A traditional metric for calculating how many employees you need is revenue per employee. But the metric is very different across industries. Companies that sell software, for example, do not need as many employees as people who sell consulting services.
But across the board, do most companies really need all of the employees they pay? The premise here is that they don’t, and that traditional revenue/employee metrics are irrelevant to productivity and profitability if companies are willing to take an objectively hard look at payroll. The times are also changing. Outsourcing, gig-sourcing and working a little harder – the opposite of quiet quitting – can dramatically reduce payroll expenses without impacting profitable growth.
Musk & Twitter/X
When Elon Musk purchased what was then Twitter (now X), he promised to reduce the number of employees by a whopping 50%. In fact, 6,000 employees were laid off:
“Twitter CEO Elon Musk said the company has laid off more than 6,000 employees, around 80% of its workforce, since he purchased the company late last year and began aggressively cutting costs.”
Can a company lay off 80% of its employees and still operate? While 80% is obviously extreme, what’s the “right” %?
Beyond Musk
Layoffs happen all the time – even right now:
- “iRobot layoffs: 31% of workforce laid off (January 2024)
- TIME magazine layoffs: 15% of editorial staff laid off (January 2024)
- The Los Angeles Times layoffs: 20% of newsroom staff laid off (January 2024)
- Brex layoffs: 20% of workforce laid off (January 2024)
- Wayfair layoffs: 13% of workforce laid off (January 2024)
- Levi Strauss & Co. (Levi’s) layoffs: 10%-15% of workforce laid off (January 2024)
- Discord layoffs: 15% of workforce laid off (January 2024)
- Pixar (Disney+) layoffs: <20% of workforce layoffs announced (January 2024)
- Amazon Twitch layoffs: 35% of workforce laid off (January 2024)
- Treasure Financial layoffs: 60-70% of workforce laid off (January 2024)
- Unity layoffs: 25% of workforce laid off (January 2024)
- Pitch layoffs: Two-thirds of employees laid off (January 2024)
- BenchSci layoffs: 17% of workforce laid off (January 2024)
- Flexe layoffs: 38% of staff eliminated (January 2024)
- NuScale layoffs: 28% of staff laid off (January 2024)
- Trigo layoffs: 15% of workforce laid off (January 2024)
- Xerox layoffs: 15% of workforce laid off (January 2024)
- VideoAmp layoffs: Nearly 20% of workforce laid off (January 2024)”
How about the companies that sacked the most at one time?:
- Microsoft – 18,000
- Hon Hai – 20,000
- Hewlett-Packard – 24,600
- Daimler Chrysler – 26,000
- Hewlett-Packard (Again!) – 27,000
- Bank of America – 27,000 & 30,000
- United States Postal Service – 30,000 (a number of times)
- Boeing – 31,000
- Ford – 35,000
- AT&T – 40,000
- General Motors – 47,000
- Citigroup – 50,000
- Sears/K-Mart – 50,000
- IBM – 60,000
- U.S. Army – 70,000
These are the record holders (so far). But what do you notice about these companies? They’re all still around in one form or another. Some of them are the most valuable companies in the world. They explained why they sacked so many employees by citing declining sales or market turbulence. Some hired more employees as they grew, and so it goes. But the real question is about labor requirements and how resourceful companies can be with their labor estimates, task assessments and sourcing strategies.
The Employee Equation
I discussed all this a few months ago:
“How many of your employees are indispensable? The only way you can answer the question is by knowing what everyone actually does. Or by asking a different question: how many of your employees are dispensable? Process auditing will answer these questions.”
“But the real questions have to do with what employees are actually doing at home or on Zoom. Bosses should audit the activities and processes that occupy all of their employees’ time (including their own). They should describe, assess and prioritize them. The processes provide a window into necessity. Can the processes be improved? Can they be reinvented? Can they be eliminated? Or can they be automated?”
The equation is simple: if the # of necessary employees is the dependent variable, the independent variables are:
- Revenue per employee
- Essential task requirements
- Alternative sourcing (including AI)
- Individual productivity
- Ways of working
Most of the variance can be explained by these five variables. But if I had to guess, essential tasks requirements and alternative sourcing will explain most of the variance.
Revenue per employee is an old metric that can baseline your employee situation. The identification and assessment of the essential tasks that must be performed to profitably grow are necessary to reduce the number of employees by revenue. Alternative sourcing models – insourcing, outsourcing, co-sourcing, gig-sourcing and digital sourcing with AI and other technologies – is the next step, followed by an assessment of how well the team is performing. Finally, a company’s ways-of-working will also determine how many employees are necessary. If employees sit in meetings all day and the corporate culture is where good ideas go to die then the number of employees with nothing to do will remain the same.
It’s hard to imagine that the equation will not yield any savings at all, especially as the applicability of generative AI grows. The larger the company the bigger the payoff. Not to mention real restructuring which will yield even more savings. It all also assumes good leadership. Maybe we should just turn it all over to ChatGPT and Gemini.
