Peanut butter efficiency

Photo by Karolina Grabowska.

We know we need to train our managers. Most of them came up with the org and haven't had any formal training. But we also have some pending restructuring, so we're just wondering about how all that works?

There's the overt question and the covert question here. If you squint, you can spot it. But you have to squint.

Two years ago, Pending Restructuring might not have seemed so ominous. Maybe they had some teams that needed to shift focus. Or they had a VP who was about to get axed and their teams would get collapsed into a new department. Disruptive? Sure. But a surmountable and pretty standard level of disruption.

But in 2023, when execs reach out to ask us about Pending Restructuring? They mean one thing. And at this point, we don't even need them to say the words. It's practically tattooed across their faces.

The covert question goes something like: Is it worth it to invest in our bosses when we may have to lay them off anyway? Like a lot of orgs, we're making lists in anticipation of an across-the-board Reduction In Force. And our homegrown managers got promoted with no experience managing anywhere else. But, also, we never gave them proper training on how to manage their teams. Those folks have a bunch of important organizational context but are underperforming in their roles. What do we do with them?

Our theory of change has always been that bosses have an outsized impact on organizations. That if you equip managers with the tools they need and a clear idea of what success looks like, you can address major issues across the board. Not only within a single org, but if you reach enough of them, you can change entire industries. Because people job hop and bring best practices to their new roles. And those good ideas propagate outward.

The flip side is that underperforming bosses, left to underperform, often have flailing teams inside failing orgs. If you're in charge of one of those failing orgs, we understand why things might feel incredibly inefficient. It's frustrating. And you might want to shake things up. So much so that you write a letter to your staff and declare 2023 the "Year of Efficiency." And whatever else efficiency might mean, it's pretty clear that it'll involve an 8-11% layoff.

The fifth rule

The pat advice on layoffs is always the same, and it's fine as far as it goes. If it becomes clear that your company will need a layoff to survive, the four rules are: cut deep enough that you only have to do one; take care of your people on the way out; get the communication right; only do one.

But a lot of people — board members, investors, weird uncles who want to sound like operators — will whisper a fifth one to you. You've probably heard it. It goes, "Honestly layoffs are usually a gift. They help you clear out unnecessary hires that should never have happened in the first place. And they get rid of underperformers who weren't being managed properly."

So the gift of a layoff is that it gets rid of the individual we hired when we shouldn't have, or the underperforming employee who wasn't being managed. But unnecessary hires are a management failure, and so is chronic underperformance. What about the manager who made those messes? What about the culture that gave people management responsibility without the accountability to get this stuff right? How will the layoff change that?

If you're a Zuck apologist (and we should pause here and maybe ask why?) you might rush to point out that he talks about laying off managers, too. And no doubt, he does. But while the language he uses could be very selective here, it isn't. He doesn't say that the specific managers who have allowed underperformance to fester are going to be targeted. He says that management in general slows things down. That his model of efficiency is fewer layers of more heavily loaded management. Elon has said similar things at Twitter, for what it's worth. Whatever newsletter Mark and Elon read, we don't think it's this one.

It doesn't work out

We agree that underperformance is inefficient. But 8-11% peanut butter layoffs won't fix that inefficiency. There are orgs in the run up to their third round of layoffs, still struggling with underperforming teams. Because layoffs aren't an effective tool for addressing underperformance.

There's plenty of research on the point:

“Layoffs are definitely a confession of poor management,” Jeffrey Pfeffer, a professor of organizational behavior at Stanford Business School, told me. His reasoning: Research shows that generally, layoffs don’t improve a company’s fortunes. Quite the opposite: They don’t reliably raise a company’s profits or stock price, but they do reliably reduce remaining employees’ morale, commitment, productivity, and trust. University of Colorado professor Wayne Cascio, who has spent a career studying layoffs, concludes, “As a group, the downsizers never outperform the non-downsizers.”

This is not us saying that layoffs never make sense. Research like this always has some survivorship bias baked in, and situations do happen where the only choices are brutal cashflow management, or bankruptcy. But whether your company needs the layoff or not. Whether it is executed it brilliantly, or brutally. The thing we are telling you — the thing you need to know — is that it's not going to make you more efficient.

Hits to morale, commitment, productivity, and trust are not good for efficiency. Do you know what is, though? Managing underperformance directly and skillfully from the outset. Making hiring and promotion decisions that are well-aligned against clear objectives and team needs. Efficiency doesn't come from cutting people, it comes from cutting waste. And an organization full of engaged, well-aligned teams can be breathtakingly efficient.

We have a name for the skills and techniques used to build those engaged, aligned, and efficient teams. That's called management. It takes work to get good at it but, in an organization with more than a few people, there really isn't any substitute.

So if your problem is that you're out of runway — with your bank account, or your board, or your investors — and a layoff is the only way to make it through, so be it. We're sorry that you're there, and hope you can do it with grace. But if your problem is underperformance, a layoff isn't going to fix it. You need a management team that can do their job, or you'll end up back in the same spot again and again. Which is anything but efficient.

- Melissa and Johnathan