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Layoffs: Sign of Problems or Smart Strategy?

2015-06-12-opentext-layoffsOn May 20, 2015, OpenText (OTEX) laid off 5% of its staff, closed some facilities, and did a management shake-up. Based on its global workforce of 8,500, the layoffs will impact 425 positions. (see OpenText CEO Resumes Full Involvement in Day-to-Day Operations).

Then, on June 1st, CBC News announced “that OpenText would have to replace any jobs that it might cut in Ontario – on top of creating some or all of 1,200 new jobs in the province – in order to access any of a $120-million grant extended to it by the province last year.” (see OpenText’s $120M Grant Hinges on Creation of 1,200 New Jobs, Says Province)

Based on some of the reactions I’ve seen and heard, you would think OpenText’s very foundation is crumbling and the company headed for oblivion.


Let’s get real for a minute about how businesses everywhere behave. And let’s take a look at what is really happening and what this news means for OpenText customers and prospects.

I don’t know what the naysayers are thinking, but this announcement is a fairly routine – even modest – layoff similar to the ones that lots of companies go through on a regular basis. For example, I have worked with companies that lay off 10% of their workforce every single year, based on the conviction that their strict headcount controls somehow failed and the company’s workforce mistakenly grew more than planned during a twelve-month period. Some companies—like GE—became well known for taking a routine stance toward layoffs, even when business news is good. (See Financial Advisor Says GE Layoff Announcement Not a Surprise).

This type of announcement from OpenText is particularly routine for highly acquisitive companies. OpenText’s growth strategy is well known: it buys other companies for products, technologies and the customer/maintenance revenue base. Most of the time they aren’t looking to acquire great people or new ways of doing things or new ideas. Usually they just want more products, more customers and greater revenues.

Given their aggressive acquisition path, OpenText inevitably gets to a point where they have acquired more people than they need. For example, they have bought three BPM products over the past 3-4 years (Global 360, Metastorm and Cordys) plus they had their own as well. There is no way they needed all of the people from all three acquisitions, particularly since Cordys is the strategic product going forward. The other BPM products will move into maintenance mode, if they haven’t already. This example is just with BPM. And this doesn’t take into account all the duplication in administrative resources that happen as a result of acquisitions. As a result, shedding 5% of the workforce is not a big deal and actually a sign of healthy thinking about bringing revenues and resources in line. It should not impact customers and prospects at all.

There are two other aspects of the announcement:

  • The management shakeup is that the CEO is returning to work full-time, after a previously planned 100 days leave of absence because of illness, and the temporary CEO Operating Committee has been disbanded because of his return. This appears to be a good news story and we all wish him the best.
  • OpenText has agreed to create 1200 new jobs in Ontario as a result of a seven-year financial agreement with the government. This is a very gradual change and should not appreciably impact the company’s operations or finances. OpenText will build a cloud data center in the province and will need these resources. OpenText also is a Canadian based company and is very accustomed to working with universities and hiring centers to staff its global operations. This news should be seen positively by customers and prospects.

No one likes layoffs, and layoffs that are routine because of acquisition strategies can be off-putting. But a layoff of 5% of staff is routine news in this global economy and not a big area for concern when it comes to the health of the company.


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