Catherine D. Henry is the author of Virtual Natives: How a New Generation is Revolutionizing the Future of Work, Play, and Culture
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On a chilly day in February 2024, thousands of employees awoke to an email stating, “Your talents have helped us advance our mission of unleashing the power of content around the world,” from CEO Bob Bakish of Paramount Global in a company-wide memo. “We are a better company because of you.”
Since 2023, a spate of layoffs has rippled through high-profile technology, gaming and media companies worldwide as companies seek to boost share prices amid jitters that AI will cut demand. While providing immediate cost reductions, these moves raise questions about their long-term impact on innovation and company health and whether they make companies more competitive—or less.
Market pressures mount on executive leadership to show their adaptation to the new AI-led economy. A recurring reaction has been to reduce overhead by laying off workers, a move often intended to signal to shareholders leadership’s resolve to contain costs. This short-term tactic paralyzes management and demoralizes staff, with negligible long-term impacts on share price. For sustainable growth, long-term investments in innovation strategy are required.
Numerous studies show that reducing worker headcount to boost corporate share price is counterproductive. Research from the Harvard Business Review shows that while layoffs can lead to short-term stock price increases, they ultimately experience profitability and stock performance declines. Furthermore, Wayne Cascio at the University of Colorado found that companies engaging in mass layoffs often reduce employee morale and productivity, negatively impacting the overall business performance.
In an era of fast-paced technological advances, innovation leaders define, anticipate and shape future trends.
Tech industry trailblazer Nvidia recently sent stock markets soaring as the company's share price reached an all-time high. Nvidia’s investments in AI, machine learning and deep learning technologies have catapulted the firm to one of the most valuable companies in the world. Other companies, such as Meta, have been punished for innovation investments. Meta’s shares plummeted following CEO Mark Zuckerberg’s announcement of “aggressive” investments in AI. Why the double standard?
By nature, markets are impatient. Executive leadership must hold steadfast in its resolve to deliver long-term value to shareholders. The challenge is anticipating new, breakthrough technologies and aligning the company to exploit new opportunities while maximizing its strengths.
“The future, as always, unfolds in a continuous way,” says Jensen Huang, CEO of Nvidia.“There’s no real discontinuity per se.”
Nvidia’s explosive market value is an example of how innovation leaders consistently deliver higher returns on investment. Multiple studies show that companies that promote innovation are more likely to experience sustained growth and market leadership.
Using capital to repay shareholders, such as through stock buybacks and dividends, is often detrimental to a company's growth potential. This approach signals that a company has limited investment opportunities and is not focused on future growth. A 2020 study by the Roosevelt Institute found that excessive stock buybacks can stifle innovation and long-term corporate growth by diverting funds away from research and development.
Innovation leaders—companies that systematically prioritize and invest in innovation—are shown to generate more than twice the economic profit of those considered innovation laggards. And in the end, those are the companies that outpace in both earnings and market capitalization. In other words, by investing in innovation, they grow and flourish. Take Apple, for example.
“The era of spatial computing has arrived,” said Apple CEO Tim Cook in a January press release promoting Apple's Vision Pro. “Apple Vision Pro is the most advanced consumer electronics device ever created. Its revolutionary and magical user interface will redefine how we connect, create, and explore.”
In February, the company released its mixed-reality headset in a bid to redefine the consumer electronics landscape. It now aims to capitalize on the impending revolution in spatial computing and the dawn of the 3D internet. The announcement of the Vision Pro’s release date resulted in a 1.8% boost in Apple’s shares, suggesting investor confidence in the product’s potential to bolster the company’s financial performance.
Despite a niche consumer base and high unit price, investor confidence in Apple’s Vision Pro demonstrates faith in the company’s larger strategic vision. Apple shows how long-term investment in research and development drives consistent revenue growth and market capitalization, thus solidifying its status as one of the most valuable companies worldwide.
Companies that are classified as innovation leaders have 2.4 times higher economic profit than those deemed innovation laggards, according to studies by McKinsey & Company. A 2024 study found that by “rewiring their organizations,” innovation leaders “target value better, go after it faster, and capture a greater share of it, repeatedly and consistently.”
Amazon’s continual expansion into new markets and development of new technologies, such as cloud computing and AI, is another example of how foresight and investment in innovation can secure long-term market hegemony and profitability.
To be sure, some companies must trim overhead to better allocate capital to high-growth businesses. This shouldn’t entail a long, drawn-out series of layoffs—thus lowering shareholder and employee confidence—but a short, strategic intervention and immediate redeployment of capital to the new business. Time is of the essence.
“In the next decade, we’re going to see advances in computing like we’ve never seen before,” Huang told FastCompany. Positioning Nvidia in the path of future technological advancements and aligning its business with structural trends explain why the company has been so successful.
FastCompany recently listed Nvidia as the No. 1 on Fast Company's list of the World's 50 Most Innovative Companies of 2024.
The imperative for tech, gaming and media companies is clear: To deliver outstanding value for shareholders, leaders must prioritize innovation by focusing on rewiring their companies over short-term cost-cutting measures. Investing in research and development, embracing digital, AI, and spatial technologies, and cultivating a forward-thinking culture will drive sustainable growth. By rethinking their market approach and focusing on the innovation imperative, companies can achieve greater returns and build a more resilient, future-proof enterprise.
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