Did EY and Deloitte make the right call? A closer look at performance-based cuts

The consulting world is notoriously demanding. However, recent moves by Big 4 firms EY and Deloitte have increased the pressure even further.

Employees are now under the microscope, and every working hour is analysed for client-related activity—those deemed “underutilised” face losing their jobs.

This shift begs the question: is this a necessary adjustment to economic realities or a short-sighted strategy that could damage these firms in the long run?

According to a Business Insider report, EY and Deloitte have measured their employees’ “utilisation rates” through time sheets and schedules.

Only those working with clients were considered “utilised,” the rest, while those who worked on internal tasks were placed “on the bench,” and some were eventually let go.

The report added that the recent firings of EY and Deloitte are more on the consultancy side of their operations and are separate from the company-wide layoffs.

Both firms denied letting go of their staff based on utilisation alone, reiterating a wider performance context to defend their recent job cuts.

Downsizing isn’t exactly news these days. In Australia alone, at least 3,000 people with white-collar roles were reportedly laid off in 2023.

But the news here isn’t the job cuts per se – it’s EY and Deloitte’s basis used for firing people. If people were underutilised, is it their fault? If not, then why are they suffering the consequences? 

READ MORE | A timeline of job cuts in top companies

Looking at the harsh realities

In the same Business Insider report, analysts said that all the job cuts and stricter performance metrics are meant to offset the impact of overhiring during the pandemic and slow client demands.

Then, there’s the harsh realities of a volatile global economic outlook. While most analysts aren’t expecting more hikes on interest rates, cuts aren’t on the horizon either.

Rising inflation is still a problem, especially in Australia, where the prices of commodities and rent are skyrocketing.

There is also the economic uncertainty brought about by ongoing geopolitical tensions, specifically in the Gaza Strip and Ukraine – wars that have a direct effect on global oil prices.

Considering these factors, EY and Deloitte’s actions may be seen as a harsh but necessary response.

After all, consulting firms, like any business, need to prioritise profitability to weather downturns.

By cutting staff deemed underutilised, these firms hope to streamline operations and maintain their bottom line. 

A chilling effect

By streamlining operations through job cuts, EY and Deloitte will be able to maximise their profits, tightening their belts at a time of economic uncertainty.

However, heightened performance monitoring, which could be a form of micromanagement, may have a chilling effect on the workforce.

The constant pressure to meet billable hour targets could foster a culture of fear and anxiety within these firms.

Employees may become hesitant to take risks, engage in creative problem-solving, or invest in professional development out of concern it might negatively impact their perceived utilisation.

Furthermore, focusing on immediate billable hours risks devaluing essential aspects of a company’s success. 

The skills shortage factor

The tricky part of the economic uncertainties today is that they are coupled with a persisting skills shortage across the globe.

Because talent continues to be short in supply, it is safe to assume that companies wouldn’t be this aggressive in cutting labour costs if interest and inflation rates were safer.

While EY and Deloitte will be reaping the benefits of cutting costs, their reputation in the talent market may suffer serious damage.

When market conditions improve, these firms may regret the loss of experienced personnel and struggle to rebuild their expertise quickly.

In the long run, companies that can implement strategies that wouldn’t require cutting off people will reap the benefits of a recovering economy.

If cutting off workers was the firms’ knee-jerk reaction to the economic challenges today, then we can safely say that it is not different from the knee-jerk hiring spree they made during the pandemic.

It’s repeating the same mistake. 

READ MORE | Layoffs in Australia: A necessary evil or a short-sighted strategy?

Is there a middle ground?

The debate surrounding EY and Deloitte's actions raises the question of whether less extreme alternatives exist.

Could these firms create more nuanced performance metrics that factor in the value of non-client-facing contributions?

Rather than immediate layoffs, could focus on performance improvement plans and retraining help underutilised employees develop the skills needed to contribute more directly to billable work?

Deloitte has reiterated to Business Insider that the people they had to let go of already underwent performance improvement programs.

But this also raises the question of how effective these performance improvement programs were – if they were meant to improve people, why didn’t some of them progress?

Maybe these people improvement programs need some evaluation and alignment to respond to the potential future of today’s volatile market.

On another point, perhaps the performance goals were focused on the wrong metrics. Employee and company needs remain misaligned if non-client-facing work is essential but not reflected in targets. 

Lessons from EY and Deloitte’s job cuts

There may be unseen factors that pushed the “Big 4” firms towards a last-resort scenario, resulting in skilled workers losing jobs.

But one thing is clear: massive job cuts should never be normal because, ultimately, the people make companies successful.

There may be mismanagement or overestimations involved, but what the biggest consultancy firms are experiencing right now should be a lesson for business leaders.

Talent is always an asset, especially in today’s fast-evolving business environment. But there will be repercussions when you use talent acquisition as a knee-jerk reaction to existing market conditions.

Going on a hiring spree instead of practising constraint and strategy during a period of global mass resignation is a short-sighted approach to mitigating the risks of a dwindling economy.

While reducing expenses is often necessary for survival, short-sighted cuts can hurt future innovation and damage a company's reputation.

Balancing immediate cost-saving measures with a broader view of the company's needs and future success is the key to long-term growth.