Large teams don’t work

The promise of teamwork

What is Price’s law?

A schematic illustration of Price’s law. Credit for this image goes to Darius Foroux: https://dariusforoux.com/prices-law/

Why does Price’s law occur?

Practical implications for managers

  • Keep creative teams small
    Remember that competence scales linearly, while incompetence scales exponentially. The larger your team is, the larger the proportion of relatively unproductive members will be. A number that is often quoted is that the optimal amount of members in a creative team is three. According to Menno van Dijk and Robert Wolfe, “anything smaller lacks the diversity to generate creative perspectives, and will seem under-resourced, while larger teams suffer from the complexity of coordination.” Small teams seem to outperform large teams on criteria such as creativity, innovativeness, and efficiency.
  • Be slow to hire
    According to Price, the added (or marginal) productivity of each extra team member becomes smaller and smaller the more team members you recruit. This could lead to a situation in which certain team members actually hurt your bottom line: their productivity is lower than what they are costing you. Ideally, team size should only be increased when it is highly likely that an extra team member would increase productivity exponentially.
  • Adjust your compensation strategy to retain top performers
    Many traditional companies use a deeply flawed compensation strategy. Most workers are paid more or less the same because it is assumed that the differences in productivity between employees are relatively small. According to Price’s law, this is not the case. The most productive team members are exponentially more productive than the least productive team members, which makes them much more valuable. In order to retain them and their productivity, they should be compensated fairly. Furthermore, rewarding individual performance discourages social loafing. However, performance-based pay is not without its problems — if it is implemented wrongly, it can actually hurt team performance more than help it. So, proceed with caution.
  • Increase interdependence to discourage social loafing
    We have seen that social loafing is likely an important root cause for Price’s law to occur. Therefore, we want to discourage social loafing as much as possible. We can do so by keeping teams small, of course. But another effective way of decreasing social loafing is by increasing interdependence in the team. Interdependence refers to the extent that team members need each other in order to achieve the team’s goals. If everyone is indispensable, individual team members will keep each other to high standards. They will be motivated to work hard and work well together in order to be successful.

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Twan Ackermans

Twan Ackermans

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Aspiring manager interested in the complexities of leadership. Trying to cut through the noise without losing an eye for detail. Stay curious.