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Source: Twitter.

After a drawn-out search for a permanent leader to replace ousted CEO Dick Costolo, Twitter (NYSE:TWTR) found it had the man for the job the entire time. The company's board of directors, in an about-face from earlier announcements, decided having Jack Dorsey run another company didn't prohibit him from taking the reins after being the interim CEO throughout the search process.

And apparently, Dorsey's leadership is starting to show as far as product development is concerned. More recently, the company launched its Moments feature, a curated collection of important events designed to make the site more user-friendly. Major investor Chris Sacca remarked that Dorsey has"been charge of Twitter now for over a quarter, and over that time we've seen the product road map accelerate dramatically."

More recently, rumors have emanated out of Twitter that the next big decision from Dorsey is to cut jobs in an attempt to make Twitter a faster-executing organization, according to Recode.

Headcount growth faster than user growth
Per Re/code, the company reported 4,100 total employees at the last quarterly report, up more than 100% over the 2,000 it had at the time of its IPO. As far as user growth, that figure is only up 50% during that same timeframe. There are issues with this headcount increase on both an execution angle -- as decision-making becomes slow amid a bloated and redundant workforce -- and from a financial angle, as increased benefits and salaries are a drag on results.

As for the former, Dorsey addressed Twitter's execution issues during the second-quarter earnings call. Noting that prior product initiatives have failed to grow audience participation, the CEO promised improvement. After taking the full-time job, the CEO pledged "dramatic" product updates next year on Twitter's main app, alongside its video apps Periscope and Vine.

As far as financial results go, Twitter's investors should see a benefit in upcoming quarterly reports from fewer employees. Twitter's stock-based compensation costs, a non-cash expense, was 40% of revenue and a major reason the company is not profitable on a basis of generally accepted accounting principles. (Full disclosure: I've written many times about Twitter's need to control its stock-based compensation costs.)

For investors, a more profitable, better executing company -- what could go wrong?
So on the surface, this sounds like a win for investors. On both an execution level and on a financial one, this seems to be a "right-sizing" of the company and should result in a more-profitable, quicker company. But that's not what always happens in companies once they start cutting jobs. A host of studies, best aggregated by Newsweek, found layoffs were correlated with negative stock market returns, don't increase productivity, and fail to increase profits.

And that's because people are unlike other inputs; morale tends to drop and more productive, talented employees are more likely to leave for stable employers. According to Dorsey, the company is now looking to dramatically ramp up its product development and may need that higher headcount -- at least in the short term -- to execute on that promise.

The key question, of course, is: Will the layoffs make Twitter a more or less productive company? It appears we're about to find out.


Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.