Unpacking the Activision Blizzard Layoff

Just fair warning, unless you’re really into base-level business analysis, this is probably the most boring post I’ve written in a while.

Activision Blizzard just announced that it had a year of record profits.  Activision Blizzard just announce that they were laying off 8% of their workforce, close to 775 people.

This has a lot of people angry.  After all, that’s near 775 lives that now need to shift gears.  775 careers interrupted.  775 households potentially shaken to the core.  All while the company is facing the end of the most profitable year its had, and is compensating its executive team accordingly.  The contrast there is galling people.  It’s leading to a lot of anger on the interwebs, discussion of unions, attention to executive pay, and calls for CEO Bobby Kotick to be fired.  You see this posed as a proletariat vs. bourgeoisie issue all over the place.  People hate this, and between the news, the social media, just anywhere you want to look online, it’s not hard to see people expressing it.

To me, and I’d imagine to anyone else with any business experience or education, this is all so, so routine.  Nothing going on here that points to any ethical lapse, no abuses of power, nothing that seems to indicate any real wrongdoing.  Hell, a lot of the layoffs you’ll see out there are either misguidedly shortsighted or the results of significant mismanagement, and this one doesn’t even seem to be one of those.  It’s unfortunate, very much so, but this really does seem to be a normal happening of normal business functions, and really not worth all the vitriol it’s drawing.

It’s been a while since I’ve picked up my business pants for one of these posts.  And frankly, the Activision Blizzard layoffs are a function so utterly routine that I wouldn’t find it worth the effort to be typing up a post about it here.  But my opinion of this matter is so drastically different from that of the prevailing internet shouting that, well, here I am zipping them up once more.

So hey, from the business perspective, let’s go ahead and unpack what’s happening here with Activision Blizzard’s layoffs.

Just from the ground level, there’s a difference between firings and layoffs.  And there’s a difference between layoffs and mass layoffs.  We’re talking about mass layoffs here, when a company lets go of large amounts of people all at once.  Most of the time, when you see mass layoffs in the news, it’s the result of a company losing money.  Hiring people is expensive, and personnel costs are usually the biggest expense on a company’s ledger.  So it makes sense that if a company is looking to cut costs, the first place they’d go is cutting people, right?  Not so much.  You see a lot of companies really jumping the gun on them, going for layoffs purely as a cost-savings measure after a short period in the red.  Mass layoffs are horrible.  And they’re not just horrible for the people being laid off.  It’s easy to lose track of the simple fundamental, but a company’s ability to make money is dependent on its people doing things that make money.  If you have less people, you’ll be able to do less things, and therefore make less money.  Layoffs can lead to a short-term increase in financial condition, but typically lead to reduced performance in the long term.  Mass layoffs cost a business capacity.

But what happens when you don’t need that capacity?  That’s the situation I believe Activision is in now.  Sure, they’ve made a lot of money last year.  But let’s take a look at the broader situation. Last year, following Destiny 2’s disappointing performance, the larger company has divested itself of developer Bungie.  They’ve been sunsetting their Guitar Hero properties.  Skylanders seems to no longer be on the radar.  Call of Duty Black Ops IV has failed to achieve quite the presence they expected.  Blizzard has no major new games coming in 2019.  Heroes of the Storm is being scaled back.  Hell, Blizzard was running an incentive for voluntary quits late last year, in a preliminary cost-cutting measure.  Sure, the company posted what was reportedly its biggest profit yet.  But it underwent a lot of trouble to get there, and by appearances, that trouble is going to lead to a very slow 2019 for the company.

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