4 ms·

Could someone explain to me like I'm five why companies need to cut jobs when they are making pretty good profits, and have tons of cash in the bank?

• larrys 13y ago
  One reason might be to get ahead of something they foresee hurting profits in the next quarter or next year. Not to wait until it shows up in the bottom line. "like I'm five" Ok here it is for a 5 year old. You have a 10 lemonade stands staffed by 10 people. You've had a good year and have made money. But next year you will loose 3 of the stands and so you are going to get rid of three people because they won't be needed even though you made money fine this year.
  • dustywusty 13y ago
    This isn't very good, because you don't describe the reason that one would lose the three stands.
• sokoloff 13y ago
  Because if you can buy something for $9, why pay $10, even if you have $500 in the bank? Same reason that someone who's "rich" and "makes good money" would still negotiate the price of their new BMW/Mercedes or their house. From here down isn't especially for five year olds, but I think it's still graspable. Running a company properly (by many investors' definition) is an optimization problem, not simply a constraint satisfying problem. If you can have 4000 fewer employees and be more profitable in that state than in yesterday's state, investors will expect you to do that, even if you're currently profitable. (The costs [monetary and morale] of doing layoffs inject a certain amount of stabilizing hysteresis into the system.)
  • larrys 13y ago
    "would still negotiate the price of their new BMW/Mercedes or their house" Would add to that statement that even if you have the money to some people negotiation is fun (such as myself). It's a game same as people play other games where money isn't even involved. Add: What I'm saying doesn't apply to Cisco or companies so much as the statement you made as far as "rich" people or people where it's not the money that matters.
  • vladimirralev 13y ago
    I think this is incorrect. For big tech companies any money in the bank are lost money. The rule is "keep your money low". The best thing a company can do is to constantly create new projects with higher risk and assign their employees there. You only have to really cut employees when you run out of ideas or the risks are too high for some reason.
    • woodchuck64 13y ago
      That seems exactly right to me. Cisco seems weirdly pessimistic and conservative, like grandpa stockpiling money and guns 'cause he's sure the gummint is coming for him.
    • Negitivefrags 13y ago
      How about returning some money to the investors?
    • mseebach 13y ago
      Money in the bank isn't working and due to inflation is slowly just disappearing - so that is clearly undesirable. But it doesn't follow that it's a good idea to just spend them on anything, you need to spend them on something with a chance of giving you a return. If you have a division that isn't giving you a return, and you don't see a way of changing that, keeping it around is just a way of making your money disappear faster - which is also clearly undesirable.
• sirkneeland 13y ago
  It could be because I am changing my business. Let's say I am a Big Tech Company. I make Gadgets and Widgets. If I decide I don't want to make Gadgets any more and make only Widgets, then I don't need the people who make Gadgets. SOME of the people who made Gadgets could be retrained/repurposed to make Widgets, but some can't (or don't want to). Those are the people whose jobs I will cut. And of course, I will use some of my "tons of cash in the bank" to give them severance packages to compensate while they search for jobs in other companies who make Gadgets.
• vladimirralev 13y ago
  They just don't have enough work for everybody. They could create new projects and assign people there, however it's very difficult to come up with new ideas that will make money. And of course they can employ people who don't have anything to do.
• bcoates 13y ago
  Want, not need. Employees cost money. Companies want to cut costs.
• rainsford 13y ago
  Because companies don't employ people to be nice or because they can afford to, they employ people because the money they make doing so is more than the amount it costs to employ those people. Even a rich, successful company may fire people (even a lot of people) if that saves them more than they lose in productivity. Since not all employees are create equal, this is likely very easy if your company hasn't been very good about maximizing productivity of every employee.
• shubb 13y ago
  I don't know if you work at a huge company. Maybe you do. I've worked at a couple. Like government, large companies provide a sheltered environment where things happen that couldn't survive out in the real world. Sometimes that's high risk research - Google X, the Manhattan Project. Usually it's people who don't know excel supports formulas, and departments that could be replaced by a web form. These are protected by many layers of politics, and natural human compassion by managers at all levels who don't like firing people. Every layoff I've seen, the subtext has been 'lop off the deadwood'. They would make up a reason, but everyone would know.