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Organizational isomorphism. That is a big word for the tendency of organizations in an industry to follow the herd. Do what the other firms do and remain with the crowd. To act contrary to the consensus is dangerous. Staying in the herd protects individual reputation and accountability.
John Tippets, the longtime CEO at American Airlines FCU described this conforming tendency in his speech to the Navy FCU board in 2001:
One of the challenges of leadership is to constantly sort through popular ideas advocated by credit union peers.
It seems that at every meeting, someone has a new fad or a new idea – they’re sure it’s the greatest thing since sliced bread! A director will return from somewhere thinking he’s got the greatest idea; a staff member or a vocal member of the credit union will bring in great ideas.
But many of these ideas do not fit. For example, AAFCU has not felt comfortable about indirect lending; we do not actively participate in risk-based pricing; we do not see a fit for select employee group (SEG) expansions; we didn’t understand how dial PC banking could preserve our economics; and, so far, even credit cards do not seem to fit. We declined to do these things because we haven’t been able to make them fit into our models.
You have to make choices and you have to make trade-offs.
Layoffs in tech: necessary or herd mentality?
Alphabet’s (Google’s parent) reported a 36% increase in 4th quarter 2022 profit to $20.64 billion.
At the same time as these record financial results, the company announced 12,000 layoffs or 6% of its workforce. The public explanation was over-hiring during the pandemic growth and doubling down on AI solutions in the future.
Why all these tech layoffs after record profits and rising revenue? If the average laid off employee cost $200,000 per year, then Alphabet saved $2.4 billion, about 10% of one quarter’s profit.
It doesn’t compute. Here is one writer’s interpretation in an article The Tech Layoff “Contagion.”
The industry is having a midlife crisis. And that means once the crisis is over, a new era will begin. . . More likely, we are in an intermission between technological epochs.
Some argue that, as they wait out this intermission, CEOs are copying one another—laying off workers not simply as an unavoidable consequence of the changing economy, but because everybody else is doing it. “Chief executives are normal people who navigate uncertainty by copying behavior,” writes Derek Thompson of the Atlantic staff.
He cites business professor Jeffrey Pfeffer, who told Stanford News: “Was there a bubble in valuations? Absolutely … Did Meta overhire? Probably.
But is that why they are laying people off? Of course not … These companies are all making money. They are doing it because other companies are doing it.”
Pfeffer believes this “social contagion” could spread to other industries. “Layoffs are contagious across industries and within industries,” he said in the Stanford News article. If so, the story of tech layoffs could end up being a much broader story about work in America.
A cooperative opportunity
Because credit unions do not have a stock price, they can resist market expectations and respond in ways for-profit firms cannot.
In the 2008-09 financial crisis credit unions continued to lend to consumers, when every other firm pulled back. Who would want to make auto loans when all of the major US manufacturers were threatened by bankruptcy? Both GM and Chrysler were reorganized in 2009. But credit unions continued to lend on these brands.
Sometimes crises can motivate credit unions to become more of what they were designed to be: a counter-cyclical option, to be there for members when other firms pull back, reduce staff, eliminate products, and shortcut customer service.
A strategic misread
Another factor in the tech layoffs is the possible strategic misinterpretation of Covid’s impact on consumer behavior and market evolution. Derek Thompson suggests this possible misreading of the future:
Many people predicted that the digitization of the pandemic economy in 2020, such as the rise in streaming entertainment and online food-delivery apps and at-home fitness, were “accelerations,” pushing us all into a future that was coming anyway.
In this interpretation, the pandemic was a time machine, hastening the 2030s and raising tech valuations accordingly. Hiring boomed across tech, as companies added tens of thousands of workers to meet this expectation of acceleration.
But perhaps the pandemic wasn’t really an accelerant. Maybe it was a bubble.
Choices that fit the cooperative model
Many credit unions also followed this same future assessment, investing in digital and fintech startups as the inevitable pattern for future success.
Yet the strength of credit unions is their member relationship, not their technology leadership. Employees are the single most important aspect of this service advantage. Laying off staff or other “potential recession” cutbacks could compromise credit unions’ mission when most needed.
As Tippet’s explained, he would sometimes shun the prevailing wisdom: “We declined to do these things because we haven’t been able to make them fit our model.”
Credit unions begin the year on a sound financial and earnings base. Whatever the economic and interest rate events in 2023, now is not the time to copy market expectations to cut back. Especially by laying off those who make a difference when serving members.
Plus honoring a firm’s obligations to its employees, if the economy turns sour, is the right thing to do.