In my decades in leadership, I’ve never had anyone tell me they needed fewer staff. Indeed, the constant refrain from all corners is how they need more staff. Every year in every company I’ve been at, the requests would pour in arguing that with more staff they could get more done or stretch out to do new things.  In some cases, it was undoubtedly true that groups could reach higher goals with more people. Certainly, managers were very skilled at making convincing cases that there was a dire need for more people.

Still, over the years I’ve noticed many times that things that once took four people to do, now often took fourteen, or forty. At times, the benefits of the extra staff are clearly visible. Other times it seemed like the same work was being done and the work expanded to fit the number of people. In software development, there is a maxim called Brooks’s Law: “Adding manpower to a late software project makes it later.” I think this applies not just to late projects, but to any project where the tasks are complex and not easily divisible.

And yet, companies, especially highly profitable ones, often add staff in enormous quantities. I recently read that after World War II, the USA had such control over the world economy that American companies, such as General Motors and Caterpillar Tractor, had tremendous clout and market share. As profits rolled in they started adding layers of management. When times are good, everyone asks for more staff, and when they have more staff, they want more managers to manage that staff. In the ‘70s and ‘80s, as the USA began encountering significant competition from abroad and the inefficiencies of added staff weighed on profits, companies started shedding management layers only under fierce pressure.

The net effect of shedding all those layers? Lower costs and more productivity. All those extra people were actually a drag on the system. We see the same thing going on with the major tech companies right now. For years, they hired large numbers of new employees. Because there was such a war for good talent, layoffs were difficult. If they had layoffs, it might send a sign of weakness and make it harder to get new employees; so, they kept hiring even when they didn’t need to.

In 2023, after a downturn in the tech market, these tech firms started laying off people. Once Amazon announced large layoffs, other tech companies quickly followed suit with over 100,000 employees laid off in the first two months of 2023. What was the net result of these layoffs? The tech companies doing the layoffs had lower costs, even after severance payments, and more productivity.

In short, the added layers of people were a drag on the company, not a benefit. This is in no way meant to say that the individuals employed were not good; many of them are top people in their field. Rather, it highlights that the tech companies over-hired to the point that they were not able to efficiently handle or utilize all the great talent they had.

In my Operations class given by Professor Eitan Zemel for my MBA at NYU, we did a manufacturing simulation using paper houses. Using Lean manufacturing techniques, this simulation clearly showed that, given the correct setup, four people could do more work, faster, with better quality and more customization than forty people. He talked about how having more than four people in this process line produced negative results. For this, and most complex processes, setting up new lines that were completely separate was the better approach to increase throughput.

Some of the principles I talk about in this blog can be tough to get people to understand, let alone implement at work, but the idea that efficiency could be bolstered by subtracting rather than adding people is one I seldom get any traction with at all. People assume that this is a universal truth: having more people working makes things go faster. In simple, easily divisible tasks, it is usually true. For instance, having more people raking leaves usually makes the entire process go faster.

Even with easily divisible tasks, once you have more people, then you need more coordination and more supervisors to tell people where to work and make sure groups don’t collide. When tasks are complex and not easily divisible, such as most software projects, then you need an army of product and project managers and layers of management to organize it. In business, rest assured that the extra people will feel they are essential cogs and they will insist that getting rid of them will spell disaster! Of course, removing people without changing the rest of the system might spell disaster since the system was built to handle that many people.

Interestingly, many companies founded in austere times, such as General Electric, IBM, and Proctor & Gamble, have done quite well. Recently, Airbnb and Netflix were founded during recessions.  I suspect that not having as many resources at hand forces you to think more creatively and avoid building in unnecessary layers. You will never find the optimal solution of four people building paper houses if you believe adding people is a plus to the process. Usually, only once austerity is forced upon people are they able to move to the more efficient solution.

As leaders we must be aware of the issue of over hiring, especially when times are good, and think carefully about whether more people will really get the work done faster.