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Zendesk announces job cuts to reduce costs

Zendesk announces job cuts to reduce costs

The layoffs are estimated to set Zendesk back by about $28 million, primarily due to costs incurred on severance payments and employee benefits.

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CRM software provider Zendesk has decided to lay off 300 employees from its global workforce of 5,450 employees to reduce operating expenses, a recent filing with the US Securities and Exchange Commission (SEC) showed.

The decision comes just months after the company was acquired by a consortium of private equity firms for $10.2 billion. “This decision (layoffs) was based on cost-reduction initiatives intended to reduce operating expenses and sharpen Zendesk’s focus on key growth priorities,” the company wrote in the SEC filing.

In a separate press statement, Zendesk’s executive team took responsibility of the job cuts and said the company is pulling back from the ways it had previously invested in “hiring growth”, much in advance of the business growth.

“…we grew our team much faster than we should have based on revenue growth expectations that were not pragmatic. As an executive team we take responsibility for that,” the company said.

The statement outlined how Zendesk’s top management tried different measures, such as closing over 100 positions, to try and address its bottom line but was unable to get past the issue.

The roles impacted by the layoffs were decided on five strategic priorities, the company said, including “optimising our processes and systems, reducing duplication of effort, increasing our spans of control and rebalancing our roles towards Go to Market to build on our enterprise opportunity while continuing to build and deliver compelling products for our customers.”

Layoffs to cost Zendesk $28 million

The layoffs are estimated to set Zendesk back by about $28 million, primarily due to costs incurred on severance payments and employee benefits, the SEC filing showed. Out of the total estimated cost, the company expects to incur $8 million in the fourth quarter of 2022.

As part of the layoffs, Zendesk said it will provide outgoing employees three months of base salary along with one week’s pay for each year of full service.

Other benefits include a prorated portion of the employee’s annual bonus payable at target, two months of equity award vesting, health insurance benefit coverage and job search support resources.

Tech firms continue to see layoffs

The CRM software provider’s decision to layoff almost five per cent of its workforce comes at a time when other tech firms such as Salesforce, Meta, Twitter, Microsoft and Oracle have announced job cuts in the wake of economic headwinds.

On Wednesday, Meta, the parent company of Facebook, Instagram and WhatsApp, said it is preparing to cut thousands of jobs, impacting 13 per cent of its global workforce.

Salesforce, another CRM software provider, too announced mass layoffs this week, cutting at least hundreds of jobs from its 73,000-person workforce.

Last month, Microsoft had said it would be laying off close to 1,000 employees. Cloud service provider Oracle is also continuing to layoff staff globally in the past few months.

Tech industry prepares for more layoffs

Announcements of thousands of job cuts in the past couple of weeks may not be the end of the trouble for the technology sector. Analysts expect the worse is yet to come.

“It’s a good bet that tech companies that haven’t yet laid off employees are carefully considering whether or not to do so. It wouldn’t be surprising to see more layoffs in the next few months, particularly among firms whose fiscal year ends on December 31st,” JP Gownder, principal analyst at Forrester said in a statement.

Gownder said the job cuts were a result of these companies trying to set up finances for success in 2023. “Widespread economic concerns — some prompted by rising interest rates, others by the war in Ukraine, high fuel costs, and supply chain issues — are prompting these moves in anticipation of lower demand.”

The layoffs, according to the analyst, also point at skilling challenges being experienced by several employees.

Positions that don’t require “enough” IT skills will find it more difficult to find jobs compared to people who are considered top talent in the technology sector, said Gownder.

“Many of the laid-off tech workers have skills that will be valuable in other sectors. Nearly every company, regardless of industry is now a “technology firm” that relies on software developers, engineers, and IT talent. So top tech talent who lose their jobs will find other positions, most likely.”


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