| Let me preface this by saying I also dislike Musk and do not think he is managing twitter well. Yes, they were not necessary. Please, before you call me ignorant and downvote, just let me elaborate.
I have seen the issue first-hand, it is subtle and specific to large companies. First, companies want their stock price to go up. This is more important to them than profit margins, because the people making decisions (as are most employees) are renumerated largely in stock. Simply keeping a business profitable and stable will not increase stock prices, you need to convince investors that you have great plans which will make the company stronger. Hiring more employees makes this look more convincing. Secondly, the best way for managers on all levels to increase their standing and compensation is to manage more people. As a result, it doesn't matter if your team is running optimally with 20 people and there's no point in starting new big projects, you must come up with reasons to hire more people to progress your career. Therefore, every manager is adamant about having perpetually understaffed teams. The result is that more projects will be started - regardless of whether they make sense - and more people will be hired to work on those projects. At all levels, perpetually. It is debatable how bad this inflation is, but the case of twitter shows that even a horribly abrupt and mismanaged exodus of 75% of employees will have no discernible mid-term effects on the product. At risk of sounding extreme, I'd say that if the layoffs happened in an organised fashion and none of Musks's ill-conceived ideas were implemented, such loss of workforce would not have affected income. I also believe that if most large, established tech companies were built with efficiency in mind rather than perpetual stock growth, they could be effectively ran with 10% of the workforce. |
Your other points are valid but this part is completely incorrect - Wall Street investors are extremely sensitive to costs and love high-margin businesses. No investor believes that just because you're hiring and increasing costs, that you will magically grow revenue. The cause and effect are almost in the opposite direction - strong past revenue growth (and consequent high stock prices) cause executives to be over optimistic about other opportunities, which lead to overhiring, which then allows the other effects you mention (which are valid) to take hold. But the root cause isn't stock prices going up because of overhiring, but as a rational response to past success.