The Ringelmann effect & Ecommerce

During 2020, many of our customers have experienced exceptional growth. As a consequence, there’s pressure to expand the team by taking on more staff.

Any ecommerce manager operates with guiding principles designed to make their businesses more effective, efficient and profitable. Many of the ecommerce managers and business owners we speak with find themselves torn between, on the one hand, running with lean systems having a few highly productive, highly competent people, and on the other hand, feeling forced to take on more staff. The implicit idea is that twice as many staff do twice as much work

The factors they then have to work with are that:

1. The good, well skilled staff already in place are already working too hard, may be stressed and that this situation is not sustainable long-term. Taking on more staff seems inevitable if they are to avoid HR problems..
2. It’s difficult to recruit good, well-skilled staff. Ecommerce skills are much in demand. In the short-term, recruiting ‘rough diamonds’ works against you because the productivity of your best staff goes on training the recruits rather than on getting work done.
3. Sometimes adding staff can be a lazy approach as opposed to carefully analysing the tasks within the company and working out ever better ways to get them done without adding new staff. The analysis needs to be detailed and it needs to include realistic costs and benefits.

There's a book called Small is Beautiful by E.F. Schumacher. Schumacher was a German-British Statistician and Economist who believed in a human-scale, decentralized approach to technological development. A key theme within the book is that small groups are a natural, efficient and effective way to organise society and business. This runs against what often seems the dominant idea that the bigger the team, the stronger the company, the more powerful the business and the more valuable the organisation. Is this a myth or is there evidence for this?

In 1913 a French Agricultural Engineer called Max Ringelmann published a paper describing an experiment in which he had different numbers of people pulling on a rope. He found that when more people pulled as a group, they put in progressively less effort than when pulling on their own and that the more people in the group led to a progressive decrease in performance.

This Ringelmann effect (a.k.a. ‘Social loafing’) shows up most obviously in groups where personal responsibility and effort decreases with increasing group size. A few weeks back there was a news story about a British Civil Servant who saved a drowning student in China while a large crowd just stood and watched. The group just watched, possibly because their collective approach avoided individual responsibility. Jeff Bezos does not like large groups. He famously uses his ‘Two Pizzas Rule’ for meetings. If two Pizzas can’t feed those attending then he won’t attend. Susan Wheelan investigated how group size affects productivity and found that groups containing 3 to 8 members were significantly more productive and more developmentally advanced than groups with 9 members or more. Mark de Rond in the Harvard Business Review again shows how the Ringelmann Effect extends across a wide range of situations and where team size should be kept to a maximum of around seven individuals. Military planners understand this and base their structures around squads that tend to have a maximum of 8 personnel. Larger groups are only ever effective when individual squads are individually measured and individually appraised. This critical size limit of around 7 has been well documented across a wide range of affects involving humans in George Miller’s seminal article The magical number 7 plus or minus 2. One business owner we work with commented that he had organised a dinner party with six people that worked wonderfully and that this contrasted with a similar party he held with 12 people at the start of the year (pre-Covid) that didn’t work at all.

So how might all this impact the number of people employed in ecommerce businesses? In small teams, people have nowhere to hide and their individual performance is obvious to all the team. If your company is less than around seven (± 2) then you are reasonably optimal. If you can keep it at that size by adopting automation by machines or through automation software (e.g. INDEZ PPC Automation & A.I.) then that’s a great place to be.

Problems often occur when you start to add new staff without reorganising the company structure into teams of optimal size. If new staff simply get added into the same overall team then you should expect productivity to nose dive. Recent digital marketing research has shown that over-staffed companies can quickly improve performance, efficiency and profitability in groups by shedding their ‘social loafers’. The only way to stop performance dropping while adding staff is to split a team that’s become too large into totally separate teams that operate with totally separate functions, totally separate KPIs and their own separate management and identity. What then happens is that these separate teams become competitive rivals that commonly complain and snipe with each other. Managing all that becomes a whole new ball game …. and the subject for a future blog post.

Article first published on the INDEZ.com Ecommerce Excellence blog here.