You don’t need all your employees. Elon Musk agrees.

A traditional metric for calculating how many employees you need is revenue per employee. But the measurement is very different between industries. Companies that sell software, for example, don’t need as many employees as people that sell consulting services.

But in general, do most companies really need all the paid employees? 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. Times change too. Outsourcing, gig-sourcing and working a little harder – the opposite of quietly quitting – can dramatically reduce payroll costs without affecting profitable growth.

Musk & Twitter/X

When Elon Musk bought what was then Twitter (now X), he promised to cut the number of employees by a whopping 50%. In fact, 6,000 workers were laid off:

“Twitter CEO Elon Musk said company has fired more than 6,000 employees, about 80% of its workforce, since it bought 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 is the “right” %?

Beyond Musk

Redundancies they happen all the time – even now:

• “iRobot layoffs: 31% of workforce laid off (January 2024)
• TIME magazine layoffs: 15% of editorial staff laid off (January 2024)
• Los Angeles Times layoffs: 20% of newsroom staff laid off (January 2024)
• Brex Redundancies: 20% of workforce made redundant (Jan 2024)
• Wayfair layoffs: 13% of workforce laid off (January 2024)
• Layoffs Levi Strauss & Co. (Levi’s): 10%-15% of workforce laid off (January 2024)
• Layoff dispute: 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)
• Layoffs Pitch: Two-thirds of workers laid off (January 2024)
• BenchSci Layoffs: 17% of workforce laid off (January 2024)
• Flexible layoffs: 38% of staff laid off (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 Redundancies: Almost 20% of workforce laid off (January 2024)’.

How about the companies that laid off the most once;:

• Microsoft – 18,000
• Hon Hai – 20,000
• Hewlett-Packard – 24,600
• DaimlerChrysler – 26,000
• Hewlett-Packard (Again!) – 27,000
• Bank of America – 27,000 & 30,000
• United States Postal Service – 30,000 (many 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
• US 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 laid off so many employees citing declining sales or market turmoil. Some hired more employees as they grew, and so it goes. But the real question is about job requirements and how creative companies can be with job estimates, job evaluations and sourcing strategies.

The equation of workers

I discussed all this a few months ago:

“How many of your employees are necessary? The only way you can answer the question is by knowing what each person actually does. Or asking a different question: how many of your employees are available? Auditing the process will answer these questions.”

“But the real questions have to do with what workers are doing at home or on Zoom. Bosses should monitor the activities and processes that take up all of their employees’ time (including their own). They should describe, evaluate and prioritize them. Procedures provide a window into necessity. Can processes be improved? Can they be reinvented? Can they be eliminated? Or can they be automated?”

The equation is simple: if # of employees needed is the dependent variable, the independent variables are:

• Revenue per employee
• Basic job requirements
• Alternative sources (including artificial intelligence)
• Individual productivity
• Ways of working

Most of the variance can be explained by these five variables. But if I had to guess, core job requirements and alternative supply would explain most of the variance.

Revenue per employee is an old metric that you can base your employee status on. Identifying and evaluating the key tasks that must be performed for profitable growth are essential to reducing headcount by revenue. Alternative sourcing models – outsourcing, outsourcing, co-sourcing, gig sourcing and digital sourcing with artificial intelligence and other technologies – are 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 company culture is where good ideas go to die, then the number of disengaged employees will remain the same.

It’s hard to imagine that the equation won’t yield any savings at all, especially as the applicability of genetic AI increases. The bigger the company the bigger the reward. Not to mention the actual restructuring that will yield even more savings. All also require good leadership. Maybe we should just hand it all over to ChatGPT and Gemini.