UKG 14% Reduction In Force: A Growth Move (And Intuit Update)
This week UKG announced a layoff of approximately 2100 people (out of 15,000) in a strategic move to focus on even larger growth opportunities. As AI sweeps the technology industry, I think we’ll see more of this to come. And only a few days later, Intuit announced the layoff of 1,800 people, explaining the move in a similar (but different) story.
First UKG. Here’s the background:
UKG, one of the largest HR software companies, is the merger of Ultimate Software and Kronos, which took place in April of 2020. At that point in time (Hellman & Friedman, the PE firm acquired them – first Kronos, then Ultimate), the companies had combined revenues of $2.5-2.6 billion.
Today the company is generating about $4.7 billion in revenue and is highly profitable. UKG, like many software companies, try to operate by “the rule of 40” for investors – growth rate plus margins = 40%. UKG, like other PE-owned HR tech firms such as Cornerstone, operate with high levels of cash flow and 30%+ margins.
This is a high margin for a company growing at this rate. Workday, for example, only generated $64 Million of margin on $1.99 billion in revenue last quarter.
UKG has about 15,000 employees and they’re laying off around 2100 (14%). This is a large number (one in 7) and the layoffs are taking place in all functions and all over the world.
Why would they do this? Is this a sign of a slowdown?
According to CEO Chris Todd the answer is no. Rather, the company wants to double down on its investments in AI (they believe that AI will transform their market), customer success, branding (advertising), and mid-market/SMB. They want to spend more money on marketing, advertising, AI platforms, and customer support.
(Note that $27.1 Billion was invested in AI startups in the first half of the year: these platform companies expect a return.)
As a business decision, this is how PE-backed firms operate. They can afford to make big decisions for financial opportunity and this move will save $250-350 Million which they can invest in AI infrastructure, advertising, and SMB sales and marketing. Remember the UKG brand is only four years old and outside of North America most people still don’t recognize it, often referring to products using legacy terminology (Ultimate and Kronos).
This story makes perfect sense. This is not a “downturn in the market” or “failure to execute” – rather a redeployment of resources to new strategic areas. And it teaches business leaders a lesson: sometimes you have to get smaller to grow – and that’s the new business lesson of AI.
Second, about Intuit. Here the company announced a layoff of 10% of the workforce, and again explained that this was a realignment towards AI. In the case of Intuit, which sells to consumers and small business people, AI is likely to radically change the platform, and this will take massive funds to develop and deliver.
The strange thing about the Intuit announcement is that the CEO also stated that 1050 workers (a very specific number) are underperforming. So this is a play to increase talent density. As AI sweeps across white collar jobs, we’re likely to see more and more focus on employee performance. (Listen to my podcast explaining Talent Density here.)
In the words of a business leader I follow, “subtract first, then multiply.”
Additional Information
Why Is It So Hard To Be A Chief HR Officer (CHRO)?
