My mental model is that businesses grow approximately until the marginal cost of adding another employee is higher than the marginal benefit. This can combine with the advantages of scale that companies have to produce surprising results.
I think this really goes to the heart of the matter (and the dominance games the OP posts about are merely one common form this takes because humans are apes in clothing).
The important part to internalize is: in a terminally-large organization, the n-th person hired brings a net-value to the company of ~0 and 50% of employees are below average!
So, even if you live in a world of only JohnWentsworth’s, companies will continue to hire until adding more people no longer adds value. The first John is presumably put to work on some extremely important and valuable problem that brings in a ton of value for the company. And the 2nd John, etc.… But by the time you get to John 1,567,793 the company is starting to run out of good ideas for what do do with John. So they put the new Johns into marketing or “brainstorming” or maybe one of the Johns is tasked with “employee success” and told to just go around looking for things that might possibly improve the productivity of other Johns in some way.
Now maybe John 1,567,793 doesn’t play weird status games or brag about how many Johns he has under him. Maybe John has some other failure mode (one particularly common among bright people I know is trying to solve problems that have nothing to do with success). But economics dictate that there is a 50⁄50 chance John 1,567,793 is working on something that is obviously wasteful to an informed outsider (but not in a way that is legible to the shareholders). Most likely John 1,567,793 himself knows that what he is doing is wasteful, but who is going to volunteer the information “actually I shouldn’t have a job/be paid this much”.
“But why doesn’t the company just fire the useless Johns?”
Maybe they do. Maybe the company periodically hires an outside consulting company that finds all of the Johns producing <0 value and fires them. But then economics dictates that the company hires more Johns until the net value to the shareholder from adding 1 more John is 0 again.
You might say “this is clearly wasteful, we should have a rule that says companies can’t grow above size X” so that this doesn’t happen.
But, remember, this outcome is the one that maximizes shareholder value. Your rule may be aesthetically pleasing, but it’s basically just price controls for number of employees. You’ve banned something that looks bad, but at the cost of making the total economy less efficient.
Moral of the story: in a world where corporations are optimally large, we should expect:
50% of new hires bring negative net-value to the company
Many roles at a company are obvious bullshit jobs that produce nothing of value
Companies frequently could add large amounts of value by firing useless employees
Marginal employees engage in games/self-deception to hide the fact that they are useless
Any method you might use to fix this problem (gov’t regulation, advice for startup founders) will fail to make the problem better (and most likely make something else worse)
As a smart/motivated individual you are personally much more likely to be successful/useful at a small/growing company than a large established one
It seems to make sense that if hiring an additional employee provides marginal shareholder value, that the company will hire additional employees. So, when the company stops hiring employees, it seems reasonable that this is because the marginal benefit of hiring an additional employee is not positive. However, I don’t see why this should suggest that the company is likely to hire an employee that provides a marginal value of 0 or negative.
“Number of employees” is not a continuous variable. When hiring an additional employee, how this changes what the marginal benefit of an additional employee can be large enough to change it from positive to negative.
Of course, when making a hiring decision, the actual marginal benefit isn’t known, but something one has a belief about how likely the hire is to provide each different amount of value. I suppose then one can just consider the marginal expected benefit or whatever wherever I said “marginal benefit”. Though I guess there’s also something to be said there about appetite-for-risk or whatever.
I guess there’s the possibility that: 1) the marginal expected benefit of hiring a certain potential new employee is strictly positive 2) it turns out that the actual marginal benefit of employing that person is negative 3) it turns out to be difficult for the company to determine/notice that they would be better off without that employee
and that this could result in the company accumulating employees/positions it would be better off not having?
I think this really goes to the heart of the matter (and the dominance games the OP posts about are merely one common form this takes because humans are apes in clothing).
The important part to internalize is: in a terminally-large organization, the n-th person hired brings a net-value to the company of ~0 and 50% of employees are below average!
So, even if you live in a world of only JohnWentsworth’s, companies will continue to hire until adding more people no longer adds value. The first John is presumably put to work on some extremely important and valuable problem that brings in a ton of value for the company. And the 2nd John, etc.… But by the time you get to John 1,567,793 the company is starting to run out of good ideas for what do do with John. So they put the new Johns into marketing or “brainstorming” or maybe one of the Johns is tasked with “employee success” and told to just go around looking for things that might possibly improve the productivity of other Johns in some way.
Now maybe John 1,567,793 doesn’t play weird status games or brag about how many Johns he has under him. Maybe John has some other failure mode (one particularly common among bright people I know is trying to solve problems that have nothing to do with success). But economics dictate that there is a 50⁄50 chance John 1,567,793 is working on something that is obviously wasteful to an informed outsider (but not in a way that is legible to the shareholders). Most likely John 1,567,793 himself knows that what he is doing is wasteful, but who is going to volunteer the information “actually I shouldn’t have a job/be paid this much”.
“But why doesn’t the company just fire the useless Johns?”
Maybe they do. Maybe the company periodically hires an outside consulting company that finds all of the Johns producing <0 value and fires them. But then economics dictates that the company hires more Johns until the net value to the shareholder from adding 1 more John is 0 again.
You might say “this is clearly wasteful, we should have a rule that says companies can’t grow above size X” so that this doesn’t happen.
But, remember, this outcome is the one that maximizes shareholder value. Your rule may be aesthetically pleasing, but it’s basically just price controls for number of employees. You’ve banned something that looks bad, but at the cost of making the total economy less efficient.
Moral of the story: in a world where corporations are optimally large, we should expect:
50% of new hires bring negative net-value to the company
Many roles at a company are obvious bullshit jobs that produce nothing of value
Companies frequently could add large amounts of value by firing useless employees
Marginal employees engage in games/self-deception to hide the fact that they are useless
Any method you might use to fix this problem (gov’t regulation, advice for startup founders) will fail to make the problem better (and most likely make something else worse)
As a smart/motivated individual you are personally much more likely to be successful/useful at a small/growing company than a large established one
It seems to make sense that if hiring an additional employee provides marginal shareholder value, that the company will hire additional employees. So, when the company stops hiring employees, it seems reasonable that this is because the marginal benefit of hiring an additional employee is not positive. However, I don’t see why this should suggest that the company is likely to hire an employee that provides a marginal value of 0 or negative.
“Number of employees” is not a continuous variable. When hiring an additional employee, how this changes what the marginal benefit of an additional employee can be large enough to change it from positive to negative.
Of course, when making a hiring decision, the actual marginal benefit isn’t known, but something one has a belief about how likely the hire is to provide each different amount of value. I suppose then one can just consider the marginal expected benefit or whatever wherever I said “marginal benefit”. Though I guess there’s also something to be said there about appetite-for-risk or whatever.
I guess there’s the possibility that:
1) the marginal expected benefit of hiring a certain potential new employee is strictly positive
2) it turns out that the actual marginal benefit of employing that person is negative
3) it turns out to be difficult for the company to determine/notice that they would be better off without that employee
and that this could result in the company accumulating employees/positions it would be better off not having?