To understand the forces behind the recent layoffs in the tech industry, it helps to start with a curious decision by one Bay Area organization. This organization decided to lay off a large number of employees, even though it was doing well financially.The reason for this decision is that the organization was facing a lot of pressure from investors to cut costs. In order to appease these investors, the organization decided to make some drastic cuts, including layoffs.While this may have been a necessary decision for the organization, it has had a devastating effect on the lives of many workers in the Bay Area. These workers have lost their jobs and are now struggling to make ends meet.The situation is a reminder of the power that investors have over companies in the tech industry. These investors are often more concerned with short-term profits than with the long-term health of the companies they invest in. This can lead to decisions that are harmful to workers and the overall economy.
At the end of last year's National Football League draft, with 261 players off the board and time running out, Brock Purdy was still waiting to hear his name called. Then his phone rang. The San Francisco 49ers were taking him with the very last pick. Purdy was ecstatic to have been given the opportunity to join the 49ers, and is looking forward to proving himself as a valuable member of the team.
In that moment, Mr. Purdy became Mr. Irrelevant, the nickname given to the final player chosen in every NFL draft. However, a series of increasingly unlikely events would make the quarterback more relevant than he or anyone else imagined.
Brock Purdy was not highly touted coming into his rookie season, but he worked his way up to the backup quarterback position. When the starter was injured, Purdy stepped in and led the team to victory. He has started the past seven games and the team has not lost since.
This weekend, Brock Purdy will play for a spot in the Super Bowl. With an estimated 50 million people watching at home, this will be a huge moment for the undefeated athlete.
This story is amazing because it reveals how much is required for success in any business. It also shows that even in professional sports, where performance is quantified into numbers, the market for talent remains inefficient. Football teams have never had so much data to guide them, but they are still prone to cognitive biases that distort their hiring and firing decisions.
The effects of human psychology can be seen in many workplaces across Northern California. One scholar in Silicon Valley says that the recent wave of tech layoffs can be explained by irrational behavior.
Jeffrey Pfeffer, a professor of organizational behavior at the Stanford Graduate School of Business, has argued that the reason workers are losing their jobs is not due to economic concerns, as companies often claim. Instead, he believes that it is a result of a social contagion that has spread from Amazon.com and Meta Platforms to Google and Microsoft. According to Pfeffer, the fear of missing out (FOMO) has infected the stocks of FAAMG companies (Facebook, Amazon, Apple, Microsoft, and Google).
"Many companies are adopting this practice, so it's not surprising that others are following suit," Dr. Pfeffer told the university's news service.
The herd mentality is what got them into this position in the first place. They went on a hiring spree during the pandemic, when money was cheap and business was booming. They were afraid of being left behind in both talent and scale. Investors cheered. But the collective exuberance couldn’t last. Interest rates climbed. Stock prices dropped. Consumers ventured out of their homes again. Now tech companies that print money are shedding costs, dragging their moonshots back to Earth and eliminating the same jobs they created not long ago.
"It seems like they're just copying each other's mistakes," Dr. Pfeffer said in an email. "They overhired, and now they're going to lay off people. It's just a vicious cycle."
The explanations for the layoffs seemed to be contagious. Even the people who were laid off seemed to be affected by the explanations.
"I take responsibility for this," said Meta Chief Executive Mark Zuckerberg. "I got this wrong and I'm sorry for that."
Salesforce Chief Executive Marc Benioff has admitted that the company hired too many people, and that he takes responsibility for the situation.
Former Twitter Chief Executive Jack Dorsey has apologized for growing the company too quickly. "I apologize for that," he said.
The mass layoffs have come in waves. One week in November, Meta hacked 11,000 jobs, and the next week Amazon began slashing 18,000. In January, Salesforce cut 8,000 jobs, then Microsoft cut 10,000 and Alphabet cut 12,000. The downsizing has hit retail, recruiting, robotics and even a Google incubator for breeding the company’s most experimental ideas.
Following the crowd is not a good way to stay on track. Pressure to keep pace with the competition led these companies to make wrong decisions in the past. What makes them think they will be right this time? Dr. Pfeffer says they are not and that layoffs are often counterproductive.
"Layoffs are not usually effective in the way companies want them to be," said James Guthrie, an emeritus professor at the University of Kansas' business school, who has studied the effects of job cuts. "And when everyone else is doing it, you're selling low and buying high."
Bias is not just something that affects executives at huge companies worth trillions of dollars. It happens in every industry, including the NFL.
Despite their vaunted systems for identifying talent, tech companies and football teams can both develop groupthink. They struggle with personnel decisions more than they care to admit because humans are fallible and our brains play tricks on us.Both tech companies and football teams can fall prey to groupthink, despite their systems for identifying talent. The reason for this is that humans are fallible and our brains can play tricks on us. This makes it difficult for these organizations to make personnel decisions.
NFL teams are very meticulous when it comes to scouting potential employees. The draft is their most effective method of landing stars on the cheap, and the stakes are especially high when it comes to scouting a quarterback. They want as much data as they can get on each potential player. Only in sports do people get their hands measured down to an eighth of an inch before their first day of work. This attention to detail allows NFL teams to make more informed decisions when it comes to hiring new talent.
Even NFL teams can misjudge talent, as Cade Massey and Richard Thaler pointed out in a 2013 paper. Thaler went on to win a Nobel Prize for his work in behavioral economics.
Predicting the future is always difficult. Football teams have not gotten much better at it. Economists have found that there are several cognitive errors that can lead to overconfidence and incorrect predictions, including the false-consensus effect. This is when people believe that their own beliefs are more common than they really are. In the NFL draft, this can be costly. The researchers studied more than 1,000 trades involving draft picks over 25 years and found that teams often overpay to trade up and select the player they want. This is because they are afraid that another team will grab him first.
The year before they drafted Mr. Purdy, the 49ers made a bold trade, parting with three first-round picks to move from No. 12 to No. 3 so they could draft Trey Lance in 2021. They were confident that he was the quarterback who would take them to the Super Bowl. However, his season-ending ankle injury paved the way for the 2022 draft’s last pick, someone who wasn’t guaranteed a spot on the team and barely made the roster.
According to some scholars, NFL teams with high draft picks would be wise to trade down and collect multiple shots at players for the price of one. They argue that there comes a point in every draft when teams might as well trash their models and throw darts at their boards. The best way to maximize their chances of being right, they say, is to acknowledge they will be wrong—and remember that even the 262nd pick can be a profitable investment.
If the 49ers' season had gone according to plan, Mr. Purdy would still be holding a clipboard on the sideline. But once he saw the field, he was better than anyone expected, including the team that drafted him.
The Niners were intrigued by Jimmy Garoppolo's passing accuracy over his four years in college. His efficiency and experience translated to the NFL, where he is surrounded by elite playmakers. His job is to manage the offense and get out of their way, and he is good enough at that.
Mr. Purdy's story is a lesson for the rest of Silicon Valley about the perils of conventional wisdom. Mr. Purdy could have been unemployed, but instead he is now a successful entrepreneur. Soon he could be holding a trophy in his 9¼-inch hands.
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