Let me share a conversation I had with the CIO of a reasonably large manufacturing company. The company has implemented the typical commercial software (ERP, CRM, HRIS, etc.) and has a team of 24 software engineers to design, build, deploy, and support the organization’s niche application needs. Under the direction of the CIO, the software engineering team has adopted a Vibe programming platform that has dramatically reduced the time and effort to create these niche applications. The CIO told me that it now takes about one-sixth of the time and effort to create an application than it did in the past.
This reduced time and effort to build an application has created a challenge for the CIO. The CEO of the company has reacted to this increased productivity by suggesting that the CIO can now get rid of five-sixths of the software engineering team. This is not something the CIO wants to do but he is struggling with how to rationalize leaving the software engineering team intact.
The CIO’s challenge is the same challenge that any organization faces when technology and process improvements increase the productivity of the people in the organization. What should the organization do with the time and effort capacity that the productivity creates?
In general, there are two ways to handle excess capacity that improved productivity creates. The correct way is to use that newly created capacity to improve growth. The incorrect way is to eliminate the newly found capacity by getting rid of the people whose productivity just increased. I’ll explain using a manufacturing example.
A manufacturing lesson in capacity and profit
The example organization makes concrete block. An analysis shows that the daily production of concrete block is heavily affected by the number of times each production line must be shut down to change over the block making machine. If the changeover involves both a mold and color change, the typical shutdown time is 45 minutes. If only a mold change is required, the shutdown time is 20 minutes. By analyzing and improving the changeover process, it now takes only 15 minutes for a color and mold change and 8 minutes for a mold change. The net result is, on average, a 2-hour increase in the daily production time for each manufacturing line. Improving the changeover process has created 2 hours of additional capacity for each line.
What should the company do with these hours? One choice (the incorrect choice) would be to reduce the hours of the staff. The organization could do this by consolidating production lines and laying off a percentage of the workforce. If the company does this, it will have reduced its costs by some percentage and increased its profits by a similar percentage.
Why is this the incorrect choice? Because the company is much better off using the newly found capacity to grow both revenue and profits by building more block — and continuing to operate the manufacturing line for the same amount of time as before. What does it cost the company to build an additional 2 hours’ worth of block per day on each production line? Just the cost of the raw materials used in the additional block. There is no increased labor cost because the staff is already “paid for” and now using the same amount of time to produce more block. As long as there is a demand in the market for more block, the additional 2 hours of produced block per line are the most profitable blocks the company creates. Even better, this lower-cost block grows revenue at a lower cost.
Keeping the people while making them more productive fuels higher profit growth.
Clearing the backlog instead of cutting the team
Let me return to my conversation with the CIO of the manufacturing company. I asked him how many projects the company had on its niche application request list. He told me it was a backlog of two to three years. I next asked him how many projects had never been requested because the existing request list was so long or because the projects did not have sufficient value cases. How much longer would the application request list be if it did not take so much time or effort to build a niche application? He guessed the list would approximately double in size.
I recommended that he approach the CEO with the following reasoning about what to do with his 24 software engineers:
- “By now being able to build and deploy applications with one-sixth of the time and effort than in the past, we should keep every member of the team and accelerate the building and deploying of every application currently on the list and gather every meaningful idea for other projects to add to the list.”
- “If every project on the list creates value, then shortening the time to value delivers that value sooner and improves the profits and performance of the organization much more than cutting the newly found application delivery capacity would.”
- “Without increasing costs (the company is already paying for its team of software engineers), the company can accelerate its growth and do it more profitably.”
- “In fact, since it takes less time and effort to build and deliver an application, the threshold for what delivers value has also changed, and so projects that might not have been included on the backlog in the past might now belong on the backlog.”
The broader AI productivity question
And this thinking extends well beyond the use of Vibe programming.
Let’s suppose that a marketing team, using AI, can now create marketing campaigns and content in half the time it took pre-AI. The incorrect way to treat this newly found marketing team capacity is to cut the capacity by laying off 50% of the marketing team. What is an alternative that benefits the company more than cutting the marketing team? What would drive improved growth? What specific types of marketing campaigns and content? What could the marketing team do with its additional 50% capacity that it could not do before? How about campaigns and content targeting specific customer personas? Or, even better, specific customers? The team now has time to do things it never had before. With this capacity, what could it do to improve the growth of the organization? And remember that whatever the team does to improve the growth of the company comes at a much lower cost (the company has not increased the marketing team’s cost — just achieved improved results for that cost).
Lead with growth, not fear
There are certainly cases when cutting the capacity that comes from AI will make sense, but the initial reaction to improved productivity should be to identify ways to use the productivity to increase growth (at a similar cost). This might take some innovation cycles to realize what we could never do that we can now. But this seems to be worth the effort — in my experience, profitable growth is always a good thing.
