It’s no secret that we are on the leading edge of at best a recession, but potentially the worst depression in the last century. Coming out of the pandemic coupled with intense inflation and the unprecedented decline of brick-and-mortar stores, has created a future that is less than certain for many of the largest and oldest organizations in our country. Major technology companies, including Salesforce, twitter, meta, and soon Telsa are enacting massive layoffs. In retail and other non-tech-based firms, the IT team tends to be the first to feel the pressure given their lack of visibility, and as a matter of practicality, since the speed and availability of reports or further development of internal apps does not always have a direct effect on revenue.

With fairly little tech-literacy in the upper echelons of management, it is common to apply Price’s law to the IT organization as a whole. For those who don’t know, Price’s law is the idea that about half the productivity is generated by the square root of the number of members of the team. For example, this means that if you have a team of thirty-six knitters creating kitten socks, your top six kitten-sock-knitters are likely creating half of all the kitten socks. This is due to a combination of the experience (hours of practice knitting cat socks), talent (some knitters take longer to learn to speed knit kitten socks), and time to dedicate to overachieving (some speed knitters at any given time will have a chronic illness, or a young child at home, and their productivity will be affected.)

This is very difficult to use into practice.

I distinctly recall living through “rightsizing” in my first IT position. The director of the department was given a directive from the board of executives that IT needed to reduce personnel to one quarter of the initial team size. This is substantially more than any other department, since most IT positions are not considered “Mission critical.” The IT team, which was initially around sixty-five people, was to be reduced to under twenty. The project load was reduced by less than half. I was not privy to the conversations of the upper management at the time, but I’d bet dollars-to-donuts that someone had done the math that the square root of 64 is 8, and thought they were doing the IT department a favor by reducing the project load so much when they allowed us to keep twice that many team members.

What actually happened is that about half of the remaining team members walked out within the week. Several of those who had been laid off were called back in to replace them, but those that were kept were the top performers – any one of them could not be compeltely replaced with one other employee, though the budget only allowed for one to return to take up their mantle.

The burden was put on the remaining top performers with no compensation. It was expected that their workload wouldn’t increase, because management had so cleverly utilized Price’s law and decreased their project load by what they considered to be an appropriate amount. Any objections to this were considered to be “the usually whining of employees” even when it came from formerly trusted individuals.

Major project deadlines got missed. Company leaders all the way up to the C-suite stopped getting their reports debugged and apps updated, which was received as some form of rebellion. The technology team had barely enough manpower for maintenance let alone new projects. Within two years, only three of the employees that the department intended to keep remained at the company due to the increase in pressure coupled with lack of recognition. Server downtime took a decided turn for the worse.

Instead of making an intelligent decision regarding the prioritization of projects and investing only in top employees, like they believed they were doing, they lost nearly all of their top performers who were previously dedicated and loyal, halted the productivity of an entire department, and crushed employee morale all at once.

They made two major mistakes.

First of all, they looked at the IT department as one team. This is a dire mistake. Price’s law only applies when the team is performing similar duties. Most large IT departments have T-SQL developers, an app team, at least one DBA, a hardware team that handles laptops and internal troubleshooting, at least one security expert, a network team that handles physical servers, and a business analytics/project management team that primarily translates geek-speak to English and ensures timelines are met. These are not generally interchangeable positions, so Price’s law does not apply to them collectively.

To explain in non-tech terms, it’s the equivalent of walking into a franchised restaurant, and calling it the “food department” since none of them handle marketing, sales, or product development. Then, upon seeing there are sixteen employees accounting for two managers, four cooks, two dishwashers, six waitresses, a hostess and a busser, then assuming that, since the square root of sixteen is four, about six of them can run the restaurant and still serve nearly the same number of customers.

To run the same restaurant on six employees, the busser and hostess would likely be immediately cut, the waitresses can pick up that load. We still need at least one dishwasher, but the other can go, and so can one of the managers of there are so many fewer people to manage, though someone still needs to keep track of the books. That is four employees gone, we still need to cut six more. We can’t go below two cooks, or else the restaurant would have to close every time the cook gets sick, which leaves us with two waitresses as well. How long could the restaurant, which previously had the need for all those employees last with one manager, two cooks, two waitresses, and one dishwasher? That is what the organization did to their IT team.

The other mistake organizations make while attempting to apply Price’s law is attrition. According to the Academy of Management Journal, laying off just 1% of your employees results in an increase of attrition of over 30%. If you expect to keep only your best employees, then you must also expect to lose many of those that have not been laid off, and you will not get to choose which of those employees stay.  This does not mean you should keep underperforming employees, but this article has already gotten quite long. Be on the look-out for another article on how to determine the right amount of rightsizing.

For now, before implementing Price’s law by doing away with a whole department, please first considered the attrition and account for it when making layoff decisions, and remember to account for each team in your calculations, and not the department as a whole.