In the years immediately following the dot-com meltdown, there was more tech labor than there were tech jobs. That didn’t last long. By 2005, the tech economy had bounced back on its own. After that, the emergence of mobile (a new and lucrative category of tech) plus low interest rate policy by central banks fueled demand for tech. Before the first decade of the century was out, “tech labor scarcity” became an accepted norm.
The tech labor market heated up even more over the course of the second decade of the century. Rising equity valuations armed tech companies with a currency more valuable than cash, a currency those companies could use to secure labor through things like aggressive equity bonuses or acqui-hires. COVID distorted this overheated tech labor market even further, as low interest rates for longer, a massive fiscal expansion, and even more business dependency on tech spurred demand. Growth was afoot, and this once-in-a-lifetime growth opportunity wasn’t going to be won with bog standard ways of working: it was going to be won with creativity, imagination and exploration. The tech labor pool expanded as tech firms actively recruited from outside of tech.
The point of this brief history of the tech labor market in the 21st century is to point out that it went from cold to overheated over the span of many years. Not suddenly, and not in fits and starts. And yes, there were a few setbacks (banks pulled back in the wake of the 2008 financial crisis), but in macro terms the setbacks were short lived. It was a gradual, long-lived, one-way progression from cold to super hot.
Then the music stopped, abruptly. COVID era spending came to an end, inflation got out of hand, and interest rates soared. Almost instantly, tech firms of all kinds went from growth to ex-growth. Unfortunately, they built businesses for a market that no longer exists. With capital markets unwilling to inject cash, tech companies need to generate free cash flow to stay afloat. Tech product businesses and tech services firms - those that haven’t filed for bankruptcy - as well as captive IT organizations all tightened operations and shed costs to juice FCF. (Tech firms and tech captives are also in mad pursuit of anything that has the potential to drive growth - GenAI, anyone? - but until or unless that emerges as The Rising Tide That Lifts All Tech Boats, it will not change the prevailing contractionary macroeconomic conditions tech is facing today.)
The operating environment has changed from a high tolerance for failure (where cheap capital and willing spenders accepted slipped dates and feature lag) to a very low - if not zero - tolerance for failure (fiscal discipline is in vogue again). Gone is the exception to spend freely in pursuit of hoped for market opportunities through tech products; tech must now operate within financial constraints - constraints for which there is very, very little room for negotiation. Everybody’s gotta hit their numbers.
While preventing and containing mistakes staves off shocks to the income statement, it doesn’t fundamentally reduce costs. Years of payroll bloat - aggressive hiring, aggressive comp packages to attract and retain people - make labor the biggest cost in tech. Wanton labor force expansion during the COVID years was done without a lot of discipline. Filling the role was more important than hiring the right person. A substantial number were “snowflakes”: people staffed in a role for an intangible reason, whether potential to grow into the role, possession of skills or knowledge adjacent to the position into which they were staffed, or appreciation for years of service - essentially, something other than demonstrable skill derived from direct experience. That means getting labor costs under control isn’t a simple matter of formulaic RIFs and opportunistic reductions with a minor reshuffling of the rank and file. Tech companies must first commoditize roles: define the explicit skills and capabilities an employee must demonstrate, revise the performance management system to capture and measure on structured evaluation data, and stand up a library of digital training to measure employee skill development and certification specifically in competencies deemed relevant to the company’s products and services. Standardizing roles, skills and training makes the individual laborer interchangeable. Every employee can be assessed uniformly against a cohort, where the retention calculus is relative performance versus salary. This takes all uncertainty out of future restructuring decisions - and as long as tech firms lurch between episodic cost cutting and bursts of growth, there will in fact be future restructuring decisions. For management, labor standardization eliminates any confusion about who to cut. The decision is simply whether to cut (based on sales forecasts) and when to cut (systemically or opportunistically to boost FCF for the coming quarter).
Of course, companies can reduce their labor force through natural attrition. Other labor policy changes - return to office mandates, contraction of fringe benefits, reduction of job promotions, suspension of bonuses and comp freezes - encourage more people to exit voluntarily. It’s cheaper to let somebody self-select out than it is to lay them off. FCF is a math problem.
These are clinical steps intended to improve cash generation so that a company can survive. While the company may survive, these steps fundamentally alter the social contract between labor and management in tech.
A lot of companies in tech used what they called “the war for talent” as marketing fodder, in both sales and recruiting. You should buy Big Consulting because it employs engineers a non-tech firm will never be able to employ on its own. Come to work for Big Software and get the brand on your resume. Every war has profiteers.
Small and mid sized tech has always had to be clever in how it competes for labor. Because it couldn’t compete with outsized comp packages, small tech relied on intangible factors, such as flexible role definitions and strong, unique corporate cultures.
The prior meant the employee would not only learn more because they had the opportunity to do more, they weren’t constrained by a RACI and an operating model that rewarded the employee for “staying in their lane” over doing what was necessary, best, right. This was a boon to the small tech employer, too, because one employee was doing the job of 2, 3, or even 8 employees at any other company, but not for 2x, 3x or 8x the comp.
The latter meant that by aggressively incubating well defined corporate norms and values, a smaller tech firm could position itself as a “destination employer” and compete for the strata of people it most wanted to hire. That might be a culture that values, say, engineering over sales. That might be a purpose-driven business prioritizing social imperatives over commercial imperatives. Culture was a material differentiator, and it’s fair to say that these values had some footing in reality: tech firms on the smaller end of the business scale had to mostly live their values or they wouldn’t retain their staff for very long given the increasing competition for tech labor. There was some “there” there to the culture.
Small and mid sized tech carved out a niche, but even these firms caught the growth bug. Where growth was indexed to labor, small and mid sized tech also went on a hiring spree. Again, where growth was the imperative, hiring lacked discipline. Bloated payrolls meant new people needed a corporate home; shortly after a hiring binge, the company is staffing twenty people to do the work of ten. In comes the RACI, out goes the self-organizing team. Plus the erosion of culture - the move away from execution that is representative of core values - was accelerated (if not initiated) by undisciplined hiring twined with natural labor attrition of long-timers during the go-go years for tech labor. Like it or not, the pursuit of growth is a factor in redefining culture: even if a growth agenda by itself injects no definitive identity, it does have a dilutive effect on established identity. To wit: new employees did not find the strong values-based culture described during the interview process, and long-time employees saw their values-based practices marginalized, because too many new hires with no first hand experience of cultural touch points to lean on were staffed on the same team. Culture devolves into a free-for-all that favors the newbie with the strongest will. The culture is dead, long live the growth agenda.
As mentioned above, the music stopped, and the company has to prioritize FCF. Prioritized over growth, because growth is somewhere between non-existent and just keeping pace with inflation. Prioritized over culture, because the culture prioritized people, and people are now a commodity.
Restated, labor gets the short end of the stick.
Employees recruited in more recent years from outside the ranks of tech were given the expectation that we’ll teach you what you need to know, we want you to join because we value what you bring to the table. That is no longer applicable. Runway for individual growth is very short in zero-tolerance-for-failure operating conditions. Job preservation, at least in the short term for this cohort, comes from completing corporate training and acquiring professional certifications. Training through community or experience is not in the cards.
For all employees, it means that the intangibles a person brings cannot be codified into a quarterly performance analysis and are completely irrelevant. The “X factor” a person has that makes their teams better, the instinct a person has for finding and developing small market opportunities, the open source product with the global community of users this person has curated for years: none of these are part of the labor retention calculus. It isn’t even that your first bad quarterly performance will be your last, it’s that your first neutral quarterly performance could very well be your last. The ability to perform competently in multiple roles, the extra-curriculars, the self-directed enrichment, the ex-company leadership - all these things make no matter. The calculus is what you got paid versus how you performed on objective criteria relative to your cohort. Nothing more. That automated testing conference for practitioners you co-organized sounds really interesting, but it doesn’t align with any of the certifications you should have earned through the commoditized training HR stood up.
Long time employees - those who joined years ago because they had found their “destination employer” - hope that “restructuring” means a “return to core values”. After all, those core values - strongly held, strongly practiced - are what made the company competitive in a crowded tech landscape in the first place. Unfortunately, restructuring does not mean a return to core values. Restructuring to squeeze out more free cash flow means bloodletting of the most expensive labor; longer tenured employees will be among the most expensive if only because of salary bumps during the heady years to keep them from jumping ship.
Here is where the change in the social contract is perhaps the most blatant. In the “destination employer” years, the employee invested in the community and its values, and the employer rewarded the loyalty of its employees through things like runway for growth (stretch roles and sponsored work innovation) and tolerance for error (valuing demonstrable learning over perfection in execution). No longer.
“Culture eats strategy for breakfast” is relevant when labor has the upper hand on management because culture is a social phenomenon: it is in the heads and hearts of humans. When labor is difficult to replace, management is hostage to labor, and culture prevails. But jettisoning the people also jettisons the culture. Deliberately severing the keepers of culture is not a concession that a company can no longer afford to operate by its once-strongly-held values and norms; it is an explicit rejection of those values and norms. By extension, that is tantamount to a professional assault on the people pursuing excellence through those values and norms.
Tech firms large and small once lured labor by values: who you are not what you know makes us a better community; how we work yields outcomes that are better value for our customers; how we live what we believe makes us better global citizens. Today, those same tech firms can’t get rid of the labor that lives those values fast enough.
