SAP Announces Overhaul With 8,000 Job Cuts Amid AI-Driven Restructuring Reflecting Industry-Wide Shift towards Automation Globally; More Job Cuts Likely

SAP, the German software company, has announced a restructuring initiative amounting to 2 billion euros ($2.2 billion) for the year 2024, impacting 8,000 roles. 

 

The move is part of SAP’s strategic shift towards prioritizing growth in artificial intelligence (AI)-driven business sectors as the company foresees a significant transformation in its operations with the integration of generative AI and has committed to investing over $1 billion in supporting AI-powered technology startups through its venture capital arm, Sapphire Ventures.

Christian Klein, the Chief Executive of SAP, emphasized that this program is designed to enable the company to advance pioneering innovations while concurrently enhancing the efficiency of its business processes. 

The restructuring plan will be predominantly executed through voluntary departure schemes and internal upskilling initiatives. SAP anticipates that by the end of 2024, its workforce will be comparable to current levels.

In the wake of leading companies globally, such as Google and Microsoft, redirecting their focus towards AI software and automation, the tech industry has witnessed a surge in layoffs. SAP, with its current workforce exceeding 105,000 employees, aims to navigate these changes by embracing a more streamlined approach.

The costs associated with the restructuring are expected to be predominantly incurred in the first half of 2024. Despite a minor impact projected for the same year, the program is anticipated to contribute 500 million euros to operating profit in 2025, thanks to efficiency enhancements. 

SAP’s stock saw a 1.6% increase in Lang & Schwarz pre-market trading on Wednesday.

Strong Outlook

In a separate announcement on Tuesday, the business software maker anticipated robust growth in revenue from its crucial cloud business and overall operating profit for the current year, following the release of 2023 figures that either met or surpassed analyst consensus. 

SAP projects double-digit percentage growth in cloud revenue, expecting a 24%-27% increase in 2024, building on the 23% growth reported in 2023. 

The company’s operating profit, which experienced a currency-adjusted 13% rise to 8.7 billion euros last year, is expected to grow between 17% and 21% in 2024.

Despite a challenging macro environment, SAP Chief Financial Officer Dominik Assam expressed satisfaction with achieving double-digit non-IFRS operating profit growth and pledged to further enhance profitability in the current year. 

Additionally, the company adjusted its medium-term outlook, lowering its 2025 operating profit target to 10 billion euros from the previously stated approximately 11.5 billion euros.

Recent AI Integration Related Job Cuts

Amid reports of Google’s AI-driven restructuring plan causing concerns about job cuts for 30,000 employees, the company contemplating layoffs in its sales department to create space for AI-focused roles. 

These restructuring measures, initiated in late 2023, primarily impacted the large customer sales team but were not directly linked to the introduction of Google’s advanced AI model. The layoffs also extended to the voice assistant and augmented reality hardware units.

A Google spokesperson clarified to FOX Business that the workforce reduction was part of responsible investments to align resources with the company’s priorities and significant opportunities. 

The spokesperson highlighted changes made in the second half of 2023 to enhance efficiency and alignment with major product priorities.

This reduction aligns with a broader trend observed among tech giants, including Amazon, Microsoft, and Meta, streamlining operations in the competitive AI domain. 

AI’s Impact on Staffing in Tech Giants

Reflecting a broader industry trend, recent reports indicate that Amazon executed significant layoffs affecting hundreds in divisions such as streaming, studio, Twitch, and Audible. 

According to Layoffs.fyi, an industry tracker, tech companies collectively let go of over 7,500 employees in January, highlighting a widespread shift in the industry’s dynamics.

In a move following CEO Sundar Pichai’s announcement in early 2023, Google undertook substantial workforce reductions last year, cutting 12,000 roles due to challenging economic conditions. 

These cuts had a global impact, affecting various teams, including recruiting, corporate functions, and specific engineering and product groups.

AI-Driven Overhaul in InMobi Group

Closer to home, the InMobi Group is undergoing a transformative process by adopting an AI-first approach, leading to job losses for 125 employees, constituting 5% of the global workforce of the Bengaluru-based advertising technology company. 

An executive shared that InMobi is revamping processes in technology, organizational structure, and skills by integrating AI across the organization. 

The implementation of AI will particularly impact customer interaction, communication, sales, and various business processes, prompting the company to phase out some legacy processes. The introduction of automation is expected to result in workforce realignment across different geographical locations.

InMobi acknowledged the transformative power of AI, recognizing the changing market needs and expectations of its customers—brands, agencies, and developers.

Paytm’s AI-Driven Rightsizing

Likewise, Paytm has stated that it is “rightsizing” its operations, attributing the move to the impact of AI on workforce rationalization. 

The publicly listed financial services firm has reportedly laid off more than 1,000 employees across multiple units in the past few months. 

The restructuring aligns with cost-cutting measures as Paytm realigns its various businesses to adapt to evolving market dynamics influenced by AI.

High-Tech Workforce Challenges in Early 2024

From January 1st to the 23rd, a staggering average of over 900 tech employees per day found themselves without employment, marking a challenging start to the new year for job seekers, particularly those aiming for positions with major IT players. 

The timing proved unfortunate, especially given the substantial layoffs carried out by industry giants such as Amazon, TikTok, HP, and Google. Even notable Indian IT companies like TCS, Infosys, and Wipro experienced significant declines in their workforce, as indicated by the latest Q3 data.

According to information from Layoffs.fyi, 63 tech companies have collectively let go of at least 10,963 employees in the month of January alone. 

In a parallel report by trueup.io, data for the first few weeks of 2024 revealed a total of 133 layoffs across tech companies, impacting 22,016 individuals. The daily average job loss in the technology sector for January stands at 957 people, highlighting the gravity of the situation. 

Prominent companies contributing to these recent layoffs include Riot Games, TikTok, Google, Xendit, Verint, Amazon, and Nexon, among others. 

The uncertainties in macro conditions, particularly in the BFSI and CMT segments facing challenges in the North American market, have contributed to the recent surge in job cuts.

Comparing job cut statistics, trueup’s data indicates a notable increase in layoffs in January 2024 compared to the totals in December and November of 2023, with 16,945 and 16,875 job cuts, respectively. 

Furthermore, layoffs.fyi data underscores that the most significant tech layoffs since the onset of COVID-19 were conducted by Meta (formerly Facebook) with a total of 22,000 job cuts, followed by Amazon (19,000), Google (12,000), and Microsoft (10,000), the majority of which occurred in 2023.

In a separate trend, December 2023 revealed that Nvidia, a leading AI giant, dominated the data center GPU segment with an impressive 92% market share.

Microsoft, in collaboration with OpenAI, jointly held a 69% share in the foundational models and platforms market, while Accenture emerged as a leader in the services market with a 6% share.

Indian IT Companies ‘Resizing’ Efforts

On the Indian front, major tech companies have witnessed a significant decline in employee count. 

In Q3FY24, Wipro, backed by Azim Premji, reported a decrease of 4,473 employees, TCS experienced a headcount reduction of 5,680, and Infosys saw a decline of 6,101 employees. Collectively, between October to December 2023, these three IT giants laid off 16,254 employees. 

As of December 31, 2023, Wipro‘s headcount stood at 240,234 employees, Infosys at 322,663, and TCS, the largest recruiter in the Indian IT sector, had a total headcount of 603,305 employees.

Adding to the employment challenges, a report by Challenger, Gray, & Christmas, Inc. noted that in 2023, companies planned 721,677 job cuts, marking a substantial 98% increase from the 363,824 cuts announced in 2022. 

This represents the highest annual total since 2020 when 2,304,755 cuts were recorded, and excluding 2020, it’s the highest total since 2009 when 1,288,030 job cuts were announced. 

Noteworthy is the fact that technology led all industries in job cut announcements last year with 168,032 cuts, representing a significant 73% increase from the 97,171 cuts announced in 2022.

More Job Cuts 

The Challenger report highlights the likelihood of further job cuts, emphasizing that companies announced plans to cut 117,163 jobs in the fourth quarter of 2023. 

This figure represents a 20% decrease from the 146,305 cuts in the third quarter and a 24% decrease from the 154,329 cuts in the final quarter of 2022.

Andy Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc., noted that while layoffs are stabilizing and hiring remains steady as 2023 concludes, employers are still cautious and focused on cost-cutting heading into 2024. 

As a result, the hiring process is expected to slow down for many job seekers, and job cuts will persist in the first quarter, albeit at a slower pace.

Challenger emphasized that the tech sector will continue to be influenced by the advent of AI, mergers and acquisitions, and the realignment of resources and talent. The adoption of AI is poised to play a pivotal role in shaping the future of the IT sector.

In a research note, Kotak Institutional Equities predicted that the enterprise adoption of generative AI would create significant opportunities for system integration. 

The note highlighted ISG’s estimation of an additional $175 billion in service opportunities annually by 2030. Generative AI applications, expected to be project-based in 2024, are anticipated to grow gradually over time. 

Common use cases for generative AI include:

• Employee engagement through ChatGPT-like chatbots.
• Extracting and summarizing information from documents.
• Synthetic data generation.
• Content creation.
• Automated coding and testing.

The note emphasized that enterprises are experimenting with both predictive and generative AI, with a forecast for scaling up these initiatives over the coming years.

According to ISG, enterprises are placing higher expectations on service providers for increased productivity. The brokerage anticipates significant improvements in productivity in 2024, especially in areas such as application modernization and call centers.

Pricing in these areas may be impacted by the productivity gains brought by service providers. The unfolding of AI adoption and its impact on tech employees will be closely monitored in the industry.

The Last Bit, Globally the tech industry is navigating a challenging environment with substantial job cuts observed in the early months of 2024, influenced by factors such as AI adoption, mergers and acquisitions, and strategic realignment of resources. 

Reports from Challenger, Gray & Christmas, Inc. suggest that while layoffs have stabilized, caution among employers, driven by cost-cutting priorities, is likely to slow down the hiring process in the coming months. 

The tech sector, particularly affected by the onset of AI, faces a continuous evolution in workforce dynamics. Meanwhile, research notes from Kotak Institutional Equities anticipate significant opportunities in generative AI and emphasize the growing importance of AI adoption in shaping the future of the IT sector. 

As enterprises experiment with predictive and generative AI, the industry is poised for transformative changes, impacting not only job cuts but also productivity improvements and pricing dynamics. 

The unfolding of AI adoption will be a focal point in the ongoing journey of tech employees and industry stakeholders, and in essence, more job cuts are likely as we move forward.