Your company can’t out-hire its problems
Don’t ask how many people you are going to need. And don’t assume that more people deliver more value. A suggestion of what to do instead.
In this post, I take a closer look at the way we forecast and plan “How many people our organization may need in the upcoming year?” and what magic is possible if you ask something different instead.
How many people do we need to hire?
In every organization I’ve joined so far I recognized one particular pattern that often seemed somewhat wrong to me: The annual employee planning round — often called ‘annual resource-planning’. (Yeah, I know it’s about people, but it’s called that way.) I’ve observed that once a year people — often top-managers — plan how many people (or FTE — full-time equivalent) they want to be hired in their organization in the upcoming year. Those managers usually try to figure out the right number of hires by answering one question: How many people do we need to hire in order to get done what we want to get done?
This question irritates me. Almost my entire working life, I’ve worked in the domain of knowledge work. In this domain I consider this question being irrational and illogical. Why? Because unlike in manufacturing where the amount of work is constrained by the number of incoming orders or the maximum production capacity of one plant, knowledge work is unlimited. Knowledge work is unlimited because it’s entirely made up by people. Wherever there are people in the domain of knowledge work there will be work. I’m irritated by the question “How many people do we need in order to get done what we want to get done?” because the amount of work that we want to get done is not fixed. From the point in time when the planning process starts it may seem that way since we only know what we know but as soon as one more person enters the company, that person is going to create additional work. Not talking about the people who already are working in that company. Of course, those are going to create additional work as well.
Let’s make a quick thought experiment: Think about the company ‘digital perfect’. A company that develops digital products. The people who are in that company in the year 2018 have ideas for new features that they want to get done as quickly as possible (I am not going into the field of flawed assumptions about great product ideas). Since it’s always easier to have ideas than to bring those ideas (successfully) to the market the backlogs of ‘digital perfect’ are long and they are growing. That’s why the digital-perfect’ executives are eager to hire new colleagues in the upcoming year. They look at the current backlogs and roughly estimate how many developers (let’s just stick to developers to keep it simple) they need to hire in order to deliver those great items in the backlogs. Since the company is highly profitable ‘digital perfect’ has enough budget to immediately start hiring by the beginning of 2019.
Some month down the line the ‘digital perfect’ top-management takes a look at how well their hiring strategy had worked in the last month. Somewhat surprised they realize that the length of the backlogs has grown and the rate of feature-delivery has dropped significantly although they are well over plan on their hiring roadmap. What had happened?
Long backlogs need strict prioritization. Most of the agile companies out there have learned to deal with that challenge. ‘Ideas are cheap’ is an often cited quote in those companies. However, when it comes to ‘resource-planning’ — meaning planning how many people the company needs to hire — they somehow ignore that basic fact. They also seem to ignore that people in knowledge work are an infinite source of feature or product ideas.
Although it looks like an improvement, it’s not solely
The standard procedure in most of the companies seems to be somewhat like described in our thought experiment above. We look at all the great ideas that we desperately want to get done and roughly calculate how many people we need to hire in order to get those currently known ideas done. Finding new colleagues, hire them and bring them ‘up to speed’ decreases the capacity of the companies ‘delivery system’. Hiring new colleagues at first reduces the delivery capacity of a knowledge work system. Hopefully, the delivery capacity increases again after some time — which is not guaranteed. Capacity can drop for many reasons. Just consider for instance a rising number of dependencies due to an organizational or architectural design that does not support ‘scaling’. And even after the capacity increased due to those awesome new people you’ve hired, you surprisingly have to realize that those new colleagues come up with their own ideas. In other terms, the capacity increased, which is great, but the demand increased as well. So the best trade you can make by hiring that way is having too much to do on a higher plateau. Congratulations!
Why do all the new employees bring their own ideas? Why do they create work instead of simply working on the existing backlogs? Let’s be clear here. In knowledge work organizations we do not simply hire workers, we hire experts in their respective field. So, whenever those hired expert knowledge workers start working they create their own new work. This is also true for ‘junior’ people. This is the ugly nature of knowledge work. So there will also always be more work than those new people can ‘deliver’. However, instead of acknowledging this circumstance and change the way in dealing with it, companies just initiate another round of ‘resource-planning’ for the next year. “How many people do we need this time to get all those brilliant new ideas done?”
At this point, you might have already realized where this inevitable is heading. This game can be played until the company has insufficient funds to pay all the loans. Usually, drastic countermeasures take place in companies that have hired over the rate at which they generate revenue or fresh funding.
How much do we want to pay in total?
Knowledge work operates on completely different underlying principles than the manufacturing work of the last century. Just to make the magnitude of difference explicit compare the assumptions on the word ‘work’. In manual and semi-automated manufacturing (and agriculture as well) work can be separated from the worker. Work is ‘consumed’ by workers who work. The amount of work is — at best — defined by the market. The more workers you have the more work gets done. (I know that this equation has it’s limitations since every workflow can only be scaled to a certain point but you get the basic relation between work and worker.)
This relation between work and worker is non-existent when it comes to knowledge work. In knowledge work, you cannot separate work from workers since the work is invented by the workers as described above.* Besides the invention of work, the delivery of the work needs to a high degree also be done by those people who invented the work in the first place. The learned assumption that more workers get more work done is unlikely to be true in the realm of intangible knowledge work.
Fair enough you say? What do I suggest instead, you ask? I say let’s flip the whole planning approach upside down and consider the money the company wants to spend on salary as fixed. Simply answer the question: How much in total do we want to pay for employees? This is an entrepreneurial decision that may be based on current funding, the business model, the revenue stream, the gross profit or the growth plan. This turns the number of employees (and their salary) into an input value of your management decisions (pardon my technical speech here). This is the opposite of the thought experiment above where the number of employees was the output value of a calculation where the number of ideas was the input value.
Why would that help?
No need to calculate the number of new employees based on your current state of the backlogs. No planning needed! No false connection between work that needs to be done and the number of new hires. This ‘upside-down-approach’ takes out so much clutter and noise of the decision-making process. Top-management defines the budget to employ the people based on financial data and that’s it. The people in the company decide if they want and need to hire or if they want to raise salaries to attract and retain talents and experts. I’m not going to make suggestions on how the company spreads the total allocated budget throughout the company. You’ll find a way!
Another great effect you can create is that the top management can start asking better questions since the one question that had occupied management’s attention for so long is off the table now. For instance, they can ask ‘Is our company able to digest new colleagues if we decide to hire?’, ‘What changes in the organizational structure do we have to pursue to make scaling less burdensome?’, ‘How do we alter the culture of our company by new hires?’ ‘How do we foster the culture change if we think this is a good thing and if we don’t want our culture to be altered, how do we avoid that?’, ‘How may we support the onboarding of new colleagues in order to reduce the performance drop whenever new colleagues start their work?’.
But what’s with all the brilliant ideas, you ask? Don’t we take those into account? The demand is high, sure. My suggestion separates the budget allocation decision from the ideas. The people in the company have to figure out how to deal with the always too high demand. There are plenty of options on how to deal with that situation and I’m not going to dive deeply into those options. I just quickly drop some thoughts: Get faster! Find out quicker which ideas are worth building and which are not! Build smaller, deliver faster and of course DO LESS! Strengthen your ability to prioritize! Don’t get overwhelmed by the number of ideas that flood your organization! Ideas and actual demand are not the same. Defer the commitment to start work and introduce WIP limited pull systems that stabilize demand according to the actual organizations delivery capacity.
The magic that’s possible
Based on a true story that I was privileged to witness first hand I can tell you that something remarkable can happen if you separate the decision of hiring from the things you want to do. A software company in Germany had been growing for many years in a row. The company was highly profitable. However, the executive team noticed that the rate at which they have been able to publish features decreased over time. Hiring more people in the respective fields of agile software development was the preferred countermeasure to that decline with the counterintuitive effect that the delivery rate decreased measurably even faster. The executive team then decided to freezes the budget for the employee base.
First, the development teams slowly stepped out of the exhausting spiral of finding, onboarding and educating colleagues, team building, keeping everyone in sync, aligning all the new colleagues on the companies goal, team-nurturing and coping with all the churn that was a brutal side-effect of that growth rate. Only, to start all over again due to the high turnover rate. All those activities drained the companies capacity drastically. The executives assumed that they lost more than 30 percent of their whole delivery capacity just because they wanted to grow the company.
What if “we need more people” is off the table?
The second notable effect was that the top-excuse and top-request by teams and managers went off the table, that is “we need more people”. This might sound insignificant but it changed the discourse and opened the door for different approaches to urgent problems. The executives who have been heavily involved in the management of the hiring started to think differently about the companies people. They started to ask themselves “Who are the colleagues who currently are actually contributing to our success?”, “Who are not?”, “How comes that some people are not contributing like others?”, “How can we support the employees in doing their work?” and many other valuable questions.
Stopping to hire also freed capacity to increase management’s engagement with the company’s employees. That created a deeper understanding of their needs and goals and laid a foundation to support their performance. That support paid off. The employee retention rate started to rise. Since the wages for new employees are often higher than for long-time employees the consumed personnel budget grew only modestly over the next years. The executive team decided to use the allocated budget to raise the pay for long-time contributors which in turn increased the retention rate again.
In short: Since that company was no longer overly obsessed with hiring the attention switched to the question: “How can we get the best possible value for our customers with the number of employees we have?”.
Tough decisions made possible
One answer to that question was to make employees who are not living up to the companies values leave the company. This was a very hard way to go for that particular company. After some of those employees had left the company the company’s management reflected that they spent less time on dealing with issues that have been rising around those value-driven conflicts in teams where those employees had been working. The managers recognized that they had more capacity available since those conflicts didn’t consume their attention anymore. They invested their now available capacity to better understand the working routines of their employees and support them to improve value generation for customers (impediment resolution if you will).
Not surprisingly, all those changes increased the delivery performance of that company measurably and significantly over time.
Underlying assumptions are great. They often are implicit and determine to a high degree the possible solutions one can come up when dealing with problems or conflicts. Often the most effective way to solve a problem or a conflict is not finding solutions on the basis of the currently held implicit underlying assumptions but rather change the conditions that hold the assumptions in place which leads to completely new possibilities of solutions.
That’s why I try to make some of the assumptions explicit.
- In this article, I assume that decisions on whether to grow as a company are made centrally by an executive team. This is what I have experienced almost all the time.
- I assume that the onboarding of the ‘newcomers’ is done by the teams who are also heavily involved in the ‘daily work’.
- I assume that the work in the system is invisible to the system itself which makes it almost impossible to prioritize the started work properly.
- Moreover, I assume that the company has to grow to stay in business. That is what all of the organizations I’ve worked with assumed as well.
What personnel planning process do you have in place?
On which assumptions is this process build upon? What are the positive and negative consequences of these underlying assumptions?
* not all knowledge worker fall into this category. Call center agents or service employees still work under the principles of manufacturing since they are not creating their incoming work. Although they are going to find a way to stay busy if they have not enough work incoming.