The Risks of Downsizing

There has been quite a bit of pontification about Elon Musk’s activities at Twitter. I won’t remark one way or the other because a) I don’t know anything about Twitter’s internal operations and b) I don’t really care.

It does bring to mind one thing, however, which I thought I’d pass along. There are risks in downsizing. Quite a while ago IBM conducted a study in which they found, possibly counterintuitively, that you may not increase productivity by downsizing.

In tech companies in particular it is a commonplace that a rather small percentage of staff are doing a remarkable amount of the actual work. You might think that lots of money can be saved by getting rid of the relatively unproductive and only holding on to the superproducers. In turned out it doesn’t work that way. There are social aspects to companies; people are not interchangeable parts. Sometimes what happens when you get rid of everybody but the superproducers is that the superproducers stop being so super. For one thing those apparently superfluous staff members may be allowing the superproducers to focus on what they’re good at and what they like to do.

6 comments… add one
  • jan Link

    That’s one perspective of downsizing, another is the simple act of separating the “wheat from the chaff,” meaning focusing on the substance rather than the frivolous. From Musk’s sporadic comments about Twitter, it seems his goal was to break down all the calcified dogma encrusting it’s social media platform, allowing for a more open and diverse forum to debate and/or discuss the issues of the day. Whether or not this will prove to be a media successful, or fruitful for his own pocketbook, remains to be seen. As for the thousands of employees jettisoned from Twitter, I often think “lean and mean” is better than “fat and lethargic” when it applies to most aspects in life, including business practices.

  • The key point is that it is empirically untrue that if 10% of the people do 90% of the work, you can save 90% of payroll expenses by only retaining the productive 10%.

  • steve Link

    I am hesitant to say too much about Twitter. Musk does have a decent record of success but this does seem different than what he has done before. A lot of what i hear is stuff that I think a CEO can do and make it work if they have built up a lot of credibility among the staff, which I dont see. It will also depend upon the job market. Finally, I dont think his other ventures have been so dependent upon advertisers, a much different clientele.

    Ads to the superproducers, having hired a couple of hundred people over the last 15-20 years, you really dont get to hire a superstar for every position. Even if you can it carries risks as they often have superstar egos and it turns out you need some people who actually know how to work together. For example my lead researcher is not my brightest doc (she is very bright) and her own individual research is good but not great, but she is amazing at getting people to work together. Then we have people who do the day to day grunt work that needs to get done. So I think your observation is true for a lot fo work well beyond the tech sector.


  • you really dont get to hire a superstar for every position.


  • CuriousOnlooker Link

    I have a different perspective.

    First, Musk didn’t intend to buy twitter. This all started as an attempt for Musk to sell Tesla shares without triggering insider trading issues or appearing to lack confidence in Tesla.

    But Musk didn’t reckon Twitter wanted to sell so he’s had to make the best of the situation.

    I don’t think Musk’s first motivation in layoffs is to reduce costs or increase productivity; rather it is to get rid of any internal resistance to his vision for Twitter and its company culture. And some of his proposals was bound to cause resistance — reorienting the business around subscribers instead of advertising; prioritizing increasing user engagement over regulatory concerns.

    To put some numbers in context. Twitter had 7500 employees; about 3000 engineers. Twitter’s DAU (daily active users) is 240 million.
    Whatsapp (which is owned by Facebook but run as a separate organization) has 50 engineers and has 2.2 billion users. Which implies
    Twitter has 60 times the engineers for 1/10th the users of another social network. Reddit has 700 employees for a comparable number of users as Twitter. Snapchat has fewer employees with double the number of users. Craigslist has 250 MAU (monthly active users), generates 20% of Twitter’s yearly revenue, and has 50 employees(!).

    My conclusion is if Elon wants to crank productivity up (as measured by users per engineer); he could go a lot further then the steps so far.

    If management of tech companies really really focused on efficiency (as opposed to growth) — it would shock people how lean some of these enterprises could go.

  • Drew Link

    “The key point is that it is empirically untrue that if 10% of the people do 90% of the work, you can save 90% of payroll expenses by only retaining the productive 10%.”

    True, but a banal, not a key, point. I don’t know any manager worth his or her salt who believes in a strict per capita expense reduction dynamic.

    Jan is closer to the essence. Organizations tend to grow, and grow more inefficient, due to human nature and basic organizational dynamics. They get fat while they engage in ever more non-vital functions. Periodic scraping of wheat from chaff, like clearing deadwood from a forest, is necessary.

    One need only look to the organizations that almost never engage in this cleansing to witness a case study in how they become bloated, bureaucratic entities that accomplish little but inefficient use of resources: government organizations.

Leave a Comment