In the past year, we have seen a trend of large companies laying off significant numbers of employees, often in the tens of thousands. This trend is expected to continue in the near future as economic uncertainty, inflation, supply-chain disruptions, geopolitical conflicts, and the ongoing COVID-19 pandemic have all been cited as reasons for these layoffs. However, there is another factor that is not often mentioned in press releases or public statements from these companies – the pressure from investors to increase revenue per employee (RPE).
During an economic recession or when investors perceive that one is coming, companies often respond by laying off employees in order to boost their revenue per employee figures. This is because investors are more likely to invest in a company that has a higher revenue per employee, as it indicates that the company is more efficient and can generate more profits. For example, if two companies both make a profit of $2 billion, but Company A has 20,000 employees and Company B has only 10,000 employees, an investor would be more likely to choose Company B because it has a higher revenue per employee.
In good economic times, companies often have the luxury of expanding their operations and hiring more employees without much concern for efficiency or cost. However, during a recession or when investors perceive that one is coming, companies are more focused on reducing expenses and increasing efficiency. This often results in layoffs as companies look to cut unnecessary expenses and shift to lower-cost alternatives.
It is important to note that layoffs may not always result in cost savings for companies, as they may have to spend additional money on training new employees. Additionally, when one company starts to lay off employees, it often triggers a chain reaction in the industry, with other companies following suit.
In conclusion, while economic uncertainty, inflation, supply-chain disruptions, geopolitical conflicts, and the ongoing COVID-19 pandemic have all been cited as reasons for recent mass layoffs, the pressure from investors to increase revenue per employee is a significant variable that is not often discussed. As companies look to reduce expenses and increase efficiency during a recession or perceived recession, layoffs are often seen as the most effective way to achieve these goals.
The emergence of artificial intelligence (AI) and software-based robotic process automation (RPA) has certainly played a role in the layoffs of low-performing employees. These technologies have the capability to fully replace certain tasks and roles, making them a cost-effective solution for companies looking to improve efficiency and cut costs. In particular, industries undergoing the fourth Industrial Revolution (4IR) or Industry 4.0 such as smart factories, their precision manufacturing and automation productivity, low-cost labor cannot compete with. This trend is likely to continue in the future and contribute to further layoffs too.
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