In a large project-led enterprise, leaders are usually not empowered to say “no” to work requests. To say “no” is career suicide. Instead, IT is asked for estimates of what it will take to complete the project requests they receive. These estimates are used to justify funding work. The funding is used to hire people as capacity thought necessary to complete the project.
In a large enterprise, there are often many, many small projects for which the total estimate is below the threshold to receive much attention. There could be hundreds or thousands of projects approved for work creating funded demand for capacity.
The IT organization hires more people to create capacity.
If the organization’s rewards system is rewarding those who create new projects for having more ideas, then the number of work requests asking for funding will also increase, potentially increasing the number of funded demands for capacity. If the organization requires a minimum number of direct reports to qualify for the higher social status, pay, and benefits of a higher level title, then leaders are being encouraged to hire more people who create more funded demands for IT capacity, and IT is being encouraged to always meet that demand.
Theoretically, IT capacity will expand into infinity.
This cycle may be allowed to continue on as normal. This is a death spiral of increasing cost, decreasing quality, decreasing delivery, increasing overhead, and increasing time to market.
This is not normal.
Finally noticing the problem of excess costs and overhead, management higher up will attempt to take corrective action. Instead of investigating the dysfunctional rewards system, the dysfunctional requirement for a minimum number of employees per manager, and the inability to prioritize and prune work requests, the most common action taken is a reduction in force (RIF) aka a percentage layoff across the board.
You have seen this before when you have read a story about a large company getting a new CEO who restructures the costs of the organization and removes waste by reducing the size of the workforce. The news story will usually report that investors and financial analysts responded positively to the news and share price increased. Everyone will be very happy with this news.
No one should be happy about any of this. Why? And what should you do instead?
The Effects of Increasing Capacity to Meet Unlimited Demand
As more people are hired, costs increase due to the linear increase in salaries and employee support. Costs also increase in other ways that often only show up on the bottom line of financial statements and are hidden among the various accounts of the company. These costs are difficult to see and are rarely covered.
Increasing the size of a workforce often does not result in increased capacity. Instead, capacity decreases as the new people induce chaos and extra overhead into the organization due to their training needs, unfamiliarity with the working environment, and lack of access to physical spaces, tools, supplies, and in a virtual remote-work environment, access to people. By adding more workers, we temporarily reduce our existing capacity as Brook’s Law is observed.
Depending on how we structure the organization, adding these additional people to existing teams so that the teams balloon beyond their normal size of 8-10 people to more than that may cause longer-lasting and even permanent loss of capacity as larger teams struggle with increased overhead due to communication difficulty and the complexity of managing so much work among so many people.
Increasing capacity to accept additional demand means there is more work in-flight at any given time. The more work in-flight, the more complex the environment, the more overhead for coordination is required, and the more likely the complexity will cause increases in defects. Defects should be expected to rise substantially following an increase in capacity and work without making significant efforts to ensure that the new capacity is compartmentalized away from the existing groups. Any dependencies arising between teams and systems caused by the increase in capacity should be expected to increase costs and defects.
Defects have a terrible cost associated with them: rework. Each defect is a completed work item that must now be worked again. Reworking items costs capacity. While the organization is adding physical workers to the system, the defects arising from this activity can eat that capacity and cause it to go even lower.
An organization with functional silos and no compartmentalization of value streams away from one another will also see delivery decrease and time to market times increase as the amount of work in the system increases. As work-in-process (WIP) increases, time to market slows. More work in the system means more collisions, more overhead, more questions, more complexity, and more obstacles to overcome.
The Effects of the Inevitable Layoff
When the problem but not the cause is discovered, management will want to take action against the oversized organization with too much overhead. The usual solution is a layoff. Layoffs have many negative consequences beyond the feelings of those who lose their jobs:
- Announcing a layoff messages weakness, and top performers will take it as a hint to vacate the business. With the bottom laid off, the top on the way out, the organization is left with mediocre performers suffering a loss of innovation.
- The layoff itself breaks relationships which are often invisible to management and used to get things done.
- The layoff causes a temporary reduction in capacity due to increased stress levels of those who remain. “Am I next?” Syndrome causes many water cooler conversations the business ends up paying for.
- With capacity removed from the organization in one large action, more valuable lines are impacted along with less valuable.
- The layoff does nothing to solve the problem that caused the large organizational overhead and size. It is more like taking the leaves off of a weed temporarily. The organization grows right back.
- Unhealthy behaviors can emerge among leaders who seek to insulate themselves and their people from future layoffs such as gatekeeping capacity, inflating estimates, and hiding top performers from organizational career paths to prevent them from being taken.
- In an organization with high morale, a layoff can break trust and goodwill from employees toward management and the company itself.
Layoffs do harm to the organization the same way that seeing a wound on a limb and then amputating to solve the problem can do to a person. The immediate problem is solved, but it is a sloppy, crude solution that often causes more problems than it solves when done without extreme precision.
Limited Capacity Value Prioritization
The solution to all of this is to reform the system itself so that the rewards for creating lots of work are removed and saying “yes” habitually is done away with. The solution here is Lean: work only on those things which are most valuable. Everything else that is lower in importance should be placed below a threshold for work and not done.
Even in a project-led organization that has made no moves to product-led restructuring can benefit from simply putting all work requests in a single-file list from 1 to N and drawing a line below the top ten items and declaring anything below that line will not be built. To be built, an item must wait its turn to float upward. Items not yet being worked which lose importance compared to newer ideas float downward, potentially below the line to be ignored.
This is basic backlog management. It is a simple idea. It is very, very difficult to enact. It requires political willpower to push back against rewards systems that count things like new ideas or project requests in favor of measuring value achieved compared to goals. It requires functional authority to be able to change the rewards system and work with high-ranking stakeholders to ask for a well-ordered list of requests with those below a certain line being ignored. And, the most difficult of all is drawing the line itself in a reasonable place where most work falls below it.
Summary
When leaders are rewarded for making a large number of requests and increasing the capacity of the organization to meet that demand, the organization will continue to expand. The expansion will cause many problems such as longer time to market, more defects, increased overhead costs, and lost capacity despite the hiring of additional workers. The solution of laying off excess workers in large cuts appeases stock markets, but rarely solves the problem. The solution instead is to limit the work permitted to enter the system to only the most important, limiting the work that is allowed in process, and empowering the organization.
