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Facebook: Layoffs

Are you NOT surprised: now Facebook is announcing imminent layoffs, following a similar announcement from Google a few days ago. Although both companies are avoiding the L-word, in an attempt to remain politically correct to the end, this is what it is: layoffs.

Like many oversatiated companies before them, they have reached the point where no further business success is possible unless they eliminate competition. But as the economy shifted its focus from the traditional factors of production (land, labor, and capital) – to knowledge, it became impossible to monopolize the market forever.

From the looks of it, knowledge is indeed a scarce commodity for those big guys. Resorting to cost reduction, they are defying the “Three Rules for Making a Company Truly Great” that were stipulated over a decade ago by Michael E. Raynor and Mumtaz Ahmed, based on an extensive study of 25,000 companies:

  1. Better before cheaper: Don’t compete on price, compete on value.
  2. Revenue before cost: Prioritize increasing revenue over reducing costs.
  3. There are no other rules: View all your other choices through the lens of the first two rules.

The three rules have not changed since. Perhaps with one significant update that fits well with the no.3: In the knowledge economy, the non-price value competition has expanded. Now the traditional business organization – Google and Facebook are perfect examples – must consider creating customer value for yet another customer: the knowledge workers themselves.

Now the traditional business organization must consider creating customer value for yet another customer: the knowledge workers themselves.

Google and Facebook may still have the three classical factors of production in abundance, but to attract the key one – knowledge – they have to make an attractive non-monetary value to the real owner of the factor – the knowledge worker. To succeed with their offering, organizations must move away from the security- and prestige-driven (primarily monetary) values that have attracted workers since the Pyramids, and identify what are the real values driving the workforce of today.

Of course, this process starts with identifying what genuine (not correct) values drive the organization itself. And it better be not shareholder value.

It is notable that entrepreneurship, while previously added as the fourth critical factor by some economists, tends to follow knowledge and cannot be grown and maintained in the new reality of the knowledge economy. This adds to the pressure on the big players and will make the “survival of the fattest” impossible in the coming decade or so.

Close-knit teams of able-minded entrepreneurs, united by congruent values, will drive the economy, while the titans of the past will supply commodities (goods such as infrastructure and other tangible assets) that the knowledge workers will rent to create value for society.

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