Companies are afraid to cut expenses and jobs because they rationalize that everything is going to be the same and they want to avoid disappointing their employees. When there is a huge threat to the revenue-generating machine of the company, management needs to change its focus on how to do business. By believing the problems will fix themselves, the managers are merely stalling. Employees are kept in the dark regarding their future. They become confused and disoriented and lose morale.
Productivity goes into a tailspin.
This is especially true in Silicon Valley, where New Economy dot-com companies often have few customers, zero profit and little business. In addition, they often lack the business acumen necessary to deal with unexpected downturns. Because venture capitalists and investors have heavily funded startups, when the money runs out the startups begin to realize they must start finding ways to generate real money. High-tech companies have spent a lot of time and money to hire the best and the brightest. Now they make the mistake of offloading their bright stars.