, the world over, the drivers for transformation are much the same as they have always been: to unlock new sources of value for customers, i.e. operate at maximum efficiency, and fend off competitive threats from disruptive, and in this case, digital entrants. Organisations on their transformation journey are fuelling their competitiveness in a digital world. They are building companies that can drive business outcomes through their ability to evolve products, services, and experiences in sync with ever-changing customer behaviour and technology.

It is important to distinguish between a digital business transformation and the current situation impacting big technology firms that are making headlines for cutting large numbers of jobs—many for the first time in their corporate history. The goal of digital business transformation is to build the capability to identify and realise value through digital for your customers and business and continually adapt at pace with the changes taking place in the world. It is a growth-oriented approach that will ultimately drive success for those businesses that become digital at their core as they close the gap between what consumers expect and what their traditional business models could deliver.

The sudden and large number of layoffs by big technology firms last year and continuing into the first quarter of 2023—with estimates that upward of 120,000 jobs have been lost—are largely the result of economic cycles and volatility in consumer demand. While technology firms across the board delivered exceptional strong growth throughout the pandemic, and consumer demand initially remained strong coming out of lockdown, that demand appears to have naturally levelled off.

The impact of slowing demand has been asymmetric—in so far as some sectors more than others have seen greater volatility in the peaks and troughs of consumer demand. Companies in travel and hospitality witnessed an immediate sharp spike in sales post-lockdown restrictions while those operating in home entertainment or videoconferencing have experienced a levelling off since people returned to hospitality venues and workplaces.

Perhaps the worst charge that could be made against large technology companies is that they failed to anticipate the correction point in their respective sectors promptly, with the result that successive disappointing earnings calls preceded and resulted in the current round of layoffs.

The reaction and influence of the markets cannot be underestimated as a causal effect of the recent job reduction. As investors’ favour 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 favour 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.

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Weighed against all of this must be the rapid historic growth that the tech giants have achieved as exemplars of what it takes to be a leading digital business: Clarity on the need they are serving, relentless focus on the value to the customer and their own business, emphasis on designing a quality experience, an engineering mindset, and a restlessness to continually refine what they do using data inputs and AI. These are the behaviours that established companies are seeking to emulate as they evolve the capabilities necessary to create powerful digital products, services, and experiences.

Let us be clear: We are long past the days when ‘digital’ described technology that operated tangentially to the rest of the business. There is no return to the point where business growth—in revenue, profitability, or job creation—will come from being more analogue and less digital. As such, it is wrong to regard the recent layoffs as a consequence of the technology boom and bust. The technology giants, as well as established companies that maintain relevance by investing in the capabilities to realise value through technology, will continue to be growth drivers and job creators well beyond the current economic malaise.

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.

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When we look at the occupations projected to grow fastest by the end of the decade for developed markets, the pattern remains the same: Technology roles will dominate. According to the US Bureau of Labour Statistics, roles for software developers and data scientists in cybersecurity feature in the top 20 fastest-growing occupations. Despite headline layoffs, the US unemployment rate for the technology industry remains low, at around two percent, compared with an overall unemployment rate of 3.7 percent. In the UK, as in other markets, there is an active drive to attract digital technology experts through the Global Talent visa.

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.

The author is a CEO of Publicis Sapient.

The thoughts and opinions shared here are of the author.