All the investments in buildings, technology, equipment, processes and procedures are worthless...unless the people who use and apply them are performing. And, yet, measuring the Return-on-Investment (ROI) of tangible things is so much, much easier than measuring the productivity of people. A business can exist without walls, without inventory, without computers; it cannot exist without people.
ROI Can Mislead
The key is, as always, people. The major oversight in most ROI computations is, almost always, people. People are the heart of all business. Without people, the computers talk to each other without effect, buildings hum along doing nothing, and inventory gathers dust. It's the people who do something with that computer information, who work in buildings, who move the inventory to customers.
There are some things that simply cannot be measured. Leaders know it's important to pay attention to them anyway. What's the ROI of creating an environment where innovative, break-through ideas can emerge and flourish? What's the ROI of a harmonious workplace, where people feel they'll be justly treated in any conflict? What's the ROI of teamwork training that helps people work better together? What's the ROI of letting people know what's going on outside their strict day-to-day interests, so they can contribute their unique knowledge, experience and other value to those other endeavors?
Buildings don't have missions, tools and equipment don't have freedom of action, processes and procedures don't have motivation. Management must always include people in the equation, and consider how people can leverage inanimate tools and techniques. After all, when the company buys a new hydraulic press, they don't usually shove it in a corner where people can't reach it. Smart managers consider work flows and position the equipment to maximize productivity. Why should we do any less with new software, or documented procedures people use to get their work done?
The certainty of physical, tangible assets makes them easier to compute. It's hard to put numbers on passion, commitment, loyalty and motivation. So, inexperienced managers faced with belt-tightening habitually spend on tangibles and short-change the very people who make things happen. They'll switch budget away from "soft" gains like improving people's work environment in favor of buying some "hard" technology, and then further shortchange the people who have to use it by expecting them to educate themselves. Is there something missing here?
Measuring Productivity
In an excellent paper published late last year1 the Government Services Administration identified three measurable workplace characteristics:
| Satisfaction that employees report,
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| Productivity those employees exhibit, and
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| Retention of employees.
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These are interrelated, of course: Satisfied, productive employees have little trouble deciding to stay on the job. But some are early warning signs for others: When satisfaction is falling, productivity and retention may soon decline.
Satisfaction
What people do is more informative than what they say they do. But, it's hard to assess employees' subjective judgments of their own job satisfaction without asking them for that information.
You can get a sense of satisfaction through observation. Notice, for instance, whether people tend to arrive on time for events; the persistent laggards may be trying to tell you—through their indolence—they're not satisfied. Notice, as another example, whether people dress for special occasions; if they don't dress up for celebrations, it might be a sign their not feeling in the mood for celebrations.
But, such observations aren't in a form that makes it easy to document the case that satisfaction is generally on the rise or decline. For that, you have to ask for answers to questions designed to probe inside their experience to disclose what they find satisfying (so you can continue it) and what they find dissatisfying (so you can try remedies).
Such questionnaires need to be created by experts. When people write their own questions, they can inadvertently bias the results. Although they're more expensive, you might adopt a standardized questionnaire from an established supplier. You can compare your organizations' results with others, so you can see if you're especially bad or especially good. An Internet search on "employee satisfaction survey" will reveal thousands of survey questionnaires and tools you might use.
Productivity
Productivity is the hardest thing to measure, often because it requires that management define exactly what they want done, clearly and unambiguously. Too often, a junior manager sees the job as "keeping the boss happy," but that's not a precise way to measure results. The development of ways to measure real productivity often start with a negotiation between the team's leader and higher management to quantify what's really required.
Productivity comes from increasing the amount of work done per person, and from reducing the costs associated with getting that work done. If you can help an insurance claims clerk handle an additional 20% workload through the right environment and tools, that increases productivity by 20%. And, if you can reduce the expense on salary, benefits, office space, lighting, heating by 17% while keeping production at the same level, you have effectively increased productivity by 20%.
The potential gains have limits. You may be able to provide better tools and increase productivity by 20%, but simply demanding people work harder is seldom effective. You cannot simply tell people you expect them to double production without any further consideration from you. People understand justice: If you expect more, they want to know what they're going to get as a consequence.
Similarly, you can reduce salaries and expenditures on office accommodations or business tools, but at a certain point, people are going to rebel. If you won't equip them with contemporary computers, decent Internet access, and freedom of work conditions, you'll find it hard to hire and retain people.
Obviously, to keep satisfaction levels high, you need to provide people with the right tools (and tools they deem important), and some control over their work environment and productivity. But there are two different categories of these investments:
| Investments in process, and
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| Investments in people.
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Investments in process are those that help more or better work get done: If a professional works from home and they need a high-speed Internet connection so they can work faster and get more done, you're investing in the process, and making it more productive. You might get some additional satisfaction reported by the employee, but your central purpose is "process improvement." When you upgrade computers, engage in process mapping and analysis, or foment organizational change, you're investing in the process of production.
Investments in people are those intended to raise satisfaction, irrespective of whether they generate explicit productivity improvements or not. Getting a people a new computer every two years may seem like an extravagance, but that sends an exquisite message to each affected person: You're valuable to us, and worth this investment; you deserve to have good tools. These usually pay dividends in employee satisfaction, and might even motivate more productivity.
Retention
When your most experienced, most productive employees leave to seek greener pastures, you lose on two levels. 1) Productivity will be reduced while the job remains empty and while a new employee is placed in the role and learns how to perform as well as the original incumbent, and 2) Accumulated experience is now gone, and you've got to figure out how to recover that in other ways.
It's worth assessing each individual's "retention value." What would it cost to completely replace this person with equivalent knowledge and competency? It's dependent on whether you've groomed successors.
Take, as example, one of the senior leaders in your team: If you had to hire someone, today, of equivalent competency and knowledge, how long would it take them to become conversant with all the other players, understand how their industry knowledge applies to this specific project or activity, and fit smoothly within the organization? 30 days? 60 days? 90 days? Call this learning time.
Now, add to that the time it would take to hire that person. Are they readily available, or is this a person in high demand across the industry? Can you expect to fill the job in a month, three months, six months? Call this fulfillment time.
In general, the time you'll lose is approximately (learning time / 2) + fulfillment time. Let's assume that's 60 days (about two months), just to complete our example.
Now, look at the incumbent's salary and benefits. Let's make it easy for our example and assume the professional who's leaving costs you $100,000/year.
A general rule-of-thumb in industry is that an employee should be contributing about three times that in total business productivity. In other words, our $100,000/year person should be generating business value on the order of $300,000/year, or about $25,000/month.
So, for the two months it will take to hire and make a replacement productive, you're going to have to give up $50,000 productivity. In addition, you're going to lose access to a repository of organizational experience and knowledge, and you can't even estimate the cost of that loss.
Doesn't that make it worth spending, say, a tenth of that ($5,000) each year on finding out what it would take to make that employee more satisfied and more productive? Only the "penny-wise and pound-foolish" would try to save that $5,000 at the risk of losing $50,000.
Crafting Measurements
Productivity measures published by economic experts and governments are virtually useless to managers. When the Bureau of Labor Statistics divides the entire national sales ("Gross Domestic Product") by the total national salaries, they can spot long-term, large-scale trends in productivity. But that doesn't help you. You don't have a need to boost national trends; you have a need to boost the productivity of your team.
If your team produces widgets, it's relatively easy to measure the production of widgets per person-hour of labor, and ancillary measures like accidents per thousand hours of labor and the fraction of quality rejects or customer returns.
If your team processes documents, it may be somewhat harder, because quality issues can be more easily concealed. You might measure the number of applications processed per person-hour of labor, but if you're a credit card company and the team is rejecting qualified applicants to increase the documents per hour is that in the best interests of the firm?
If your team processes ideas, productivity measures are most difficult to assess: There's no easy way to assess whether the ideas are superlative or mediocre. If you're managing a team of architects and engineers for industrial buildings, how do you know they're making the best choices among materials, making sure the construction process is properly ordered so work doesn't have to be redone, keeping up-to-date on the latest rules and regulations to make approvals quicker?
In this case, you usually have to find some secondary measure. In one company we've worked with, the number of "Engineering Change Orders" (ECOs) is measured for each project. When the construction crew runs into a problem they can't easily solve, they have to stop work and send the problem back to the architects and engineers. When those professionals figure out how to fix the problem, they issue a fix (the ECO) which might incur even more costs and delay the project even further. If they do their jobs right in the first place, ECOs are rare. Productivity of the architectural and engineering team, then, is measured (at least in part) by the ease with which their "customers" (the people who do the construction work) can do their jobs. In this example, minimizing ECOs is a Critical Success Factor in the team's productivity.
Identifying Critical Success Factors
In your particular business, there are just a few Critical Success Factors (CSF). Only you (and your team) can identify them; we have no generic list of CSF you can review. A critical success factor is one that directly affects productivity. Increase (or decrease) this, and productivity rises.
Analysis of CSF requires you be clear about two things:
1 | Productivity — how to you know your organization/team is productive, and
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2 | Contribution — what are the key elements that contribute to that productivity.
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Productivity is often best measured by looking at your customer(s). If you're processing insurance claims, you have two customers: The people who manage the money (so they're paying out as little as possible) and the sales force (so you're keeping customers happy and your reputation intact, ensuring further sales). If your team designs new products, the quality of the design is probably not quite as important as the ease of manufacture and sale. If you're in the retail business, productivity can be measured as sales, but more importantly, it's about what fraction of those sales derive from having happy customers who return because they are satisfied.
Contribution is the identification of what you have to do well to generate that productivity. When you hone this list down to just a few items, you will have identified your CSF. The CSF for insurance claims processing may be good computer systems that help clerks identify potential problems for special treatment, while demanding less work on the ordinary items. A design team may find that including manufacturing and sales professionals on the team will reduce the total time-to-market for new products. In the retail business, it may be pricing policies, or customer service practices, or product line breadth that are your particular CSF.
Sometimes, you're too close to see the real CSF. Your experience helps you know what you know, but it doesn't help you identify what you don't know (or, worse, what you don't know you don't know). Often, getting a process consultant or other outsider involved may help you "overcome your experience" and see the contributions with "fresh eyes."
Developing your own CSF (and regularly measuring them) is important. It requires a lot of work, especially the first time through the process, and all the while, people's day-to-day work will be delayed while you focus on understanding how to measure productivity. Ultimately, however, productivity will jump, because people can start paying attention to the most important issues.
Getting Everyone On Board
Everybody on your team needs to know about CSF, and how they relate to their individual, daily work. Remember, many of them aren't as experienced as managers, so they may have to be guided toward an understanding of how the "big, vague" CSF relate to how they should be spending their time.
The best way, of course, is to engage people in the process of developing the Critical Success Factors. The more work they put in, the more ownership (and understanding) they'll have of the results. But, junior people aren't likely to be the most useful to this process, so you have to figure out ways to help them understand why these things are important, and how they need to shape their daily work.
Footnotes:
1 Productivity and the Workplace, GSA, Dec., 2001.
http://www.gsa.gov
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