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Reducing headcount can improve productivity, and here is why you should fight the urge to do a hiring spree

Is your organisation sluggish, and is employee morale at an all time low?

Many times, I have seen that the organisation’s performance slows down drastically. Frantic hiring continues but doesn’t solve anything significant. The swift ‘cheetah’ organisation becomes bloated and sluggish like sloths. Ironically, when they were very small and deprived of resources, they used to be very fast!


The core issue could be lack of deeper insights on people and poor management also.

The vicious cycle of “Need to hire more”

“Vicious cycle creates an artificial hiring need by depicting a virtual (not real) scarcity of people.”

When questioned about low performance, the management cites lack of people as the root cause and ramps up hiring further. More people get added, mismanagement increases and company performance spirals down. This cycle continues over and over again. Every cycle through this further deteriorates performance and escalates costs.


More often than not, companies are stuck in the above vicious cycle. To make the matter worse, they do not even know that they are stuck in this!

Categories of employees (as car engines) in any organisation

“A company is nothing but a set of employees, who are working as engines to thrust the company forward.”

Categorise all employees (car engines) into one of following buckets:

  • Self Driven well-oiled engines (SD) – They are self-driven responsible members who do the heavy lifting of tasks. They know how to see opportunity in any problem and drive towards that. They are in “Solver mode” always and remain focused on solving real problems. They power the forward thrust of the company.

  • Externally Driven well-oiled engines (ED) – They are highly efficient engines, but they need an external kick and maneuvering. They are very strong contributors when given right leadership and direction. Once started and directed clearly, they add significant value to the forward thrust of the company.

  • High Maintenance working engines (HM) – By analogy, these engines consume a lot of management fuel, produce a lot of sound and smoke and move very little. They come in “victim mode” very quickly. They need to be pushed and motivated almost every couple of day. They create negativity in the system and impact the morale of others also. Their net impact on company’s forward thrust is negative.

  • High Friction engines (HF) – These are perennial pessimists and whiners. They always remain in “victim mode” and find ways to be unhappy. These engines are so dysfunctional that they start working as brakes in the system. Left unchecked, they spread lots of negativity and impact morale all across. They are super negative contributors to forward thrust of the company.

Net Thrust Score (NTS) – Identifying if you are in the vicious cycle

Hiring needs can be both genuine and artificial based on whether you are in stuck in the vicious cycle or not. Calculating the NTS can help you determine whether your org is in the vicious cycle.


Thrust Score (TS) of employee: This number signifies whether the employee is helping or impeding the progress. Write a productivity number for each person, considering the output he created and cost system had borne to get that via him. Cost borne can be management bandwidth, morale impact etc.

Example case:

Say you have 20 employees and out of them, 5 SD, 8 ED, 5HM and 2 HF employees. Say to simplify and bucketise, we decide that Thrust Score (TS) for SD is +20, for ED is +15, for HM is -5 and for HF is -20.

  • Net Thrust Score (NTS) of org = sum of TS of all (SD+ED+HM+HF) employees = (5 x 20) + (8 x 15) + (5 x -5) + (2 x -20) = +155

  • Ideal NTS = All 20 are SD employees = 20 x (+20) = +400

  • Expected (realistic) NTS = 5 SD + 15 ED employees = (5 x 20) + (15 x 15) = +325

Result:

  • NTS (+155) < Expected NTS (+325) means company is in vicious cycle of “Need to hire more”. Generated thrust is not justifying the ROI of employee strength.

  • The company must be struggling with massive negativity and low morale.

Measures to break the vicious cycle of “Need to hire more”

A proactive action is needed to uproot this widespread disease in the industry. The following actions can help break the vicious cycle and sustainably stay out of it.

Action #1: Let go of High Maintenance (HM) and High Friction (HF) employees.

Recalculate the metrics for the remaining employees.

Net Thrust score (NTS) = (SD’s + ED’s) score = (5 x 20) + (8 x 15) = +220 (increased from +155)

Total employees = 13 (reduced from 20)

Result:

  • NTS (productivity of org) increased from +155 to +220. Employees reduced from 20 to 13.

  • So, per employee ROI also improved from +155/20 to +220/13.

  • So, “Reducing headcount” can also improve the whole org Productivity and per employee ROI.

  • Assuming 20 employees is needed capacity, the NTS (+220) still < Expected NTS (+355). So next actions needed.

Action #2 – Realign and redistribute resources where needed.

At this stage, the needs of various functions are clear. Many times there is excess in one part while scarcity in the other. Align resources where needed.

Result:

  • Productivity improves further as under/over-resourced areas are taken care of.

Action #3 – Hire positions deliberately after proper need-gap analysis.

Hire deliberately with clear insights into the organisation resourcing. Never hire by default as soon as pressure for performance comes.

Result:

  • Org gets replenished by new and replacement hires.

  • NTS will start moving towards the Expected NTS.

Action #4 – Repeat actions (#1-#3) quarterly in all sub-organisations.

Review manpower and NTS regularly (say quarterly). This self-correcting process will always keep the organisation fit and fast.

Result:

  • The system sustainably remains out of the vicious cycle of “need to hire more”.

  • Productivity, morale, and cost always remain under control.

Conclusion

Reducing headcount improves ROI. Productivity improves and cost reduces. Employee morale and sense of ownership become stronger. A culture of excellence begins to encompass the company.

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The article is based on my execution experience in startups. The startup experience spans SlideShare (acquired by LinkedIn), OYO, Knowlarity, and Offers4Groups.

Featured Image Copyright: khosrork / 123RF Stock Photo

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