Cheaper Talent Hypothesis

One of the commonly accepted beliefs in the software world is that talented programmers are more productive. Since we CannotMeasureProductivity this is a belief that cannot be proven, but it seems reasonable. After all just about every human endeavor shows some people better than others, often markedly so. It's also commonly observed by programmers themselves, although it always seems to be remarked on by those who consider themselves to be in the better talented category.

Naturally better programmers cost more, either as full-time hires or in contracting. But the interesting question is, despite this, are more expensive programmers actually cheaper?

On the face of it, this seems a silly question. How can a more expensive resource end up being cheaper? The trick, as it is so often, is to think about the broader picture of cost and value.

Although the technorati generally agree that talented programmers are more productive than the average, the impossibility of measurement means they cannot come up with an actual figure. So let's invent one for argument sake: 2. If you can find a factor-2 talented programmer for less than twice of the salary of an average programmer - then that programmer ends up being cheaper. To state this more generally: If the cost premium for a more productive developer is less than the higher productivity of that developer, then it's cheaper to hire the more expensive developer. The cheaper talent hypothesis is that the cost premium is indeed less, and thus it's cheaper to hire more productive developers even if they are more expensive.

In case anyone hasn't noticed this hypothesis is a key part of our philosophy at Thoughtworks and is one of the main reasons why I ended up switching from an independent consultant to join. We believe we actually end up cheaper for our clients, even though our rates were higher. Of course, we do have difficulty persuading many clients that this is true - that lack of objective productivity measures strikes again. I still remember a meeting with one prospective client complaining about how our rates were higher than a company who had made a previous, failed, attempt at the system we were bidding on. We had to politely point out that paying less rates for a project that delivered no value was hardly a financially prudent strategy.

There are some notable consequences to the the cheaper talent hypothesis. Most notably is one that it actually follows a positive scaling effect - the bigger the team the bigger the benefits of cheaper talent. Let's assume we actually have put together a team of ten talented developers to run a project in some alternative universe where we have actually measures that they are twice as productive as the average - and thus do cost exactly twice as much to hire. In this case you might naturally assume that a rival team of average programmers would be a team of twenty.

The trouble is that that assumption assumes productivity scales linearly with team size, which again observation indicates isn't the case. Software development depends very much on communication between team members. The biggest issue on software teams is making sure everyone understands what everyone else is doing. As a result productivity scales a good bit less than linearly with team size. As usual we have no clear measure, but I'm inclined to guess at it being closer to the square root. If we use my evidence-free guess as the basis then to get double the productivity we need to quadruple the team size. So our average talent team needs to have forty people to match our ten talented people - at which point it costs twice as much.

Another factor that plays a role here is time-to-market. Let's assume two teams of four people, one talented and one average. To stack the deck of our argument against our talented team, discount the previous paragraphs, and assume the talented team is only twice as productive as the average team. If the talented team charges twice as much then can we assume that it doesn't matter financially which team we pick?

I'm afraid the talented team wins again. They'll complete the project in half of the time of the average team, which means that the customer will start yielding value from the delivered software earlier. This earlier value, compounded by the time value of money, represents a financial gain for picking the talented team, even thought their cost per output is the same.

Agile development further accelerates this effect. A talented team has a faster cycle time than an average team. This allows the full team to explore options faster: building, evaluating, optimizing. This accelerates producing better software, thus generating higher value. This compounds the time-to-market effect. (And it's natural to assume that a talented team is more likely to produce better software in any case.)

Faster cycle time leads to a better external product, but perhaps the greatest contribution a talented team can make is to produce software with greater internal quality. It strikes to me that the productivity difference between a talented programmer and an average programmer is probably less than the productivity difference between a good code-base and an average code-base. Since talented programmer tend to produce good code-bases, this implies that the productivity advantages compound over time due to internal quality too.

All this sounds, at least to me, like a highly compelling argument. It's also one that's widely accepted (at least by programmers who consider themselves talented). But it's far off being accepted by the software industry as a whole. We can tell this because the premium for talented developers (in terms of salary/contracting fees) is less than the productivity difference. Probably the major reason for this the inability to objectively measure productivity. A hirer cannot have objective proof that a more expensive programmer is actually more productive. Only the higher cost is objective. As a result a hirer has to match a subjective judgment of higher value against an objective higher cost. Many hirers, even if they believe the talented programmer is worthwhile personally, isn't prepared to justify the full higher cost to managers, HR, and purchasing.

This effect is compounded by the difficulty in making even a subjective assessment. At Thoughtworks we rely on peer assessment - developers abilities are assessed by fellow team members. The result is hardly pinpoint precision, but it's the best anyone can do.

Which all points out that hiring and retaining talented programmers is hard work. Hiring and assessment is hard work. You have to deal with people with very individual desires, which are even more important to track as they are effectively underpaid. So a hirer is faced with certain extra work and higher costs versus only a judgment call for higher productivity.

So I understand the situation but don't accept it. I believe that if the software industry is to fulfill its potential it needs to recognize the cheaper talent hypothesis and close the gap between high productivity and higher compensation.