Additional Coverage:
- The brutal metric companies are using to show their AI bets are justified (businessinsider.com)
AI or Just Cutting Costs? Companies Making Deep Cuts as Wall Street Demands Proof of AI Payoff
San Francisco, CA – As artificial intelligence (AI) continues to dominate headlines and corporate investments, a new trend is emerging: some CEOs are pointing to AI as the reason for significant workforce reductions, a move that’s often met with investor approval. But is it truly AI-driven efficiency, or a convenient narrative for cost-cutting?
The latest to make waves is Block co-founder and CEO Jack Dorsey, who recently announced plans to slash nearly 40% of the company’s workforce, bringing the total employee count from over 10,000 down to under 6,000. This drastic move, announced via a memo, comes despite the company’s stated health and rising profits. Wall Street responded favorably, sending Block’s shares soaring over 16% on Friday.
Block isn’t alone in this practice. Other major players like Salesforce, HP, and IBM have also cited AI advancements as a factor in their need for fewer employees.
Measuring the Unmeasurable: Layoffs as a “KPI” for AI
With no standardized way to measure AI’s impact on productivity, some workplace observers suggest that job cuts are becoming a readily digestible metric for investors. Michael Blank, an assistant professor of finance at the Stanford Graduate School of Business, told Business Insider that a “noisy round of layoffs” can be the “cheapest way for a CEO to boost a company’s stock price” and signal readiness to capitalize on the AI boom.
Blank suggests these cuts might indicate that AI integration has moved beyond experimentation, allowing employees to achieve more with less support. Furthermore, a softer labor market might make it easier to rehire if companies discover certain roles aren’t as easily replaced by AI as initially hoped.
Gary Cohn, former director of the National Economic Council, echoed this sentiment on CNBC, stating, “The one KPI that they can tell you is ‘We’ve cut heads.'” He added, “We’ve sort of made the world synonymous with, ‘I’m using AI, therefore I need less heads.’ I ultimately don’t think that’s the truth.”
Indeed, skepticism abounds. Jason Schloetzer, a business administration professor at Georgetown’s McDonough School of Business, expressed doubt about the scale of Block’s cuts being purely AI-related, telling Business Insider, “Block must have uncovered a secret sauce, perhaps within the software development process, to claim all of these jobs are AI-related.” He noted that other executives he’s spoken with aren’t seeing similar gains outside of software development.
Block has not yet commented on whether the layoffs were, in part, a move to demonstrate fiscal discipline to investors. However, Dorsey did state during Block’s earnings call that the company is a leader in using AI for efficiency gains, a stance he believes “all companies will eventually” adopt.
The Nuance of “Transformation” and the Risk of Over-Cutting
Alexandra Mousavizadeh, cofounder and co-CEO of Evident, which tracks AI use in finance, acknowledges that a leaner team can be beneficial for transformation, especially if a company is “carrying too much ‘weight'” in certain departments. “Transformation does not necessarily need huge volumes of people, but it needs the right people,” she told Business Insider.
However, Mousavizadeh also cautioned that AI can become a convenient justification for cost-cutting driven by other factors. She points out that most organizations genuinely ramping up AI deployment are “in fact, hiring rather than firing.”
Jeff Fettes, CEO of Laivly, a company leveraging AI for customer service, has seen firsthand that AI’s impact isn’t always about reducing headcount. For some clients, AI-driven sales boosts have led to an expansion of sales teams, not a reduction.
“Why wouldn’t you invest in more salespeople now? Because AI is helping them to deliver at scale in a way that they weren’t before,” Fettes explained.
The Double-Edged Sword of Deep Cuts
Wayne Cascio, a distinguished professor of management emeritus at the University of Colorado Denver, who has extensively studied corporate downsizing, warns companies against cutting too deeply or too quickly in the name of AI. He notes that companies often eliminate critical skills and institutional knowledge, only to later rehire those same individuals as consultants or full-time employees.
Cascio highlights that a typical corporate downsizing involves about 10% of the workforce, while anything above 25% is considered “extreme.” Dorsey’s almost 40% cut at Block, he states, is “double-extreme.”
The question remains: are these massive layoffs a true reflection of AI’s transformative power, or a strategy to appease investors in a climate where AI is the buzzword of the moment? The long-term implications for these companies, and the broader workforce, are yet to be seen.
Read More About This Story:
- The brutal metric companies are using to show their AI bets are justified (businessinsider.com)