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There’s a famous comment or blog post from years ago that communicates this better, but the gist is that the question these companies are asking isn’t “what’s t
by tshaddox 4y ago
There’s a famous comment or blog post from years ago that communicates this better, but the gist is that the question these companies are asking isn’t “what’s the least amount of engineers needed to maintain the product most commonly associated with our company?” but rather a question more like “how many engineers can we get more value from than what we pay them?”
- huevosabio 4y agoyup,in theory you keep hiring until the value of the marginal engineer is equal to its cost.
- AmericanChopper 4y agoThis certainly isn’t any type of business theory. In theory you should spend as much money as you possibly can on the things that provide the most return. You shouldn’t be hiring any engineers if hiring a salesman has a greater return, or running a marketing campaign, or buying new hardware… Hiring an engineer has a significant opportunity cost.
- vidarh 4y agoNote that they didn't give a time constraint. You're right that in the short term you aim to hire where the return is highest, but in the long term that means they're right that you'd want to keep hiring as long as you get a positive return.
- AmericanChopper 4y agoNo it doesn’t. It means you want to keep _spending money_. You want to spend it on whatever has the highest return, which will frequently be on an expense other than hiring, and when it is on hiring, it will frequently be on hiring roles other than engineers.
- vidarh 4y agoIn the long term, as long as each thing you spend additional money on increases your return, eventually hiring more people will be the highest returning means of increasing your return.
- d4nt 4y agoUntil recently money was very cheap, so it wasn’t a choice between hiring an engineer OR a salesperson, just hire both.
- AmericanChopper 4y agoI really hope this isn’t a serious comment. No matter what your payroll budget is, the opportunity cost will still exist. You will still have to choose which roles to spend it on (and which to not).
- ZephyrBlu 4y agoFacebook and the like throw off billions upon billions in profit and the market encouraged companies to spend for growth. There isn't really an opportunity cost to hiring more people when money is no object. More likely to be the opposite. Why do you think they increased their headcount so much in the last few years? Simply because they could.
- AmericanChopper 4y agoIf you go a read a FAANG annual report, you’ll find the headcounts are in fact finite, meaning they do in fact devote a finite budget to those resources. Just because the headcount or the budget seems so large that you can’t easily conceptualize it, doesn’t mean they are unlimited. Regardless of their motives for increasing headcounts, doing so has an opportunity cost, and so does the way in which they choose to do it.
- ZephyrBlu 4y agoWhat is the opportunity cost then? What are they trading off by hiring more people? The fact there is finite budget and headcount doesn't necessarily mean anything. If you're limited by the number of quality employees you can recruit and onboard, budget and headcount are effectively meaningless because they're not limited by money.
- clnq 4y agoJust for context, it is a business theory - https://www.uc.edu/content/dam/uc/aess/docs/LACResources/MathMinuteWorksheets/15%20-%20L%27Hospital%27s%20Rule.pdf https://www.uc.edu/content/dam/uc/aess/docs/LACResources/Mat.... It can be applied to anything within a company's control that has marginal costs and associated marginal revenues. How to apply it wisely is a different, much wider topic.
- AmericanChopper 4y agoOptimising the marginal cost of producing goods is very different from “keep hiring engineers until $1 of engineering payroll = $1 in return”. Which is specifically the claim made in the comment I replied to.
- clnq 4y agoIt is not very different, the same principle can be applied because of the MC-MR association. See here - https://en.wikipedia.org/wiki/Marginal_product_of_labor#MPL,_MRPL_and_profit_maximization https://en.wikipedia.org/wiki/Marginal_product_of_labor#MPL,....
- waynesonfire 4y agoSeems obvious? Can you name a company that thrives by hiring employees that add less value than they are paid? The question really is, how can you increase shareholder value? If the answer requires engineers then they are hired. They are paid less then the value they add. When that stops being true people like Elon Musk can increase value by reducing headcount.
- charcircuit 4y agoYou are looking at it from the opposite perspective that comment is addressing. He is addressing people who think companies can still be profitable with less people. The goal of the company is not just to be profitable.
- tshaddox 4y ago> Seems obvious? Can you name a company that thrives by hiring employees that add less value than they are paid? That’s not the part that gives insight to the question “how can it take X engineers to run service Y?” The insight is that employees can add more value than they cost even if they aren’t working on the most visible core product that the company is known for.
- efxhoy 4y agoYep. > a firm maximizes profit by producing that quantity of output where marginal revenue equals marginal costs. This is a pretty fundamental result in microeconomics. The profit maximization section of the wiki article explains it quite well: https://en.m.wikipedia.org/wiki/Marginal_product_of_labor https://en.m.wikipedia.org/wiki/Marginal_product_of_labor The usual disclaimers about underlying assumptions apply of course.
- amadeuspagel 4y agoI could do that in a weekend by Dan Luu: https://danluu.com/sounds-easy/ https://danluu.com/sounds-easy/