Is overhiring responsible for mass layoffs? Where were the strategists and risk managers?

Companies are opting for silent layoffs, which they are terming a part of organizational restructuring.

Overhiring?

The tech sector has been a growth story since its inception. In February 2022, India's top IT firms said they were doubling down on campus hiring as they grappled with attrition in a strong demand environment.

“Due to the growing demand for technology solutions at the beginning of 2020, tech players expected more growth than they are currently showing. This led to massive hiring for tech talent in the past two years,” said Sachin Alug, CEO at NLB Services, a talent solutions company.

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Amid widespread caution on global economic prospects, Alug said tech companies were reassessing their spending and bracing for a potential recession.

“Prominent players in the IT and Technology domain are being cautious to ensure profitability and better predictability of business,” he said.

Ganesh Nikam, MD and CEO of recruitment portal Biojobz, said it would be wrong to ascribe the recent layoffs across all companies to one reason.

“During the pandemic, Amazon was on an overhiring spree to cater to excess demand but now needs to shed fat when demand has cooled…companies like Swiggy, Zomato and big edtech companies etc are laying off people because they want to drive profitability either to look lean and mean before their IPOs or respond to unabashed post-IPO market scrutiny,” he said.

Mid-sized, venture capital-funded Series C to E companies are laying off people to just stay afloat as funding has dried up, he added.

Where were strategists and risk managers?

Talent experts say hiring happens for a purpose but it can soon look like overhiring for various reasons that can be attributed to misjudgement by company leadership, the prevailing business environment and so on.

“It is the role of the leadership to gauge the future and make the right hiring decisions,” said Ashutosh Khanna, co-founder and director at WalkWater Talent Advisors.

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Some experts say that in large firms, Chief Strategy Officers and risk management teams may not have been given the resources or the power to make meaningful changes to prevent large-scale layoffs.

“Additionally, in start-ups, these roles may not have existed at all or they may not have been given the same level of importance as other roles,” said Sandeep Budhiraja, co-founder of Human Resources firm BYLD Group.

Over six among the list let go of more than 1,000 employees since the beginning of 2022.

Whenever situations like a pandemic, or recession due to a war or natural calamity strike, experts say the strategies may fail, resulting in situations like mass layoffs.

“It is not always possible to scale the risk of any situation, especially when a pandemic, war and recession have hit the world within a very measured period,” said R P Yadav, CMD at HR firm Genius Consultants.

Going forward, experts feel strategists as well as chief human resource officers will be expected to give more attention to HR risks as well, and not just growth.

“I believe the assessment criteria for successful CSOs and CHROs will go forward to include management of layoffs/ hiring risks as well,” said WalkWater Talent Advisors’ Khanna.

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Besides the business environment, he said large firms have had to cope with the pressure of a volatile stock market as well; startups have just been in a growth mode and are yet to put in place mature HR risk management policies.

Always watch out for the red flags

Although anticipating layoffs in a company may not be easy for employees, HR and career experts say there are a few red flags employees, especially freshers, should notice before the ship sinks.

“When a company's sales decline or profitability is poor, it may be experiencing financial difficulties,” said Kartik Narayan, CEO of staffing firm TeamLease Services.

Other indicators include a significant discrepancy between the growth forecast by a company and what the industry or competition is predicting, he added.

“To gauge the appropriateness of a company's strategy, it's important to consider the level of conservatism that aligns with market realities.”

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Besides, company hiring policy and developments at a specific stage indicate a lot about its progress.

“New hiring is stopped and employees who left the organisation are not replaced. Further, managers may also ask employees for cost-reduction by avoiding unnecessary expenses,” said Pratik Vaidya, MD & CVO (Chief Visionary Officer), at consulting firm Karma Global.