OPED in today's WSJ. I think Verizon will likely see another big round of layoffs in the fall. SMH.
Algi Febri Sugita/Zuma Press
Two weeks ago I laid off more than 20% of my workforce. I didn’t do it because Cloudflare is struggling. We posted record revenue growth, have strong free cash flow and are adding an unprecedented number of customers around the world. I did it because business is changing, and to win the future, Cloudflare needs to change with it.
We haven’t found another example in U.S. business history of a public company growing at more than 30% that laid off more than 20% of its workforce. Yet what we did is likely going to become the norm over the next year. This is a story about artificial intelligence, but executives and commentators are misunderstanding how it will disrupt business and who will be affected.
To understand the issue, I went back to a book published in 1954, 20 years before I was born: Peter Drucker’s “The Practice of Management.” Drucker explores the different roles inside every business, which I would categorize as builders, sellers and measurers.
Builders create products. Sellers sell those products. Measurers do everything else: internal audit, revenue recognition, finance, legal, compliance, middle management, operations and on and on.
Contrary to what some analysts predict, builders aren’t going anywhere. If an engineer on my team can now be 10 times as productive, I’m going to hire as many as I can find.
Sellers, too, are safe from extinction. Humans still control budgets, and they want to buy from people who take the time to understand their needs, build trust and fix whatever goes wrong.
Measurers are also critical to a business, but different from the other two. The best are hard to find. They work tirelessly behind the scenes, don’t seek the recognition of a front-of-house role, and ideally have a perspective independent from the rest of the organization. Drucker argues that measuring business is important, but customers are earned through building and selling. The best businesses would maximize investment in those two functions.
AI isn’t coming for builders or sellers, but it is coming for measurers. Tireless, independent, efficient and available, AI systems can now measure an organization with a level of objective detail and precision that was previously impossible even for the best employees.
For Cloudflare, internal audit previously picked a handful of business risk areas to scrutinize each quarter. Now we’re moving to a system in which every business risk is audited continuously. We’re closing our books faster. We’re making fewer mistakes and catching the ones we do more reliably. And, as CEO, I’ve never had better tools to measure exactly how the business is performing, including identifying our rising stars.
The vast majority of those we laid off last week were measurers. We cut middle managers across the organization because AI allows us to have more direct reports per manager while still measuring and mentoring our teams effectively. We consolidated our operations functions into a single group that can support teams across the business, using AI to gain specific expertise when needed. We significantly reduced our marketing team, which, like in most companies, was teeming with measurers. Across our finance team, we found opportunities to consolidate and automate.
But the layoff wasn’t about reducing headcount. In fact, we have a record number of open positions. In coming years I expect our number of employees will continue to grow. With fewer people needed for measuring, we can now invest more in people in the areas that drive growth.
We received almost a million applicants for 1,111 paid internships this summer. The interns we hired are extremely qualified and AI-native. They’re all builders or sellers, and we expect that the majority will get full-time offers.
They’re the next generation who will invent ways to drive our business. With AI we can now better measure their contributions and accurately identify those who will be tomorrow’s leaders. AI isn’t the harbinger of bleak youth unemployment—it is quite the opposite.
AI won’t ki-l all jobs. But it will change every business. Ultimately, it will prove Drucker right. AI will allow us to better measure our organizations so the humans on our teams can focus on where they create and capture value: building and selling.
Mr. Prince is CEO of Cloudflare.