Employees are my biggest expense by a wide margin. I could drop half my staff and increase my net overnight. I'm not going to double my customers nearly that fast so I'll be burning through payroll in the meantime... especially considering customer acquisition is going to get harder than employee acquisition over the next year.
They are scaling down the workforce which is different from scaling down the operation. This might come next because as a business you obviously don't want to operate in a small market where the economies of scale don't work out.
This! Of course a company that reduces employer costs is going to grow like a weed. Nobody talks about the shift of cost to the employees.. it's an alarming trend with so many businesses these days; the optics are that you're getting a better experience, but the reality is that in many cases, you're paying more.
You're leaving out some serious costs incurred by your company and team. The loss of institutional knowledge, the loss of expertise, business process knowledge, personal relationships that could make hard changes much easier. Sure, you hired someone for $X instead of $X*1.2 but in terms of work done you probably missed out on a lot and came out way behind.
It is possible to reduce employees in one area while hiring in another (after all, your company's focus may have changed). These two events are not mutually exclusive. After all, they're not reducing their workforce by...10%, maybe more?...because they're losing money hand-over-fist.
"1. Cisco overstaffed in anticipation of larger future growth that didn't materialize"
Another angle to this is that they are not really that overstaffed and have the ability to lay off cisco employees and outsource the work. In essence shifting cost from one area to another. Without all the drawbacks of a full time employee. All at once so everyone can move forward.
For example the person in job "x" being paid $x dollars is the not same as an outsourcing job "x" and paying the outsourcing company "$x" dollars.
One cost is easier to get rid of (vs. laying off employees) and would be shown in financial statements in a different and possibly more advantageous place.
I would assume you aren't laying off your whole staff after year 1, so the comparison if costs stay the same seems like this instead?
Old:
Year 1: 0 Profit
Year 2: 0 Profit
Year 3: 0 Profit
Year 4: 0 Profit
Year 5: 0 Profit
New:
Year 1: 800K Profit
Year 2: 600K Profit
Year 3: 400K Profit
Year 4: 200K Profit
Year 5: 0 Profit
E.g. stack another amortized round of annual salary each time.
Even if revenue stays the same but costs increase, your Year 5 total for each is "X Profit" where X is the amount of revenue delta from Year 1 to Year 5?
If rapid hiring growth followed by layoff scenarios, you are worse off here: you pay the tax on the hiring boom for at least the first year or two before your revenue might drop enough to make it not matter?
If you're further away from profitability, it's maybe still a wash.
Hire up to 10 Million in salaries in 1 year, but your revenue after 2 years is just 4M - you're still under the window. You only get hit by the difference in the bill if your revenue accelerates a lot (which is an OK problem to have)?
So on one hand it seems like it could reduce poorly planned impulse hiring by spreading out the costs, but on the other hand the "run big losses until we make it" plan is less affected anyway because of the "big" in "run big losses"... so it seems to hurt the sustainable folks more in that case.
> If you aren't spending as little as possible on all your costs, you're doing the business thing wrong.
This needs to take into account the costs of turnover (including the cost of training a replacement) and hiring. There is an inverse relationship between the salaries that a company pays its employees and turnover costs.
I've seen companies spend tens of hours of multiple employee's time to reduce a one-time cost by $1k, and then because of that reduction spend $10k elsewhere.
Of course there's less overhead, they are employing fewer people (or drastically reducing paid hours for employees). That's kind of the point of the parent article.
Current employee cost may be higher than revenue scaling with employees.
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