Michael McFall is the co-Founder and co-CEO of BIGGBY COFFEE as well as author of the Inc. Original books GRIND and GROW.
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During the company’s Q4 2022 earnings call, Mark Zuckerberg told investors that 2023 would be the “year of efficiency” at Meta. This new mentality, Zuckerberg claimed, would leverage several trends to make the company more profitable, including emerging technologies like AI, realigned priorities and, of course, layoffs.
A lot of layoffs. Facebook laid off 10,000 employees in March, a 13% workforce reduction that was already preceded by more than 11,000 layoffs in November. By April, the company reported $5.7 billion in profits, beating analyst expectations and drawing kudos from financial analysts.
Of course, Facebook isn’t the only company looking to tap into this formula to maximize profitability. At Twitter’s helm, Elon Musk infamously laid off 80% of full-time staff. Amazon, Alphabet, Microsoft, IBM, Spotify, McDonalds and dozens of other companies have significantly reduced their workforces this year as brands prioritize profits and stock prices over people.
This evidence of the intractably transactional relationship between employers and employees comes just months after leaders railed against "quiet quitting," lamenting workers' perceived lack of commitment to their companies.
It’s also occurring as many people reevaluate their relationships with work and their leaders. As one laid-off Google employee explained in a viral LinkedIn post, “[layoffs] just drives home that work is not your life, and employers—especially big, faceless ones like Google—see you as 100% disposable. Live life, not work.”
As business leaders, we know that this dynamic is not sustainable. Layoffs themselves are not the problem; however, they are a symptom of a bigger problem, reflecting the transaction-oriented relationship between employers and employees that often undermines a business's most significant potential.
We need a better blueprint for employee relations.
Transactional Relationships Are a Barrier to Growth
Already, 61% of employees say they have a transactional relationship with work, clocking in for a paycheck and punching out when the day is over. Since the pandemic, 89% of employees say they are questioning the role that work plays in their lives, making right now a critical time for leaders to connect with their employees.
Poorly executed or badly justified layoffs are not helping.
For starters, layoffs—often positioned as cost-cutting measures that somehow also make companies leaner, faster, and stronger—often don’t actually save companies very much money. Severance packages, diminished productivity and institutional knowledge drain the value of any cost reduction. At the same time, companies will inevitably need to hire new employees as the standard economic cycle pushes growth metrics higher.
With 75% of recessions lasting less than a year and 30% for less than two quarters, transactional relationships based on short-term metrics can undermine growth and sustainability initiatives. In other words, when 12- to 18-month profit margins are more important than institutional knowledge and loyalty to and from employees, misaligned priorities will likely undermine long-term growth potential.
To be sure, leaders don’t just demonstrate transactional relationships by laying off employees even when their companies are immensely profitable. Failing to connect with, inspire, motivate, equip and empower employees to do their best work can create the sense of leaders abandoning their responsibilities to create companies that flourish.
The Power of Relationship-Driven Outcomes
Building relationships and trust between employees, colleagues and bosses, on the other hand, creates a positive work environment that fosters engagement, productivity and loyalty. This relational capital is crucial to high-performance levels and is the foundation for sustainable growth and success.
For example, a Gallup survey found that having a “best friend” at work “contributes to a thriving employee experience and to communication, commitment and other outcomes.” While leaders don’t have to be best friends with their employees, this reality underscores the importance of relationships at work. Leaders can cultivate environments where employees feel connected to their teams and leaders.
When employees feel safe and trusted, they are more likely to perform at a high level, leading to increased profitability in the long run. On the other hand, when employees feel disposable and undervalued, they will likely leave the organization, leading to a loss of knowledge and any loyalty people have for the organization.
Leaders should create an environment where their employees feel valued, supported and inspired. This includes building relationships based on trust, fostering a positive company culture and supporting employees in building powerful lives they love.
When leaders invest in their employees' relational capital, they will attract and retain high-quality people who are engaged and inspired, leading to sustainable growth and success.
Reevaluating Leadership For Long-Term Success
The recent trend of massive layoffs and an emphasis on short-term profitability at the expense of employee well-being highlights the urgent need for a better blueprint for employee relations. It is becoming increasingly clear that transactional relationships between employers and employees are unsustainable and ultimately detrimental to a company's long-term success.
While many conglomerates might be able to get away with this behavior, your small or mid-sized company is not powerful enough to act like the big players. Thriving businesses are built on and sustained by employees who feel empowered, committed, and invested in the company’s success.
Pursuing those priorities is the first step on the path to a thriving organization.
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