When is the right time to hire new members for your team? It’s a tough decision. Everyone knows that you make a profit by making more than you spend, and one way to do this is by keeping your costs as low as possible. For a lot of organizations, their major cost is people, so it makes a lot of sense to add people only when you really need them, right?
So, when do you really need more people? Most leaders wait until their team is feeling considerable pain from being overstretched, and this usually results in lost productivity from fatigue, potential burnout, and sometimes turnover.
These are really expensive problems to have, especially turnover. Depending on who you listen to and the level of the team member, estimates of the cost of unwanted turnover run anywhere from 2X annual salary to 40X annual salary (crazy, right?).
Classic organizational design theory suggests that an organization is most efficient when it runs at 85% of capacity. Yes, you heard that right; the goal is not to run at 100% of capacity with no “wasted overhead,” but rather to have 15% extra capacity, or “slack.”
How does this make sense, you ask? Consider this example of the Acme Anvil Company, led by intrepid CEO Wile E. Coyote:
- Like many companies, he’s running at 110% of capacity (not 100% as he thinks).
- His team is already showing the effects of being overstretched (fatigue, loss of productivity, turnover, etc.).
- The sales department lands a great new deal that will increase revenue significantly but will also tax the company’s ability to keep the new customer happy and retain them over time.
- The company scrambles to hire several new people very quickly, resulting in some bad hiring decisions and ultimately poor performance and more employee turnover and overhead costs.
- Customer service and retention suffers for all customers, the company damages its brand in the marketplace, and revenues decline. As we all know, this situation is difficult to recover from. Rebuilding your brand is a long, tough road, and it’s not a situation you ever want to be in if you can avoid it.
- Build some “slack” into your business. Proactively run your organization at 85% of full capacity to retain your team members and to be able to take full advantage of greater success when it comes.
- Hire more people slightly ahead of your needs, not after you’re in a crisis, and take the time needed to hire great ones.
- Control your costs of course, but you’ll never achieve your greatest financial success through focusing primarily on cost control.