More and more we’ve been seeing increased interest in some “real” employee metrics. Instead of looking at things like employee satisfaction, I’ve been talking about profit per employee and the chain of linkages between the engagement score and the profit figure. Business 2.0 Magazine had a write-up about measuring employee productivity. Here are some of their tips.
The standard economic measure of productivity – dividing company revenue by number of employees – won’t help you make operational improvements. Nor can you simply count the widgets they ship per week, as factory managers do.
Experts are starting to believe bad measurement is worse than no measurement. Take law firms that only count billable hours – causing their associates to stay in the office so much that “eventually they burn out,” says Thomas Klett, a consultant at Watson Wyatt. ((Datta, Saheli. February 13, 2007. “Measuring Minds at Work.” Retrieved from money.cnn.com on March 18, 2007.))
The article seems to be advocating and employee by employee measure of productivity. While it’s perhaps meaningful to look at individual productivity and correlate it to the expected productivity for the particular job, or to look at overall revenues per employee headcount, I’d suggest that the Wyatt consultant is correct. Some measures of productivity are not worth performing. If it takes an employee by employee scan, the effort just seems too high.
What I’m more interested in is the drivers of productivity and measuring those. Things like employee engagement and it’s components of satisfaction will drive productivity from the HR point of view. At this point, your aggregated revenue to employee metric can help you drive strategies for change throughout the organization. The individual measure of productivity is really only good for performance management activities. While I’m in no way minimalizing that because we do it today, this detail of the organization is simply not useful on a strategic basis.
6 responses to “(Not) Measuring Employee Productivity”
(Not) Measuring Employee Productivity Things like employee engagement and it’s components of satisfaction will drive productivity from the HR point of view. At this point, your aggregated revenue to employee metric can help you drive strategies for change throughout the … [
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I couldn’t agree more! Let me tell you a little story. The year was 2000. I met with the officers from the C-suite of a large telco. They were interested in outsourcing their entire HR, Benefits and Payroll organizations. While I admired their vision, I gave them a back-of-the-envelope estimate and told them full outsourcing would be more costly.
Management’s response went something like this. The reduction in staff would increase the revenue per employee. As a result, Wall Street would like the increase in revenue per employee and their stock would go up in price. The expectation was the increased market capitalization would dwarf the reduction in profits (due to higher administrative costs). I think you all know the rest of the story. Needless to say, the stock lost over 90% of its value in the coming year.
Hence, not only is important to have the right metrics, but it’s equally important to have the right actions driving those metrics To that end, in my business (health care cost containment), we often look at metrics, such as dependent ratio. While all plans can benefit from conducting a dependent eligibility audit, plans with high dependent ratios are highly encouraged to conduct an audit to identify and remove ineligible dependents. When done properly, a dependent audit can reduce annual healthcare costs by several percent.
Howard: great story about how to completely mishandle a good statistic. I’d also love to know what you were thinking in 2000 to be ahead of the curve with true HRO costs.
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