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How to prevent the cycle of technical layoffs from happening again?

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We are all afraid, and we should be. Thousands of people in our industry have lost their jobs, and maybe thousands more. But it’s not surprising, or ahistorical, or anything but the same cycle of hubris that high-growth companies have been going through for years. Layoffs seem to come every year or two, after big tech companies like Tesla (2019, 2018), Cisco (2019, 2016, 2014) and Microsoft (2017, 2016, 2015, 2014), as well as startups like Bettersuddenly realize that they have hired too quickly, or mismanaged operations, and thus have to make “difficult decisions” that end up with huge human costs.

Layoffs are also terrible for the company. A Harvard Business Review part has put forward two studies, one showing that a slight 1% downsizing would lead to a 31% increase in the number of people who voluntarily leave the company, and another showing that layoff survivors see a 41% decrease in job satisfaction and a 20% decrease in job performance. Layoffs destroy innovation, cut new inventions by 24% in a quoted company, and another University of Texas study found that the majority of layoffs companies see refuses in terms of profitability. While layoffs may be necessary at times, the sheer number of them suggests either a herd mentality or a total lack of strategic personnel throughout the lifespan of many companies.

It’s the same song and dance every time: The tech industry is experiencing a boom in new investment, sometimes crystallized around a particular industry (Indiegogo’s gold rush in mid-2010 or more recently the bang (and bust) in the fintech spend management space and crypto), everyone assumes that nothing bad will ever happen again, and then it invariably happens. As technology grows, so does funding, then hiring, then layoffs, repeating a cycle that damages lives and leaves those who failed to strategically evaluate and nurture talent in the organization unscathed.

While I can’t speak for specific companies, my theory is that there is a lack of deliberate and thoughtful management of people, starting with the creation of a position within a company. What does that role do and who fits in it? What skills should they have, and – crucially – how do you evaluate those skills? And once that (still theoretical) person is hired by the organization, what steps are taken to evaluate their current talent, their growth potential and their actual output? Management theory has been heavily focused on output – starting with Drucker’s Management by Objectives (MBO), which eventually became John Doerr’s Objectives and Key Results (OKRs) – but I believe these concepts are only useful when integrated directly into the corporate structure. and the hiring itself.

So much of the cold heartless layoffs we have seen that it is a symptom of companies that have not intentionally moved in creating and taking on certain positions. If we decide we’re going to have someone do something at a company, we need to stop and think about what that would contribute to the company itself, but also what the ultimate outcome of that role is – and how that role could grow with the person that fills it. And what’s worse is that companies have largely ditched their recruiting functions –approximately 40% of US companies have outsourced most of their hiring process, according to research by Korn Ferry-meaning that roles that have not been thoroughly considered are assumed with the same level of disregard for the future.

The net result is an ugly, anti-worker corporate culture, where employees are hired based on their ability to push the right buttons on an ATS, or through warm introductions, both of which contribute to a lack of diversity. People are hired based on their ability to tick boxes — culturally or otherwise — for roles that may not be warranted during difficult times. Tech companies have put so much effort into considering “lean startup methodologies” and other concepts, but these concepts regularly fail to evaluate what a role is, what a role contributes, and who fits that role.

The creation of roles, hiring and recruiting in technology has been diluted into a people-based supply chain, one that weakens companies and directly hurts employees.

What we need is a new tech talent system, one that requires companies to think significantly more about corporate structure and hiring, and another system that evaluates (and promotes) employee talent.

The new valley structure

When a role is created in a startup, especially in the beginning, you may find that you have to wear eight or nine different hats as a necessity. It’s easy to get lost at this point, assuming things will “just work out on their own” and you’ll “fix these things as you get older”. In reality, you have to start making intentional decisions about role creation and hiring starting with employee one. If you wear a lot of hats, you need to think about what those hats are for, and make a plan to eventually give it to someone else – and also consider whether that hat is a only role or a role that can be combined with another.

We also need to go beyond resumes as much as possible and try to create a model to evaluate a candidate’s current talent and future potential, and make a plan to evaluate it from day one. A person is not a static object that grows linearly, and for example someone who is very good at a role – who has a natural talent in a certain position – should both be developed into a teacher (if they are good at that too!) and as someone who could help evaluate future roles and hires. This includes (but is not limited to) how companies rate someone for a role – would a role play exercise make sense? How about a skills-based assessment? Or perhaps a real analysis of each position you are looking for, identifying the knowledge, skills, abilities and other characteristics (KSAOs) needed for the job? While these may seem obvious, a thorough understanding of the exact things that will position both the candidate and the organization for success is a reliable way to hire and retain the best people in technology.

To be fair, you should not outsource your recruitment if your company has fewer than a thousand people. It’s not about the cost, it’s about the fact that someone outside of your company is most likely missing the nuance to understand why a position was created and what might be the ‘best fit’. And those involved in hiring should not just be HR professionals, but people who are active in the work you are hiring for. If you’re too early to have someone in that role, speak to your investors or advisors, find a subject matter expert and compensate them for their time. And do the same for all employees you include in the hiring process.

Finally, companies need to find ways for employees to publish and evaluate their work in a way that is transparent to both themselves and their manager/boss. When creating a role, you should strive to create as many measurable units as possible and create or acquire internal resources to manage and promote the work of your people. When employees feel that their work is respected and that they are making progress, they are happier – and yes, they will leave, and they will use these measures of work to get other jobs.

But a system where employees are hired for a role with intention and consideration, a role that is fairly and transparently evaluated for their own growth within the company, is a system with fewer layoffs and less human suffering. It’s one that makes for better, more diverse, and inclusive businesses (assuming roles and outcomes are regularly questioned for bias and measured by their inclusivity), stronger relationships between employees and their superiors, and a happier, fairer Silicon valley.

Tigran Sloyan is the co-founder and CEO of CodeSignal.

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