Episode Transcript
[00:00:00] Good morning, everyone. Today I want to make some comments on CEO behavior, layoffs and AI transformation. So there's a whole series of articles on, in the Wall Street Journal, LinkedIn Other places about layoffs and downsizing and restructuring and productivity. And the sentiment that's coming out, particularly from a new article in the Wall Street Journal, but also from Satya Nadella at Microsoft is the CEOs are very proud of the fact that they're now laying people off or reducing headcount through attrition and improving productivity. Microsoft hit a 4 trillion market cap today. Very strong sales, revenue and earnings. I mean, just astoundingly high growth numbers in Azure and different parts of the company. Meta had similar numbers. And all of these companies, including some of the, you know, blue blood, Fortune 500, are now formally announcing to Wall street that they're reducing headcount. You know, Wall street loves that because it obviously means productivity and profitability growth usually, I mean, not always, and what it really does for human capital. And by the way, HR departments are right in the middle of this. We have a big client in Europe. The head of the HR function was asked to leave. A lot of the HR people were let go. So this isn't just HR doing it to the company. This is HR being part of the downsizing effort as well. And you all know that we're essentially a cost center in HR and in L and D. So if we can't become productive and be part of the productivity initiative, we are part of the problem and we don't want to be in that mode. But there are implications of this in many, many directions. I want to talk about. The first is there is an enormous amount of fear in the workforce. It's just getting worse. I've written about it. It's an, I've done a podcast on it. We have lots of research on it. We just looked at a managers and found that even managers are concerned about their jobs and how they're going to possibly create this productivity improvement in their teams because they're to some degree at least sometimes heavily expected to create these productivity programs at the team level or the organizational level, not at the corporate level. So there's pressure on them. There's obviously pressures on people at work. There's pressures on people looking for jobs. I talked with an HR professional, very fairly senior guy last week who's been looking for a new job for a year and hasn't been able to find the one he wants or the one that's appropriate. And I know lots of people in marketing that are looking for work. So there really is a compression going on in the workforce and the unemployment numbers don't seem to show it. Now let me talk about that. The Bureau of Labor Statistics data that came out this week was very, very misleading. It claimed that the United States GDP went up by 3%. But that's because our imports effectively stopp. And GDP is a number that is only based on internal economic activity, not imports. You subtract imports from gdp. So because the imports stopped, the actual GDP growth, which is around one to one and a quarter percent, which is low, was artificially high. So we also have slowdown taking place. Virtually every sector except tech is slowing down. The food industry is slowing down.
[00:03:27] The healthcare industry is sort of a disaster. If you looked at UnitedHealthcare, Aetna, Walgreens, a lot of companies, even Novo Nordis this week has had financial downturn and the stock prices have all dropped. The airline industry is doing okay, but not great. So there are, you know, a lot of signals that not only is AI forcing job reductions, but the economy is slowing. And other than tech firms, it's hard to find a segment, except maybe oil and gas that's doing a lot of hiring in the oil and gas industry isn't that big in terms of the number of employees. So. So that's going on too. And my perspective on this, as somebody who's been in the middle of this for multiple decades and seen these kinds of things at least six or seven times before, is there's a couple things I want to point out. First of all, we all, and I mean all of us, have to get much better at clarifying how to make work more productive. Increasing productivity is not increasing the productivity of each individual person.
[00:04:26] It's rethinking the business processes, the team structure, the roles and the use of technology in a more systemic way. You will not become a more productive company by asking each employee to take a copy of the copilot and figure out how to be more productive, because that will only improve the productivity of the inefficient things you're already doing. That is unfortunately where a lot of this is taking place, where the CEOs are saying to the employees, you guys figure out how to be more productive or else we're going to have more layoffs. That means that org design, job mobility, rethinking business processes from the customer first, not from the inside out, from the outside in is really going to be the winning success here. Now we all have internal operations that are unproductive and frustratingly. Bureaucratic. Every company has that. It's all over every company. Banks, for example, are filled with paperwork and compliance work that's done manually all over the place. So we all have opportunities to find business processes inside the companies that can be automated. But what we need to do as a team, and I mean, you know, HR working with the business is find the high priority areas and focus on them as re engineering efforts. The original work we did on.org design two or three years ago in our superclass on. Org design shows you the step by step process of doing this. Now there is also a lot of conversation in HR about task automation and we're working with a number of vendors, Rejig and drop and others that are basically saying let's go through every job in the company, figure out what all the tasks are and then apply AI to all those tasks. I don't think that's a horrible idea, but I think it's a potentially dangerous idea because many of those tasks exist because of the siloed structure we have in the first place. And maybe a lot of those tasks should be centralized, automated or eliminated if they're implemented in an agent. So I don't think this is a problem of taking every single job and automating it one at a time. I think it's probably important to take a higher level look at how you're going to market and how your business processes could be improved overall before you do the task analysis. I know a lot of HR departments like doing things like job task analysis because it's something you can do and you do learn a lot. But I, I think it's pretty obvious that 30 to 40% of all of our work is administrative, bureaucratic or inefficient because we're using suboptimal tools. I mean even email itself just at its own sort of design creates a lot of wasted time. I spend almost an hour a day deleting crappy emails that come in from who knows where that I don't want to read, that I could be doing other things. So we've got to take more of a business centered approach. Companies that do this well, think about customers, they think about products, they think about go to market, they don't just think about internal operations. And what can we do to make every little task a little bit easier to accomplish? That will happen too, by the way. We'll all, you know, become much more efficient at our day to day work over time. But that's not where the huge ROI is going to be. Now there's Another sort of philosophical issue here, and that is one of the ways to improve this business design is to eliminate people. This is the Elon Musk approach, which he calls first principles. And there's actually a lot of value to that. And I've seen it in some of the companies where I've worked, where when there are a lot of people around, they tend to try to find things to do. And so they create systems and programs and initiatives that allow them as individuals to do things. Of course, the natural tendency for anybody at work is to try to figure out a way that they, as an individual, can add value. So they'll create a project or a team or some initiative that feels like something that makes the world better. If half of those people didn't exist and you had to run the company on far fewer people, you might be much more creative. To be honest, this is why startups are so efficient, because they can't put a lot of people into one project or another. I mean, in our company, where we have a very, very flat headcount, we very rarely hire people. We have 40, 45 people. And every time a new project comes along, we try to figure out if we should do it. How can we do it the most effectively? Can we move somebody off another project to do it? Is there something that we can stop doing in order to start this new thing? Those are very difficult decisions to make at an enterprise level for a large company. But when you cut people, they get made.
[00:09:13] So, you know, I think that discussion has to take place at a lot of board levels and others that sometimes, frankly, as difficult and painful as it is, you do have to just cut the size of the organization and then build the productivity initiatives around it. But I would, I would much prefer that you start with the customer and the business process first. The third issue is that of culture. And I know, you know, CEOs and Wall street analysts couldn't care less about this, but it is a huge topic right now. I talk to a lot of people, a lot of HR departments, a lot of individual, a lot of people looking for work. I'm sure all of you do as well. I read LinkedIn, I read a lot of other sources. There's a lot of fear and uncertainty and trepidation and confusion in the workforce. We're starting our research on what we call super managers, and you're going to see an announcement on this next week relative to Galileo. We're going to announce a really exciting offering in Galileo that's really going to be kind of mind blowing for A lot of you and what you find in the research on managers, a new study we just are looking through, is that managers are not sure what their job should be relative to this productivity. They're not yet convinced that the AI will replace the people that the CFO wants them to replace. And so not only are individuals concerned about their jobs and careers, but people in the middle are as well, because of course they're threatened. If you're a manager and your team is reduced in size, the first thing that goes through your head is, well, maybe my job is threatened because maybe my management role will be eliminated as well. And if my boss is breathing down my neck to do more with less. I'm not a business re engineering person. I'm a specialist in this particular domain. How do I do what I'm supposed to do? So we're creating a lot of stress in the workforce. The solution for that is not to push people harder and harder and harder. In my opinion, it's to give them a plan, spend some time strategically and come up with the big areas of improvement you want to make in hr, in other parts of the operation and help them join in that strategy and in that initiative. Not everyone will be involved in every productivity initiative, of course, but some people will be, and they will be excited about being part of a reengineering process. Now, I've been through this at IBM. I went through this twice or three times at IBM when I was there at Sybase. We had a period of time where we had a small layoff and then a massive layoff and re engineering. I went through this at Digital Think, the company that bought our startup when we were doing elearning. So I have experienced this personally and for people that are, you know, young in their careers or maybe just haven't had a lot of business experience, it's frightening, it's scary, it's intimidating, it's confusing. But for those of you that have been through it before, it can be extremely energizing and extremely exciting because it's. It's almost as if you get the opportunity to sort of strip the house down to the studs and rebuild it the way you always wanted it to work. You know, rarely do you get to do quite that much rebuilding, but that is a very empowering opportunity. So, you know, the reason I think this discussion has to take place in HR is that, you know, in some cases, HR is the communicator of the bad news, but maybe not the architect of the solution. And I believe that the future of hr, systemic hr, is that we have to be architects of the solution within hr. If you're not thinking about the revolution in L and D and the revolution in Talent Acquisition, you're going to be behind in a big hurry. Now read our white paper on the revolution of L and D because it's very clear what you need to do and we will help you with it and we have the tools to help you. The revolution in Talent Acquisition, we have a big study coming out in October, November, September, and you'll see what's going on there. That is a massive opportunity for performance improvement and productivity also. And then in your call centers, of course, all of your service delivery functions as well. And much of that call center service delivery operation that we do in HR will be and can be automated with agents. That is a relatively easy thing to do. And I'm sure a lot of your companies are starting that or already doing it. But those are three areas where you can be a part of this within the HR function. The other thing that I would say that's a little bit odd about this cycle we're in is a lot of commentary from Microsoft people. And we were just at Microsoft last week coming from people that were laid off claiming that the growth mindset culture of Microsoft is dead now. You know, I have no reason to believe that that's true. And I don't necessarily want to trust somebody who's just laid off as having necessarily the entire picture. But it was interesting in Satya Nadella's email to employees. You know, Satya Nadella is one of the most successful CEOs ever, who's ever born. That company is doing in so well in so many ways. He said something very strange. He said Microsoft has no franchise value. And I think the implications of that are basically saying something along the lines that we are not entitled to our position in the market.
[00:14:29] We have to earn it every day. Which is the old Andy Grove. Only the paranoid survive. Well, given that's true and particularly true in tech, I would argue that there's a side of that that's not true. And that is culture, history, legacy, relationships, brand are enormous value in your business. Your products and your services and your revenue are a manifestation of your strategy, your culture, your mission and your history. And I believe that as you cut and re engineer and redeploy people and implement AI, if you don't remember that, you may end up in a place you don't want to be. Now, there are a few companies like Amazon that define themselves as disruption. And Amazon is the type of Company that probably would never be afraid to stop something they're doing forever and just move on because they've always been that way. But Amazon's not that old. You look at a company that's been around 20, 30, 40, 50, 100 years, their brand, their products, their customers, their channels, their distribution, their partners have been built over many, many years and many, many business cycles. Boeing, l', Oreal, the luxury brands, the oil companies. And so we want to be careful, those of us that work for big companies, that in the middle of this massive rush to productivity and how proud we are of reducing headcount, that we don't hurt that important brand. I mean, if you're Delta Airlines and you're the number one most highly rated airline in the world, which they are, and they're a very well run company, we've met a lot of people there, you don't want to sacrifice that in the interest of improving the stock price and improving the productivity in a particular quarter. And so I think in the middle of all of these downsizing and restructuring activities that are going on, I would remind you as HR people and HR leaders that in some sense you might be the conscience that can remind people of the way we treat our team, the way we treat our customers, the way we treat our partners, the way we treat our channel is a part of the value of the company. It's, it's embedded in the stock price. And when it all comes together, of course the stock price goes up spectacularly. But when it comes apart, it can come apart relatively surprisingly. You look at Boeing, you look at GE and how long it took those companies to rebuild their brand. I would just sort of warn you that take this stuff sensitively and take care of the people you have. The people that do leave your company in the middle of a downsizing or restructuring, they're going to get other jobs, they're going to work for your, either your competitor, your partner, or they're going to end up being customers or brand ambassadors. And so I just want to remind you of the thing that you already know, which is take care of everybody as best you can. And we'll come through this in a positive way because the super worker era is here. I mean, it is happening before our eyes. We're all going to be superworkers, maybe we'll be super workers in different companies that we're in today. And so let's look at this as a positive cycle going through the economy and think about the value that your company brings to market as you re engineer and don't try to break things by accident in your rush to put out a press release on how many people that you were able to eliminate over the last quarter. Lots and lots of things in this podcast, but I wanted to give you guys my thoughts this week and talk to you again soon. Get ready for some really exciting announcements next week in the Galileo area, which you'll see probably next Tuesday. Thank you.
