Can you really fire 70% of a company?
Aka: what's the deal with bureaucracy? Aka: solving the right problem.
Tech CEO Elon Musk has been in the headlines for months with his purchase of Twitter and subsequent changes. At least personally, the one I get asked about the most is the dramatic reduction in headcount (more than 70% by some accounts). That begs the question: is this actually possible, let alone a good idea? Isn't he bound to fail?
Paul Vick (@panopticoncntrl) tweeted:
A lot of tech CEOs are apparently smug about the fact Elon canned 3/4 of his workforce and Twitter is still up. But I think it's going to be more like Southwest Airlines where it's all going to run fine… until it doesn't.
This tweet captures a lot of the sentiment on both sides of the argument.
But it also misses the more important question: it's not "can you cut staff and still run a company"? The real question is, what problem are you trying to solve?
As a former CTO of AOL, I have firsthand experience with large scale headcount reductions within a company. There is no getting around how tough that was, particularly for those impacted. But it was also existential for the company--we had to do it to survive. And survive it did--many of AOL's products are still alive over a decade later.
There are three fundamental forces at play here:
Owners (sometimes, but not always, represented by the CEO and senior executives).
Each has a valid and compelling frame of reference.
From the employee side, start with the perspective that all jobs within a company are legitimate and valuable. Each employee was likely hired to fill a specific need and is currently busy with work. Furthermore, somebody took time, effort, and energy to get the position approved and budgeted. Someone took the time to recruit and hire that employee. Someone is taking time to manage that employee. By and large, someone or many someones care about that employee and their work.
After all, when is the last time you spoke with a friend working at a big company, and they said: "well, my job is stupid, and I don't have anything to do." Not very often.
There is a natural and healthy evolution of successful products and companies. Invariably, the first iteration cuts corners somewhere. Here is a picture of Windows 1.0, for example! It has clearly improved over the years!
That success leads to growth, hiring more people, filling missing capabilities, and so forth. There is a series of evolutionary refinements that go beyond the initial innovation. If you have ever had the opportunity to drive a luxury car like a Porsche, you can literally feel the decades of refinement in the driving experience.
Most of you probably use Microsoft Word. I doubt many of you would willingly go back to using Microsoft Word from 1995. The current version is a very refined and polished product. Yet if I asked you what single feature you could not live without, you likely would say "automatic spell check." That feature was introduced in 1995!
Similarly, if I asked you what new features Microsoft added to Word in 2022, I suspect most of you would be hard-pressed to answer. Finding this information on the Microsoft website is surprisingly hard--thankfully, someone posted a video:
Formatting in comment fields!
Over time, it is easy to hit diminishing returns on product refinement. These refinements are valuable to at least some set of customers--there is usually a pretty rigorous feature prioritization process! But those incremental refinements often lack the same punch as the original innovation.
A similar phenomenon happens with governments and government bureaucracy. Those of us in the United States will soon start preparing for our annual federal income tax exercise. The tax code is unbelievably complex. Many of those rules came about to address issues and corner cases arising from clever people trying to reduce their taxes.
If you have ever had to do government contracting forms, there is a similar level of complexity. Even the number of pages, font, and font size to be used are often specified. Somebody somewhere in the past undoubtedly tried to submit a massive proposal. That led to a rule about page length. Then some other clever person used a small font. Thus, the rule on font size. There are over 2300 pages of rules for government contracting (and that’s just the base; the Department of Defense has another 1000 pages of additional rules).
Refinement upon refinement.
This iterative refinement works for a while until a disruptive change is on the horizon.
This is where the customer dimension comes in. It is easy to think of customers as a more uniform, homogenous group—witness the endless trove of business slogans: "Be customer focused. Customers are our number one priority. Customer-driven."
The reality is much more complex, as we all know. Some customers want no change at all. Others want incremental refinements. Another group may wish for more radical improvements (cost, functionality, etc.). Even within those groups, there is a tremendous diversity of opinions, wants, and needs. We had a saying inside Microsoft for many years: "No one uses 100% of the features of Office, but every feature is used by at least someone".
The incremental planning and refinement process discussed above is typically very effective at balancing the needs of current customers—that is why so many companies do it!
The challenge is disruptive change. That disruptive change can be on some cost of performance basis (e.g., think of the original introduction of gmail.com offering 1 gigabyte of storage when competing email products offered 2MB: a 500:1 performance increase). Sometimes it's entirely new categories of functionality, like smartphones or AI and blockchain technologies in today's world.
It can be difficult to navigate those different customer needs, particularly when the disruptive technology would force a significant change in the company.
In one of the very best books on this topic, "The Innovator's Dilemma," Clayton Christensen explores the challenge that successful companies can face in adapting to new technologies or market changes. I highly recommend this book if you haven't read it yet.
Let's consider the earlier example of Microsoft Word. I no longer use Microsoft Word--and that transition happened extremely rapidly. Whereas before, I would use Word nearly daily, today, I use a combination of chatGPT and Grammarly for all of my writing tasks. The combination is stunning: it has greatly improved not only the speed with which I can write but also the quality.
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