Microsoft’s latest round of layoffs is part of a wider trend across the technology industry. Companies are increasingly making regular workforce cuts while continuing to hire for artificial intelligence (AI), invest billions in the technology and push for higher productivity.From Microsoft and Amazon to Meta, Cisco and Cloudflare, several major tech firms have announced layoffs in recent years despite remaining profitable. Instead of one large restructuring, many employees now face repeated rounds of smaller job cuts as companies adjust their businesses for the AI era.Microsoft began its new financial year by announcing that around 4,800 employees, about 2.1% of its global workforce, will lose their jobs. The cuts mainly affect the company’s commercial sales business and Xbox gaming division. Before the layoffs, Microsoft employed more than 220,000 people worldwide.The company says the latest layoffs are not about replacing workers with AI. Instead, it describes them as part of a broader effort to reorganise the business for a changing technology landscape. Even so, the move reflects a growing shift across the industry, where companies are regularly reshaping their workforces while increasing spending on AI.
More changes coming
Amy Coleman, Microsoft’s chief people officer, said the company is changing how it operates rather than simply cutting costs.“Today we are eliminating around 4,800 roles, about 2.1% of our global workforce, as we focus our people, investments, and energy on the priorities that will keep Microsoft positioned to deliver for customers in a fast-changing industry,” she wrote in a memo to employees.Coleman also sought to separate the layoffs from AI replacing employees. “I also want to be direct that the roles eliminated today are not being replaced by AI,” she wrote, while adding that AI is changing how work is carried out across the company.The Xbox gaming business is facing the biggest impact. Around 1,600 of the latest layoffs are in the gaming division. Xbox CEO Asha Sharma told employees that another 3,200 jobs will be cut during the current financial year, reducing the division’s workforce by about 20%.“Our business today is not healthy,” Sharma wrote, saying Xbox’s margins are three to ten times lower than those of comparable platform and publishing businesses.Coleman indicated that more organisational changes could follow. “We are still early on this journey, and there will be more changes ahead; other parts of our business will need to make similar changes,” she wrote.
Tech’s frequent layoffs
Microsoft is not the only company following this approach. Cloudflare cut more than 20% of its workforce in May despite strong business growth. After the layoffs, CEO Matthew Prince wrote in a Wall Street Journal opinion piece that he had not seen another US-listed company reduce its workforce so deeply while growing by more than 30%. “Yet what we did is likely going to become the norm over the next year,” Prince said.Cisco also announced in May that it would cut nearly 5% of its workforce even after reporting record revenue for its fiscal third quarter. CEO Chuck Robbins said companies that succeed in the AI era will be those with the discipline to “continuously shift investment” towards areas with the greatest long-term potential.Discussions around AI and layoffs are also increasing. According to an AlphaSense analysis of corporate earnings calls, mentions of layoffs alongside AI have risen from fewer than five per quarter in 2022, when ChatGPT was launched, to more than 100 per quarter this year.Even so, companies continue to say AI is not directly responsible for most job cuts. Microsoft says its latest layoffs are not linked to AI replacing workers. Amazon has also said AI has not been behind the majority of its workforce reductions over the past two years. Meta has said its recent changes varied across teams and included moving thousands of employees to different priorities.Some companies are also adjusting after hiring heavily during the pandemic. AI can automate certain tasks, allowing businesses to reorganise teams and redirect savings towards costly AI investments.Joseph Fuller, a professor at Harvard Business School, said companies are unlikely to announce very large layoffs unless they face serious financial problems. Instead, he expects businesses to make regular, smaller workforce changes, which he calls “continuous tuning,” as quoted by AOL.com.One reason, he said, is that companies have spent years cutting costs and now have limited room to reduce expenses further. Another is that many AI tools are still under development, making it difficult for businesses to know exactly how their workforce will change.Competition is also adding pressure. “If they keep just doing incremental things, and they’ve got a key competitor that goes all-in, they can wake up one morning and be down 21-nothing before kickoff,” Fuller said. “This uncertainty, I think, will tend to skew to layoffs,” he added.
Uncertainty despite AI hirings
Carrol Chang, CEO of Andela, said companies are not necessarily replacing workers with AI. Instead, many boards are asking management teams to show productivity gains from AI without significantly increasing spending.She said few large companies have reached a stage where AI allows them to operate with a much smaller workforce. In many cases, businesses would benefit more from helping existing employees learn how to use AI.“Truly AI native and AI-fluent workers are incredibly scarce, and when you can find them, they’re incredibly expensive,” Chang said.The uncertainty is also affecting employees. After reports of upcoming layoffs at Meta surfaced before the company officially announced them earlier this year, one employee described the waiting period as “28 days of hell.”Moyan Chen, a data scientist laid off by Meta in May, previously told Business Insider that when the decision finally came, “It was more like relief than pain.”Experts also warn that repeated layoffs have long-term consequences. Jeffrey Pfeffer, a professor at Stanford University’s Graduate School of Business, said companies that repeatedly lay off workers and later hire again face additional costs through severance, recruitment, training and contractors.He said recurring layoffs can create uncertainty, encourage experienced employees to leave and weaken institutional knowledge.“When a company rehires people, the coordination and communication is not going to be what it was if you had worked together for a while,” Pfeffer said.Fuller said that even as AI takes on more work, companies will continue to need employees who understand their business, customers, competitors, suppliers and industry regulations. “You need to keep people who know what they’re talking about,” he said.