No one likes to be made redundant.

The 520 staff social gaming specialist Zynga has just announced it's laying off will now be pretty confused, if not angry.

Still, looking at the situation through the eyes of a dispassionate observer, they can hardly say the move has come of the blue.

Warning signs

During 2010-2012, Zynga acquired literally dozens of studios, exploding in terms of headcount until it was 3,000-strong.

That's fine when you're in a landgrab expansion phase and the money’s pouring in, but at some stage, Zynga was going to have to restructure its physical footprint.

Similarly, the one thing everyone knows about Zynga is that its IPO has been a disaster, at least for investors and staff with share options. Floated at $10, its share price is currently around $3.

Getting it back to anything close to double-digits is going to be a nigh-on impossible task.

And share price aside, as Zynga's quarterly figures demonstrate, this is a company under pressure. Sales are declining year-on-year and even if it made a small profit in Q1 2013, Q2 was going to be loss-making before yesterday’s redundancy costs were taken into account.

It won't ease the blow but a big redundancy round was always likely to be a case of when not why.

Sugared pill

At least, Zynga remains massively cash-rich.

Thanks to the IPO, at the end of the Q1, it had $1.67 billion in cash and equivalents.

That's why CEO Mark Pincus, who's only paid $1/year these days, can confidently tell leaving staff that the company is making these moves "proactively and from a position of financial strength".

"We're offering generous severance packages that reflect our appreciation for all of their work and we hope this will provide a foundation as they pursue their next professional steps," he added.

Of course, there are likely to be difficult individual cases among the 520, but with social and mobile games continuing to be the hottest sector in the industry, it seems likely most of them will be snapped up, especially considering their locations - Los Angeles, New York, Austin, Dallas etc.

We'd also expect to see a number of start-ups blossom from the ashes.

Blood on the tracks

And, looking to wider trends in the industry, it’s not just Zynga which has been struggling with its cost base.

EA has been shedding jobs for years as it attempts to rebuild the plane in flight; moving from a packaged goods company to one based on digital distribution.

15 months ago Activision Blizzard cut 600 positions, while more recently Glu Mobile cut around 70 positions, or 12 percent of its workforce; the latest in a long line of restructures.

THQ, Midway and Atari are just three well-known brands that for various reasons have gone bust.

The fact is that when your headcount is numbered in the thousands (or even the hundreds), your efficiency drops. Dozens of people can be working for months on projects, which for no fault of their own, get delayed, canned or even if they make it to market, don’t make a return.

And that's just within the general operations of a large company. It says nothing for your big anticipated game tanking or unexpected industry transition occurring at the drop of a hat.

With annual salaries in the $100,000+ bracket for experienced staff, companies can be wasting millions of dollars annually, or suddenly tens of millions of dollars.

That's not good for anyone, but when the company is publicly traded, as are Zynga, EA, Activision Blizzard and Glu, and under shareholder pressure, those inefficiencies become clear very quickly.

For Zynga, laying off 520 staff will cost it around $40 million, but it expects it’s going to save at least $70 million annually.

So, taking an absolutist approach, assuming those 520 people weren’t generating $30 million in sales that can’t be maintained, any beancounter (or shareholder) will suggest it's a sensible move for a non-profitable outfit.

The bigger picture

But there is a wider issue to be considered.

Companies used to require scale - thousands of staff - because being successful in games required a lot of staff experienced in multiple disciplines as well as many sales and support offices around the world.

Now, thanks to the reach of app stores, the most profitable games in the business come from what would have been considered tiny teams only a couple of years ago.

Prime example: Supercell is 100 people - less than half the development headcount for a triple-A console game - but it operates two games, and seems likely to generate over $800 million in revenue in 2013.

In that context, Finnish neighbour Rovio, with its multiple games and merchandising businesses, looks over-balanced with 400 staff and another 100 open positions.

Of course, there are still companies with headcount in the thousands, but these are in the minority.

Wargaming is the most obvious candidate in terms of explosive hiring, but Gameloft - situated mainly in low cost regions - has over 3,000 staff. It often shuts down entire studios with little warning, or media attention.

More is too much

Sadly then, the bottomline is that the games industry is becoming ever more profitable but ever more volatile. Companies are hiring and firing faster than ever as they look to take advantage of growth or decline.

Experienced staff are paid a lot of money for their work, but there's little longterm job security. Large companies will restructure and small companies will go bust.

Yet within this environment, there are more opportunities than ever before. Start-ups can go from zero to life-changing success in the space of months, or be acquired, providing additional scale and expertise far beyond what they could be achieve on their own.

Still, the bottomline is the relationship between employer and employee remains one of hard-nosed capitalism. Employers will pay employees for their work and the only guarantee is, at some stage, one party in the relationship will walk away.

The only choice is a pink slip or a letter of resignation.