The 20/40/40 Hypothesis of Human Capital

Or How To Bolster The Passion and The Productivity Of The Vital Few.

Caveat: This author is using the term “hypothesis” because, indeed, this posting posits a hypothetical idea. The science here is borrowed. The invitation here is that someone, probably an ad agency, will take a serious look at the idea and test it … even if only as a thought problem. So consider this a jump ball tossed into the air to see what kind of game will ensue; an invitation to prove the hypothesis right/wrong.

Now to the 20/40/40 Hypothesis

Observation 1: Consider an ongoing Gallup Poll regarding employee engagement. It would be alarming to almost anyone who owns and operates a business today to have the poll declare as recently as 2014, that 70% of a company’s employees are marginally engaged in their work. Think about that. SEVENTY PERCENT! Clearly something is awry in today’s work culture. (Actually, there may be many CEOs who recognize this and are struggling with the ramifications, with or without the Gallup statistics.)

Observation 2: Consider the Pareto 80/20 Principle, which is bandied about in an untold number of conversations and situations, related to an equally uncountable number of inputs. The Pareto Principle suggests that 20 percent of the causes are typically responsible for 80 percent of the effects. Or in the case of this discussion, 20% of the work force (the vital few) produces 80% of the outcomes. This is a principle broadly accepted, and applied to all sorts of scenarios. Not merely human capital.

The principle is a crude measure of productivity:

  • 20% of your staff is super-productive.
  • 40% is marginally productive.
  • And 40% is not very productive at all.

Your work model is far less efficient than you’d like it to be. Regardless, it is responsible for 100% of your productivity/output.

Conclusion: The 20/40/40 Hypothesis. The premise is really quite simple. Given a squish factor of 10 percent, these two sets of numbers may actually align rather neatly. Imagine that the 30% engaged and the 20% productive may be largely the same group. Imagine that the 70% disengaged and the 80% marginal may also loosely match up.

What if this 40/40 population could be more flexibly managed at a lower cost? If one allows the parallel, this convenient alignment may indicate the implementation of a different staffing model.

The result: (could be) greater profitability, which echoes the observations Drew McLellan and Tim Williams hammer away at on LinkedIn and elsewhere.

Steal Yourself. Be As Objective As Possible. Take The Following Three Steps

Caution: this recommendation may come off as a rather brutish. But if one recognizes and acts on the downside of empathy (as admonished by Paul Bloom), these three steps will prove quite rational.

  1. Identify the passionate, productive core of your work force. The head count may well likely prove to be about 20% of the staff. In most case, there will be very little debate about the folks who make up this group. (There may be a little angst around the edges; and a lot of angst if some of the stragglers are founders or top execs!)
  2. Divide the remaining 80% in half. Roughly half will wind up in the dedicated-but-not-necessarily-devoted-git’r’dun camp that is vital to operation. The group is crucial, but rarely is any one individual crucial. If he or she is vital, move the individual to the 20% group. Members of this “40%” are replaceable. Then, with as much grace as possible, list the remaining half who will fall into the take-it-or-leave-it camp. Members of this group are not only replaceable, they may well be disposable! Some of these members may even be actively resisting the corporate party line, mission, vision, purpose. Painful to admit? Yes. (See Gallup Poll.) Daresay, we all have seen this situation in action; in spite of all the denial we can muster. If your rational mind has seen you through to this point, your original 100% is delineated as 20% core, 40% utility players who earn their keep; 40% hangers-on who just cash the check.
  3. Augment that 40% support pool with another 40% flexible pool, an outside work force that produces — on-demand — some or all of what workers did in the original 80%. Regarding the last 40%, you out-source, open-source, crowd-source vetted, freelance/free agent talent as needed. They are out there. Connected, experienced, disciplined, prepped and eager to deliver. Boom.

Now you have a new “100%,” all of whom are “on the hook, but not necessarily on the books.” Leverage, reward and challenge the 20%. Engage, encourage and test the 40%. Plug and play the remaining 40%.

Note: Use of the term “augment” may be presumptuous. It’s accurate and a more evocative term than say, “supplement.” However, given the accelerating prospects for AI, there may soon be tasks/roles performed in either or both of the 40% groups that might be satisfied by technology rather than, gulp, a human worker. Yeah. Scary. Inevitable.

Of course … Like Pareto’s Principle, this is a “rule of thumb” game.

Percentages are general and likely vary from business category to business category. There will always be exceptions, for short runs if not for long runs. This model could work in ad agencies and marketing departments — for sure. Not the least of which because there are open-source models already in place to tap. In other industries, it’s already at work. Factories are a proving ground for the increasing role robotics and AI will play in the mix. If nothing else, this hypothesis may serve as stimulus for a hard-nosed, rational look at whatever your current staffing model may be.

Aside: What happens to the members of the disenfranchised 40%? Wow. They are already clearly not achieving contentment through work. They are in the wrong job. They just haven’t invested enough of themselves and their interests/capabilities to find meaningful employment. Or … and this is the painful reality of today’s world of work … industry is not providing the appropriate opportunities for them. And that is a very real challenge that is only going to be amplified by software, automation. The 20/40/40 Hypothesis merely shines a spotlight on what is an emerging problem for our society.

Moving on: Again, this is a test. Try it. Heck. It may just be a worthwhile distraction from whatever you (company exec) are thinking about now. Because you know you’re seeking something different, unexpected, smarter in this whacked out, digital, 21st century world of work.

The 20/40/40 Hypothesis might just let your core people do what they do best: conceive, create, design, relate, solve; generate the distinct product or service your company/brand exists to deliver! Without the distractions that side track their focused energy and talent. That group is bolstered by a second group that helps execute or sustain repeatable components or utility functions, boosting the productivity of the core. Then, an utterly flexible third group plugs and plays as needed for fresh outside thinking, stimulation, volume or even and crudely, the mundane tasks that free up the core to keep doing its thing.

Now Maybe We Have The 80/120 Rule!

The “units of measurement” are different here. But now maybe your total work force is running at 80% efficiency, and your company’s productivity is 120%! (Better get a genuine economist on that.)