Higher Costs Produced Higher Profits

In pursuit of profit, a research and testing lab had been methodically eliminating support staff like administrators, middle managers, and secretaries over the years. By reducing costs, the result should have been increased profits, according to their standard formula of Profit equals Income minus Expenses.

The tasks that had previously been performed by support staff were now handled by more senior people, by technical people, by staff, by managers and by sales people, empowered by ever-evolving office technology. Unfortunately, profit and productivity never seemed to keep up with the wishful thinking. They weren't getting the upside that should have emerged as a result of the continually decreasing expenses.

An intervention by a trusted advisor had them reconsider their strategy, and they quickly doubled the size of their support staff, re-creating administrative and secretarial positions that had been eliminated over the years. The result of this modest increase in staff? An almost-immediate forty-percent increase in revenue, with a correspondingly large increase in profit.

It turns out that most of the remaining people just weren't that good at administrative and communications tasks, and they also weren't getting much benefit from the office productivity software. The remaining people were excellent at their specialties, but that didn't mean that they were good at writing, at typing, at using integrated office software packages. They'd struggle with details like fonts and layout, and waste time that they could have been spending on the areas where they should have been working, in their areas of specialization.

By increasing the size of the support staff, by increasing costs, the company was able to increase their profits. The administrative and secretarial costs were directly associated with valuable functions, with valuable purposes. By increasing the costs, the company also increased the capacity of the entire system to do more; they free'd people up to work on what they're good at.