AI can do many things. Showing that it is paying off is another matter.
As companies pour billions of dollars into AI, Wall Street wants proof that the bet is worth it, and many CEOs are feeling the pressure.
In response, some companies offer simple evidence that fewer workers are needed to get the job done.
The most recent example of a CEO cutting employees en masse while shouting about the transformative power of AI is Block co-founder and CEO Jack Dorsey. On Thursday, he announced plans to lay off about 40% of the workforce and reduce the number of employees from more than 10,000 to less than 6,000. He said the move comes even as the company remains healthy and profits continue to grow.
Investors welcomed the move, sending the company’s shares up more than 16% on Friday.
Block is not alone in linking reductions to AI. Many companies, including Salesforce, HP, and IBM, cite the benefits of this technology as a reason to reduce the number of workers needed.
Measuring productivity
In the absence of standardized metrics to measure AI productivity, layoffs are becoming an easier signal for investors to understand.
Michael Blank, an assistant professor of finance at Stanford University’s School of Business, told Business Insider that the cheapest way for CEOs to signal that they’re ready to boost their companies’ stock prices and capitalize on the AI boom is to make “noisy layoffs.”
Doing so could show that AI integration in companies has progressed beyond experimentation, allowing employees to accomplish more with less support from colleagues, he said.
Blank said the weak labor market also means it may be easier for employers to rehire roles that they find are not as easy to replace with AI as companies had hoped.
Former National Economic Council Director Gary Cohn told CNBC on Friday that it is often difficult to clearly explain how companies are benefiting from AI.
“The only KPI they can say is, ‘We’re neck-and-neck,'” he says.
“We’ve equated the world with saying, ‘We’re using AI, so we need fewer animals,'” Cohn said. “At the end of the day, I don’t think that’s true.”
Of course, not all companies have actually reshaped their operations so thoroughly that they can fully automate their workforce. Some observers are skeptical that the large-scale layoffs are simply due to an AI windfall.
Jason Schletzer, a business management professor at Georgetown’s McDonough School of Management, recently told Business Insider’s Sarah E. Needleman that “Mr. Block must have discovered a secret sauce, probably in the software development process, that claims all these jobs are AI-related.”
“According to dozens of industry executives I spoke to about AI adoption, these benefits are certainly not being realized outside of the software development process,” he said.
Bullock did not respond to Business Insider’s request for comment on whether the layoffs were aimed, at least in part, to demonstrate financial discipline to Wall Street.
During Block’s earnings call on Thursday, Dorsey said the company is a leader in leveraging AI to improve efficiency, a position he expects “eventually every company” will adopt.
AI expansion?
could be good Reasons for streamlining the company’s ranks. Alexandra Mousavizadeh, co-founder and co-CEO of Evident, which tracks the use of AI in finance, said if a company is carrying too much “weight” – for example, too many engineers – it may make sense to build with leaner teams.
“Transformation doesn’t necessarily require a ton of people, but it does require the right people,” she told Business Insider.
At the same time, Mousavizadeh cautioned that companies may need to cut costs for other reasons, and AI could become a convenient basis.
In the end, few companies have fundamentally reworked their workflows to the point where they can be run with minimal oversight, she said. Most organizations ramping up AI adoption “are actually hiring, not firing,” Mousavizadeh said.
Jeff Fettes sees this too. He is the CEO of Laivly, a company that uses AI agents to support the customer service operations of Fortune 500 companies.
Fettes said that for some customers who have put AI to work, it hasn’t resulted in any less work. In some cases, the opposite is true: Customers who have used AI to improve sales, for example, often want to expand those teams, he said.
“Why not invest in more salespeople now? Because AI is enabling salespeople to serve at scale in ways they never could before,” Fettes says.
Dangerous if cut too deep
Wayne Cascio, a professor emeritus of business administration at the University of Colorado Denver who studies corporate downsizing, said companies considering cutting jobs in the name of AI or simply because competitors are doing so should tread carefully.
He told Business Insider that companies often find out later that they’ve gone too deep and too early, leaving out important skills and organizational knowledge.
“What happens after that is that companies end up rehiring a lot of the people they laid off,” Cascio said.
As a result, companies may need to bring back former employees as consultants or full-time workers.
Cascio noted that a typical company downsizing would result in about 10% of the workforce being cut. Anything above 25% is considered “extreme,” he said.
Dorsey is cutting nearly half its workforce, Cascio said. “That’s double extreme.”
Do you have a story to share about how AI is impacting your career? Contact this reporter at: tparadis@businessinsider.com.
