Most companies - even those that claim people are their biggest asset – focus on capital productivity rather than workforce productivity. In other words, most business leaders can tell you what the workforce costs but not how much the actual work costs.
According to Harvard Business Review article The Surprising Economics of a People Business standard capital performance measures are misleading when it comes to measuring overall performance, especially in companies that create value with people:
“Companies mistakenly focus on capital productivity rather than employee productivity and rely on capital-oriented metrics, such as return on assets and return on equity. These aren’t much help in assessing a people business, as they tend to mask weak performance or indicate volatility where it doesn’t exist.”
This tendency is strengthened in companies with fewer capital assets, because even a small increase in productivity has a disproportionately large impact on return on assets.
Despite the fact that a slight increase in productivity can dramatically increase shareholder value, most salaried employees work in a black box from a financial reporting perspective. As long as the work gets done, no one notices if employees spend 30% of their time on administration, redundant data entry or unnecessary meetings because it doesn’t cost extra. . . which leads to the erroneous conclusion that it doesn’t cost anything.
Ignoring the cost of work leaves a company vulnerable to wasted capacity and lower engagement if employees find themselves working longer hours for the same pay. Lack of insight into workforce performance may also pose a problem from a financial reporting perspective in the near future: OMG Moment for Talent Management Leaders is Coming.
(You have to appreciate the irony: For years everyone’s been accusing HR of lacking business skills, but HR may still have the last laugh about how Finance doesn’t get people…)
Of course, you can’t measure the cost of work unless you also track the work being performed and how much time people spend on different tasks, at least in broad categories such as projects, company goals, R&D, customer service, administration, meetings, etc.
Sounds like a tough sell? A friend of mine who managed a team of salaried employees described introducing time sheets like this:
‘At first they hated it because it was another administrative task. But soon they really liked it, because it helped them demonstrate why they were having challenges meeting deadlines and where our processes forced them to waste time. And we were able to use that information to help them be more efficient.’
With better information about how people work, you can start measuring the cost of work. You can analyze work across the company, i.e., who's working on what, how much time is spent by project or department and whether the work supports business goals. You can better identify skills gaps and determine whether it would be more cost effective to contract needed skills, develop them in house or hire more people. And you can see at a glance which teams are the most efficient and productive.
Most importantly, you can use the information to improve workforce productivity, which – if you are successful - will also do nice things for your capital productivity.
Picture courtesy of webtrafficagents.com.
Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA. She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University. Her articles and interviews on HCM topics have been published in the US, Europe and Asia. She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.
Well said, Laura. Old story was that after the Annual Report dutifully gushes that “our people are our most valuable resource,” they would get ignored for another year. Used to snarl that companies spend more on maintaining their buildings than on the workers who inhabit them. Since you can’t accurately measure human value, a pernicious but pervasive perversion of management-thought leads some to conclude that “people” hold no value while only “things” have precise costs and hence values. Knowing the cost of everything and the value of nothing, is the result. Deming himself said, “The most important things cannot be measured.”
It's simplier easier to measure some things and that misleads people as to true importance.
Posted by: E James (Jim) Brennan | 02/16/2011 at 04:11 PM
Laura,I am one of those strange people who always loved tracking my time. A visual diary of what you've accomplished, and a straightforward way of showing management what you are contributing.
It's hard to understand how well leadership really understands the cost of work done without it. It's like administrators who take a half a day to find the cheapest delivery service for a contract. They don't notice/can't see where the financial tradeoff comes!
Thanks for highlighting this.
Posted by: Margaret O'Hanlon | 02/17/2011 at 11:37 PM
Jim - Yep, it doesn't exist if we can't quantify it. ;-)
Margaret - I'm with you! I love tracking my time, even if no one wants to see it.
Posted by: Laura Schroeder | 02/18/2011 at 11:51 PM