The biggest barrier to any company’s growth is people. More people mean more production, more customers, and more sales, right?
In practice, this is usually not the case because each additional team member results in a marginal increase in coordination time and costs. Let’s call this the “Coordination Tax.” This tax is progressive— the tax rate increases as the size of the organization increases. The more people you have, the more resources it takes to coordinate them all.
There is not a linear relationship between resources and productivity. Instead, the line is curved — the slope of the line for the first ten people is very steep (upward). But as people are added to the organization, the slope declines (flattens out), and eventually reaches a tipping point where the slope becomes negative (the line bends downward). This is where the “Coordination Tax” begins to outpace production and output.
The goal for organizations is to be in a position where the “tax” they pay to coordinate their people is offset by strong returns generated by those people.
There is a trade-off between high-resource organizations and lean organizations.
1. High-Resource Organizations:
The good news is that you have lots of people available to take on work. The downside is that teams spend a disproportionate amount of time coordinating, communicating, and meeting. There is organizational gridlock when executing cross-functionally, and a lack of ownership and accountability.
2. Lean Organizations: The bad news is that you are limited in the scope and scale of the work you can undertake. You are forced to be ruthless about prioritization. The good news is that teams and leaders have much higher agency, ownership, and accountability because the lines of ownership are clearer. People spend less time coordinating with other teams and more time building.
I experienced this firsthand during the early years at Amazon. The lack of people and resources was frustrating, but it forced us to prioritize and simplify. There was so much organizational white space and opportunity that the challenge was to take the initiative and find ways to achieve the right results on a shoestring.
Most people don’t start a career in business because they are eager to spend most of their time navigating and managing dependencies, resource contention, and inter-team friction. They do it because they want to build.
Keep this concept in mind as you consider the size, growth, and structure of your organization.
Are your teams staffed and organized to maximize agency and ownership while minimizing the coordination tax?
