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Dan Loney: Well, Starbucks
recently announced that it was cutting around 1000 members of
its corporate workforce, and
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that has been a trend so far
here in the early part of 2025 with numerous other companies
also focusing on corporate
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layoffs. But the question is,
why? Pleasure to be joined right now by Matthew Bidwell, who's
Professor of Management here at
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the Wharton School. Matthew,
great to catch up again. Good to see you. You know, it's interesting,
because we hear
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about layoffs a lot, especially
in the beginning part of the year. I don't know if we
necessarily hear about it in the
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corporate perspective. So give
us your— your read on what we're seeing play out here in these
first few weeks of the new year.
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Sure. I mean, so first off, just—
I was digging through the data yesterday. So the government
produces its JOLTS data on
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layoffs just to see kind of
what's the trend. Historically, they're very low. And so we are
seeing this news on layoffs
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coming through. They— they've
moved up a little bit over the last year. But if you look at
kind of— the kind of last 20
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years or so, we're still in the
world of pretty low layoffs. But they are constant. I think for
quite a while they've been a
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regular tool that corporations
use. They— it's kind of a, you know— somebody who's not very
good at dieting. Kind of that
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sense of, they kind of— they go
on a crash diet, or "We've got to trim all the excess and kind of
really get ourselves back on
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track." And then they start
hiring again. And after a while, they kind of go, "Oh, no, no.
This has all gone wrong." So we
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seem to go through these cycles.
So maybe, yeah, maybe this is like dry January for corporations or
something like that, where they
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kind of say— and it is— I mean,
there is a— there's definitely a tendency, I think, in all
organizations, to— for
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administrative bloat. No matter
how much we want to avoid it, there's always more work to do
and— so you hire more managers.
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There's more things that they
kind of see need to be done, and so on. So you can see why every
now and then, organizations do
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kind of want to pause and say,
"Okay, we added a whole lot of activities. Which of these do we
still really need? And are there
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kind of places where we think
maybe we— we've invested a lot of things that we no longer need?"
So, it happens.
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Is there more focus, then, this time
around? Because it seems like it is geared towards corporate
layoffs. And obviously you will
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see a lot of layoffs in— in
various elements of business. I saw one CEO called this an
unprecedented kind of move. Is
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it unprecedented? Or maybe not
so much? I don't— I don't see it as
unprecedented. I mean, I think
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it's been kind of a common
mantra over the last 10, 20 years, "We're taking out middle
management. We're taking out
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administrative bloat." If you're
not doing corporate layoffs, you're doing layoffs of
frontline workers, and then
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you've got to start explaining,
why are we cutting stores? I mean, in some ways, certainly,
if I'm an investor, that worries
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me, right? You come in, you say
we're laying off the front line. Okay. So that means less revenue
is coming in. That's bad. You
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say we're laying off corporate.
You know, we have the sense of, "Oh, it's overhead, it's bloat." I
don't think all corporate is
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overhead and bloat. There's a
real risk, when you lay that off, that you do a lot of damage. But
I think it— it's certainly a
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more comforting message, I think,
for external stakeholders. "We're not— we're not damaging kind of
the core business or cutting
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into the core business. It's
other things." Is there a component of this
also that, with all the dynamics
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of the workplace and— and remote
work and some of these other dynamics— that we're seeing kind
of a repositioning, maybe, to a
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degree, going back to what we saw
before the pandemic, of what companies expect in terms of the
employees being in the office,
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of the performance component as
well maybe even being focused on a little bit more also?
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I mean, I certainly wouldn't be
surprised if during these layoffs, kind of where people
are starts to play a role. I
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mean, again, if you actually
look at the statistics rather than the news stories, you get a
very different picture of remote
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work and return to office. So,
kind of data from badge swipe systems suggest that office
occupancy still hasn't risen
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much above 50%, and it's been
hovering around that level for the last two years. There's a
survey by Nick Bloom and colleagues
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at Stanford that asked people
where they worked last week. That seems to show kind of the
proportion of total days being
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worked in the office. Again,
it's been bopping around between about 26 and 30% for the last
two years. So yes, I think it—
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it's in people's minds. The
labor market has softened. We went through a period in '21-'22
where you just couldn't hire
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anybody, where there was so much
competition, and where CEOs felt they had no choice but to give
their workforce whatever they
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wanted. Now, when you look at
kind of numbers of job openings, they're back down to pre-
pandemic levels. And so I think
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those CEOs that never really
liked this idea, they are seeing kind of, "Okay. Now's my chance to
actually— actually bring people
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back into the office." So I think
it may play into some of these calculations. I'm not sure it
should, but it may.
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Talk also about the timing
component of doing this in January. Because for many
corporations, their calendar
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year or their fiscal year will
end December 31. Are— are companies conscious of, you
know, making these types of
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moves, especially at the end of
the year and around the holidays
as well? It's a good question. I
don't know. Yeah, I
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could imagine doing it just before
Christmas probably doesn't lead to fantastic headlines. I mean,
a lot of companies, also, they
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make a lot of their money in the
holiday period. I don't know what that looks like for
Starbucks, for example, but you
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know, if you're anywhere close
to retail, consumer, you don't want to mess with anything
during the— the end of the year.
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You kind of want to make sure
you're— you're at your peak. This is going to be a quieter time of
year. And so if I'm going to do—
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if I'm going to do big
reorganizations, big layoffs, I probably want to be doing it
around now, when generally
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there's kind of less— less
pressure to deliver revenue instantly.
- Is the expectation that— and you
mentioned that this is somewhat
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of a pattern— that this is a
pattern that— that continues? That corporations, you know,
believe that this is the way to
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handle these types of situations
at this time of the year? Yeah. I mean, I certainly think
we've always seen layoffs. We
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will continue to see layoffs.
There's good and bad, right? I mean, every layoff is
destructive to the people
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involved. And I will say kind of
the research on the effects of layoffs is deeply depressing,
right? In that I think it often—
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there's kind of really long-term
effects on— negative effects— on people's earnings. But, you
know, we have a dynamic economy,
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or the creative destruction and
so on. Corporations will build up certain areas, and over time,
they will decide that those
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investments are not paying off
and they want to cut back. And so that happens. I'm not sure
corporations are always as
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thoughtful about this as they
should be. I've been very depressed over the last few
years. Kind of— you saw, post-
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pandemic, particularly with some
of the tech and consulting firms. They kind of hired
everybody in sight, and then
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turned around within about six
months and went, "Whoa, we've got too big. Let's lay everybody off
again." I kind of think a little
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more forethought would would be
helpful here. It is the case— I mean, corporations used to kind
of— pre-1980s, corporations
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avoided layoffs at all costs.
They have become a bit more common, particularly among the
white collar workforce. I still
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think you— they're not something
you want to do lightly. But on the other hand, the world
changes. What businesses need
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changes, so we're going to
continue to see these. Matthew, great to talk to you again
today. Thanks very much.
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Good to see you. Thank you. Matthew
Bidwell, Professor of Management here at the Wharton School.