Perfect storm in tech sector

Three factors have come together to create a perfect storm in the tech sector.

First, an over-optimistic outlook that looked at the past and predicted the future, looked at possibilities and counted them as revenues. This led to aggressive hiring in areas a cautious mind would have avoided. Tech companies were using newer and newer buzzwords, and everyone around them was hanging on to them without deep reflection.

Second is a rub on the effect of that optimism on customers. Despite enough macro environment warning signs, customers continued to believe that this storm would somehow not impact them. They kept investing in the art of the possible rather than what was a bare necessity. When the storm hit their shores, they panicked and swung in the opposite direction, which created a ripple effect on the IT firms who have to apply reverse gear.

Lastly, the classic inventory problems. There are enough management lessons from manufacturing that show that companies go under because of unsold inventory. When the tide turns, inventory gets blocked, and so does cash, and you go under. The inventory in the tech sector is people. It takes 6-9 months to build an inventory of people you can deploy on a project. So, in an optimistic state of mind, you over-hire and over-commit, and when reality hits, you postpone hiring and firing people.

The current macro environment is challenging; however, we all saw this coming a few quarters ago. Some tech firms instead of being reasonable in planning, hiring and investing, threw caution to the wind and kept hiring, believing that firing was just a click away. It is a sad statement of our world that companies with multi-billion market cap treat human capital as a use and throw fungible commodity without realising that good times will come one day and the employees will not forget these actions to save a few dollars more.

Credit to Indian IT leaders who have been smart about this, and thus we do not see layoff news from them, and hopefully they will find ways of honouring all campus commitments as it is just a few points on the margin but a life dream of thousands fulfilled.