Throughput: Why Salary Costs Matter Less Than You Think They Do

Dan, a VP, knows he needs more people to get the work done. Suzanne, one of the directors, starts to hire and realizes she has several problems. First, their salary bands are too low—candidates want more money. In addition, the people want to collaborate more than the existing people seem to. She meets with Dan to explain these problems and how they are interconnected.

Dan says, “If we increase salary for new people, we need to address the salaries for our existing staff. Our team costs will rise by at least 30%. We might have to offshore. And what about this collaboration business? Does that get us better people?”

Suzanne said, “Since people work as individual experts, we pay the most money for the least work. We could absorb salary increases if we reduce the time it takes to finish a feature.” She paused. “As for offshoring, let's discuss that once we know how to create collaborative teams.”

“Aren't the teams working as fast as they can now?” Dan asked.

“Sort of,” Suzanne said. “We only pay people for their individual work. That means people are busy all the time, but on their work, not on the flow of the team's work. We could decrease the cost of each feature if we rewarded people for the team's work.”

“I don't get it,” he said.

She showed him the value stream map above. “This supposed team has 10 hours of work time and 133 hours of wait time just for one feature. Instead of working on this feature, the team spends 90% of their time waiting. They're not actually twiddling their thumbs. They start more work, so they have the multitasking problem when they return to this work. But I'm ignoring that so you can follow my calculations.”

Dan nodded. “How much of this is weekends?”

Suzanne said, “The first 48 hours is a weekend. Oh, I should have added another 12 hours because people need to return to work on Monday. But customers don't stop wanting features because it's a weekend.”

Dan shook his head. “Fine. Don't make it any worse.”

Suzanne nodded and said. “Assume each person receives $100/hour as a loaded wage, with all benefits. That's $4000/week for a person.”

Dan muttered, “We pay a bunch of people much more than that.”

Suzanne agreed. “We do. But let's simplify the math. At $100/hour, that feature cost us 143 hours times $100, $14,300. Just for that one feature. That's the equivalent of between 3-4 weeks of paid work for something that took 10 hours of work time.”

“How do we eliminate the delays?”

Suzanne nodded. “A couple of things. If everyone collaborated, this feature would cost us $1000. That's great value for the money. If we could make the work time and the wait time equivalent, we would spend a total of 20 hours, which is $2000 for this feature. Half a week of one person's pay.”

“That's still more than the $1000,” Dan said. “What else can we do?”

“Reduce the collaboration friction. Aside from offering the teams collaboration options, we can reward collaboration, not solo work. As managers, we can explain why we want collaboration and the benefits we expect. Oh, we can't mandate—but we can invite.”

“And we still need to address the salary bands.”

“Yup. But we have more options for new people if we create a more collaborative culture. We have to change what we reward.”

What Managers Can Do

Does this happen to you? The more management believes and rewards resource efficiency instead of flow efficiency, the more likely you are to have long wait times in your total cycle time. And that's when the salary cost becomes less and less relevant, because the delays dwarf all the salary costs. Your value stream map doesn't have to be perfect for everyone to see the problem of delays.

However, no one needs experts who work alone—unless you want to pay a premium for fewer features.

Managers: Reset your expectations and change your “performance management” system. You will still need some individual rewards, but how about rethinking how you might reward people:

  • Instead of heroics, consider collaboration and learning together, to reduce wait time.
  • Instead of starting lots of work, consider how you might reduce WIP (Work in Progress) to reduce each individual item's cycle time.
  • How everyone supports everyone else's growth.
  • Instead of any one person's contribution, focus on throughput.

Throughput is how fast the team can effectively release a finished feature or product. Not an unfinished, defect-full product. Running tested features or a finished product.

Delay Costs Dwarf Salary Costs

Resource efficiency optimizes “down” for each person's salary. That's why too many organizations pressure a candidate or a person to negotiate on “their” salary. But the wait states have a lot more to do with the issues of feature or product cost than any one person's salary.

Instead of optimizing down for a person, optimize up for a team. Address the culture and the environmental factors that make collaboration less possible. (Ask the team to consider pairing, swarming, and mobbing and combinations of all three so the team can be more effective.)

As managers, your job is to change the performance management system so that system optimizes up for throughput, not each individual's work.

Remember, product release delays can mean you have product and service revenue delays. Those delays dwarf all the salary costs.

Focus on throughput. Reduce the friction for the teams—and that includes asking the teams to collaborate more. The faster the teams can release working product, the less money you'll waste. That waste will free up salary money.

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