You may have seen a recently published list of the most productive companies. If your CEO is pressuring you for not being on it, Checkster offers a way for you to respond.
Productivity is the benchmark of well run companies. In theory, the better you are at it, the better your margin should be. That is why we invest in innovative technologies and new processes, which make the business faster, cheaper and often better. The typical examples are the evolution in written communication, from the letter to the fax to the email. Each step made organizations more productive. But as technologies become widely used, the competition shifts to the people side. As Lance Armstrong put it, it is not about the bike anymore, it is more about the people, the team or what is sometimes referred to as talent or human capital. That is why at Checkster, we focus on getting the right people on the bike, leveraging Web 2.0 technologies to assess and produce what we call a reference check 2.0 process. We consider HR to be the magic bullet at many companies, and it should be the killer app of any organization, pre and post hire. The core question is then, how do you know you are doing the best in hiring and people management?
How do you know if your organization is one of the best in its field? How do you know you are the most productive? This is where the study of the most productive companies comes in handy. Their way of looking at it: Revenue per FTE (full time equivalent). Although its simplicity may look attractive, it is also its shortcoming.
Today, many organizations have a significant portion of employees that are “off the books.” They are typically referred to as contingent workers. These are not accounted for as FTE. This can create artificial winners and make best performers look like laggards. We did such analysis in the past, and when you compare not only FTE, but total cost of labor (FTE+ contingent workers), you have a different story.
For instance, we looked at 2 healthcare providers (see box). Once you compare the revenue per employee, organization #2 proves to be the best performer. However, if you look at revenue divided by the total labor spent (total cost of labor), organization #1 appears to be the best performer and by an 11% lead. We strongly believe that the revenue per FTE is a fake measure of productivity. It is often used to fool unsophisticated Wall Street analysts and should certainly not be used as a basis for any decisions when comparing your performance to a competitor without looking at the contingent workers mix. People are often your competitive edge, but making sure you are measuring the right thing is paramount, otherwise you could start to fix something that is not broken.
In short, if your CEO is asking you why you are not on the list of the most productive companies, now you know how to respond. It is certainly more voodoo science than decision science.