Layoffs always lead to loss of tacit institutional knowledge. In other words, they end up firing the people who know how shit really works.
Games are creative projects, so this is even more of a problem. They fire people who made the first game and knew exactly why the game was made that way, and it comes as no surprise that the new hires end up making the sequel completely different way. The new people can see the big picture but not the reasoning behind the tiniest details.