<quick rant while I sit in a waiting room>
I am sure you have all heard the adage, people don’t scale. You may have even heard this from your VP as a canned response to the request for staffing. But is it true?
Kind of; yes and no.
Amazon is one of the worlds largest private employers. But they are also the leaders in automation to reduce the need for people. In the end, people have helped them scale very well, but only so far as they employed enough people to fulfill their current needs and more to help increase the profitability of each employee.
As an analytical person I would like to propose the following hypothetical math problem.
- You have an old boat that leaks.
- The boat has a capacity of 100 tons of cargo.
- The more cargo you add the more the boat leaks.
- There is no limit to the amount of cargo people want transported.
This inflow of water represents the toil generated by operational inefficiencies. Be that from poor procedures or a lack of suitable automation. In and of itself some inefficiencies are OK so lets set some more boundaries to our math problem.
- You can make one cargo run trip per day
- It takes 100units of currency per day to keep the boat operating with no crew and no cargo.
- It takes an additional cost of 100 units per run to operate the ship.
- For every ton of cargo added on your trip you gain 100units of currency.
- For every ton of cargo you transport you incur 50 units of cost in fuel, loading, unloading, etc.
- After 5 tons of cargo the leaking is so bad your ship would sink before it completed a run.
- You can hire a person to bail the water at a rate of 10 units per day to bail water and keep up with each ton of cargo.
Ok lets see if we can construct a profitability curve.
- Cargo = X (in tons)
- Profit = X*(100-50) – 2X (In units) – 200
In this case it makes perfect sense to hire 100 people to bail water.
However, you may notice that this is an overly simplistic view and this is not how people work in your office! This is true, lets make things more complicated. For example, let us say for every 10 employees you hire you need a manager who makes twice as much as the average employee they manage. And for every 10 managers you need a director of operations.
Now, we could model this as a more complicated step function but as not everyone in my audience has a minor in math, and since I am writing this from my dentists waiting room I don’t really want to start creating and sharing excel sheets at this time for simple examples like this. So… I will simplify the labor cost model thusly
Leak Mitigation Labor =
- F(bailers) = 2x
- F(Managers) = (1/10 * F(bailers) ) * 2
- F(Directors) = (1/10 * F(Managers) ) * 2
Here again, it is most profitable to max out your bailers. But each bailer reduces your marginal return per ton of cargo, eventually to zero if you have enough ships.
Of course when you have 100 bailers you can increase efficiency of each bailer through process, but you also can decrease efficiency through process.
For example, A bucket brigade will bail many times faster than individuals running between decks getting in each other’s way. Ideally, that is what your manager and director should be supporting, but being removed from daily bailing they may have little context to do so and thus need to listen to the bailers and have. The problem here is those who may have expertise may lack the legitimate power to enact the change or even gain an audience with those who can. This is because seldom in our industry are people who can act on the information, incentivizing those who have the information to share it. Please see my rant on rock stars for more about that.
Fortunately, our world is more complicated and more wonderful, because not only can we employ bailers, we can employ people to improve the bailing process, fit bilge pumps into the ship, fix leaks, increase the engine efficiency, and even build a second, better, boat!
So what seems to be the problem?
The problem is 2 fold; Communication and Improper Scale.
Why, you may ask, do we seem to hire people to build a better boat, but then employ them as bailers? Because we don’t have enough bailers to keep us from sinking. And upper management then says we have tried employing boat builders but we still don’t have a better boat so clearly, people are not the solution.
Scale is something obvious to most people in operations. You require 5 people to do the daily toil work, bailing the water, and this number increases by 50% per year, but management only allots you one new req every 2 years. You will never be able to make much progress on reducing toil, installing pumps, fixing leaks, etc. Thus you will need to keep increasing your staff as you will never gain efficiency because you can not afford to assign people to toil reduction and system improvement.
Also an issue in scale is when management gives you the req for high end specialists, people who can install the bilge pumps, without realizing the problem is not that you don’t have the skill, after all you have 3 bilge pump experts already, but those experts don’t have time, and neither does the new one, who is now bailing water to keep the ship from sinking.
What is worse is the experts salary could have paid for 2 or 3 bailers, freeing the experts they already have. Instead, by employing a new expert, when the team can’t allow the ones they have to do what they were hired to do, management causes resentment amongst the employees they have, reducing efficiency and making it harder to replace them when they leave; thereby increasing the cost of labor even further.
The second issue is communication. The IT engineering world is not like other engineering disciplines. We don’t generate project proformas or generate P&E reports. In fact, I would hazard a guess that most pure IT companies can’t tell you which of their cost centers are internally profitable and which need to be outsourced. Some of the worst accounting I have ever seen has been in Info Tech mega corporations.
So, how do we fix this? Show management how the resources provided will scale and return substantial benefit to the company.
- Build proper project cost and profit evaluations
- All projects must show how they generate value through revenue generation or cost reduction. Preferably in the central currency of the company.
- Labor is not a sunk cost, it is an opportunity cost, and should be accounted for in all project evaluations.
- Every internal resource should show the costs of supporting projects up the chain so you have a better understanding of the true cost of any project.
- Projects should be configured so that value is generated from every phase of the project.
- Every project should be ranked by both total profitability and return on the individual investment before deciding where to put resources.
- Proper communication of every project and its current state should be top priority. Management can not decide how to pivot without the information from the people working on the projects and the people working on the projects will be resentful of changes without understanding the reasons. Particularly when many projects will depend on certain phases of other projects to be completed on time.
In conclusion, people do scale. And while the cost of adding each new person may increase, the profit each person can generate may also increase if they are handled correctly. However you have to show management how each project will help the company scale. Doing this at all levels will greatly increase both employee satisfaction and company profits.
Of course this is a massive over simplification, and investment needs to be made just to start the process of understanding where investments need to be made. But I hope you can appreciate some of this rant and understand how we, as a collectives industry, found ourselves in this mess and how the companies that work to get out of it can sore to the top