The Pareto Principal is even harsher if growth is involved. 80/20 is at a smaller scale, but the generalized rule is that the square root of the number of causes are responsible for half the consequences. So if you have 10 employees, ~3 of them are doing half the work. If you have 100 employees, 10 of them are doing half the work. If your business grows from 100 to 1000 employees, now ~33 employees are doing half the work. In other words, “competence” and “incompetence” scale differently.
From a management perspective, this is a nightmare. Most of the time you won’t know who is doing half of the work, and if your org grows too quickly, the conditions from incompetence become unbearable for the productive few. Since they are valuable, it’s likely they will just leave and go be valuable somewhere else if it gets too bad, leaving you with less productive output!
Let’s say half of your high performers leave. Sixteen out of 33 represents 25% of your company’s productive output with 1000 employees. So, now your org is running at 75% capacity with 98.4% of your employees (and salaries) left. But now there are 31 employees still to identify who are doing half of that remaining productivity, so it’s a moving target.
Peter Drucker and Norbert Wiener have some of the more practical solutions to this problem coming out of industrialized corporatism and probably still largely applicable in “informationalized” corporatism. In general, my understanding of it is to just ensure the “incompetent majority” are comfortable and stay and accept it as a cost of doing business, but heavily reward and support anyone sharing information or asking questions in your organization. They are most likely to be in that “square root” category.
On a long enough timeline the key is employee retention since the most likely reason for the imbalance of productivity is that information tends to distribute Pareto, but it also compounds over time. If you aim to keep your employees as long as possible, the more informed they will tend to be, so when there are staff changes and productive people leave, or unprecedented growth occurs, you have an informed enough staff to recover from the temporary decrease in productivity, or rapid, unstable increase in demand for productivity. You also generally want to keep your employees at 60-70% capacity in times of stability so that if there are rapid changes (either up or down), they have additional capacity to absorb the extra demands on their attention without stressing them so much that their productive output suffers or they leave.
It’s also extremely important to be prepared to invest in training your employees since this increases the likelihood that you’ll have redundancy in the critical skills and information necessary for your org to be productive. A personal anecdote from my career is when I was working as a 911 dispatcher. I had a really interesting conversation with our head of training and her approach was that the department should be able to take any rando off the street and provide enough training that they could operate an emergency phone line/radio effectively. The training has to be that thorough for a legally critical position in such a high turn-over role. Unfortunately training is costly, takes a long time, and usually the first thing to be overlooked when setting budgets for the next 1-4 quarters, and most orgs do not have the resources to train in a timely manner. It takes 2 years to fully cross train a 911 dispatcher. Most companies will barely give their employees a week of training, if any.
The antidote to this is to allow your org to grow slowly, rather than at break-neck speed and invest in training by identifying and supporting your most productive employees and encouraging them to train others. Will this come with an initial reduction in their productive output? Absolutely, but it’s best to see it as an investment in redundancy of skills and information in your staff; that is to say, an investment in organizational resilience. Also another reason to keep your employees at about 60-70% capacity is so they have the bandwidth to formalize and articulate their processes to others and newcomers.
Chamath Palihapitiya (former Facebook Exec) has some really good interviews on youtube that discuss this idea that your company will last as long as the half-life of its growth. If your org grows slowly to 1000 employees over 10 years, it will last exponentially longer than a company that grows to this size in 1 year. I believe this is because it gives your employees time to absorb critical information for operating your company, and allowing that information to permeate through the org from the high producers to the low producers.
The Pareto Principal is even harsher if growth is involved. 80/20 is at a smaller scale, but the generalized rule is that the square root of the number of causes are responsible for half the consequences. So if you have 10 employees, ~3 of them are doing half the work. If you have 100 employees, 10 of them are doing half the work. If your business grows from 100 to 1000 employees, now ~33 employees are doing half the work. In other words, “competence” and “incompetence” scale differently.
From a management perspective, this is a nightmare. Most of the time you won’t know who is doing half of the work, and if your org grows too quickly, the conditions from incompetence become unbearable for the productive few. Since they are valuable, it’s likely they will just leave and go be valuable somewhere else if it gets too bad, leaving you with less productive output!
Let’s say half of your high performers leave. Sixteen out of 33 represents 25% of your company’s productive output with 1000 employees. So, now your org is running at 75% capacity with 98.4% of your employees (and salaries) left. But now there are 31 employees still to identify who are doing half of that remaining productivity, so it’s a moving target.
Peter Drucker and Norbert Wiener have some of the more practical solutions to this problem coming out of industrialized corporatism and probably still largely applicable in “informationalized” corporatism. In general, my understanding of it is to just ensure the “incompetent majority” are comfortable and stay and accept it as a cost of doing business, but heavily reward and support anyone sharing information or asking questions in your organization. They are most likely to be in that “square root” category.
On a long enough timeline the key is employee retention since the most likely reason for the imbalance of productivity is that information tends to distribute Pareto, but it also compounds over time. If you aim to keep your employees as long as possible, the more informed they will tend to be, so when there are staff changes and productive people leave, or unprecedented growth occurs, you have an informed enough staff to recover from the temporary decrease in productivity, or rapid, unstable increase in demand for productivity. You also generally want to keep your employees at 60-70% capacity in times of stability so that if there are rapid changes (either up or down), they have additional capacity to absorb the extra demands on their attention without stressing them so much that their productive output suffers or they leave.
It’s also extremely important to be prepared to invest in training your employees since this increases the likelihood that you’ll have redundancy in the critical skills and information necessary for your org to be productive. A personal anecdote from my career is when I was working as a 911 dispatcher. I had a really interesting conversation with our head of training and her approach was that the department should be able to take any rando off the street and provide enough training that they could operate an emergency phone line/radio effectively. The training has to be that thorough for a legally critical position in such a high turn-over role. Unfortunately training is costly, takes a long time, and usually the first thing to be overlooked when setting budgets for the next 1-4 quarters, and most orgs do not have the resources to train in a timely manner. It takes 2 years to fully cross train a 911 dispatcher. Most companies will barely give their employees a week of training, if any.
The antidote to this is to allow your org to grow slowly, rather than at break-neck speed and invest in training by identifying and supporting your most productive employees and encouraging them to train others. Will this come with an initial reduction in their productive output? Absolutely, but it’s best to see it as an investment in redundancy of skills and information in your staff; that is to say, an investment in organizational resilience. Also another reason to keep your employees at about 60-70% capacity is so they have the bandwidth to formalize and articulate their processes to others and newcomers.
Chamath Palihapitiya (former Facebook Exec) has some really good interviews on youtube that discuss this idea that your company will last as long as the half-life of its growth. If your org grows slowly to 1000 employees over 10 years, it will last exponentially longer than a company that grows to this size in 1 year. I believe this is because it gives your employees time to absorb critical information for operating your company, and allowing that information to permeate through the org from the high producers to the low producers.