Navigating OPEX Cuts and CAPEX Shifts Amidst Rising Layoffs

As we approach 2024, the tech industry is facing a significant disruption in its workforce and budgeting strategies due to the continued economic uncertainty. The trend of layoffs throughout 2023, where over 224,000 tech jobs were lost, is anticipated to continue into the next year. This week, Spotify announced a 17% reduction in their workforce while Lloyds put 2500 jobs at risk. This shift is not just a reaction to immediate financial pressures but part of a strategic realignment towards operational efficiency and financial sustainability​​​​.

I worked in the tech industry in 2018 and there are key similarities to then. To understand this trend, it’s crucial to delve into two key concepts of corporate budgeting: Capital Expenditure (CAPEX) and Operating Expenditure (OPEX).

Capital Expenditure (CAPEX) refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. CAPEX is often used to undertake new projects or investments by the company. It is characterised by its long-term nature and is typically used for significant investments that will benefit the company for many years.

Operating Expenditure (OPEX), on the other hand, covers the day-to-day costs associated with running a business. This includes rent, utilities, payroll, and routine maintenance. OPEX is short-term and recurrent, often reflecting the company’s immediate operational needs.

In 2024, we’re likely to see companies in the tech sector adjust their budgeting strategies with an increased focus on CAPEX, emphasising long-term investments such as technology upgrades, AI integration, and mergers and acquisitions. This shift towards capital-intensive projects can lead to a reallocation of resources away from OPEX, including workforce expenses.

The persistence of layoffs is tied to a combination of post-pandemic market stabilisation (overhiring) and the need to manage operational costs more effectively. Many companies had expanded rapidly during the pandemic and are now facing a surplus of talent. As the business environment stabilises, there is an evident need to streamline operations and reduce OPEX, often through workforce reductions​​.

The integration of AI and automation into business processes, along with strategic corporate evolutions and increased merger and acquisition activity, further influences the trend towards downsizing. These advancements require a thoughtful approach to workforce management and talent acquisition, balancing the new technology investments (CAPEX) with the need to maintain a lean operational model (OPEX)​​.

For companies planning layoffs in 2024, a focus on internal talent mobility and redeployment is advised. Investing in existing employees and upskilling them to align with evolving business needs can be a crucial strategy. This approach requires not only a thoughtful hiring practice but also a strategic balance between CAPEX and OPEX, ensuring that the workforce is well-aligned with the long-term goals and needs of the business​​​​.

In summary, the continuation of layoffs in the tech industry into 2024 reflects a strategic response to market stabilisation, operational efficiency needs, and the integration of technological advancements in business processes. Companies are transitioning from a period of rapid expansion to a more measured approach to workforce management, emphasising a balance between CAPEX and OPEX to align talent with business objectives.

Sources:

“A comprehensive list of 2023 tech layoffs” – TechCrunch (TechCrunch)

“What’s behind the fresh round of tech layoffs?” – TechCrunch (TechCrunch)

“2024 layoffs: Bracing for the impact” – HR Executive (HR Executive)