Measuring Productivity

In Performance targets, UK productivity on December 20, 2010 by Tim Aikens

Do companies actually measure productivity.  In the manufacturing industry I am sure most if not all do.  In service related businesses – maybe.  I’ve just had a look at three Annual Reports – BA, BT and Rolls Royce.  The first two are essentially service businesses.  In their report summaries they talk about the need to increase efficiency and in BT’s case the need to reduce headcount as their core business declines and they wait for new revenues to take up the slack.  But nowhere did I see any real focus on productivity.  I wonder why.  Is it because it is too hard to measure, too many different metrics or simply that they are not very good at it? Perhaps another reason is that they don’t want the competition to know how good (or bad) they are!

By contrast Rolls Royce which is primarily a manufacturing business, uses the average revenue per employee (averaged over three years and adjusted for price and exchange rate variations) as their key measure of productivity .  I suspect RR are more on top of the productivity issue than either BT or BA.  Why is this?  Is it because service productivity is harder to measure, does productivity count for less (versus service levels) or does senior management neither understand nor care?  I really doubt if it is the latter somehow, yet I still wonder if they make enough effort to put the metrics in place and use them to drive their strategy for increased efficiency.

In my quick look at the Annual Reports, I also noticed the amount of space given to remuneration bonus schemes and reward generally.  Yet no real place for productivity per se.  I am glad to see an open and transparent approach to compensating senior executives. But if I was a shareholder in any of these companies (I don’t think I am!), then I would be keen to see what measures are in place to back up the easily made statements about improving efficiency.  Usually Annual Reports focus on the financial results with some key operational statistics. Rarely do they get into the meat of the operation that says how well they are doing say, in terms of quality or productivity.  Even if there is concern about competitive exposure it would at least give investors some idea of the extent to which executives had a focus on productivity.

Isn’t it time that large businesses – especially in the service sector were more transparent about how good or bad their productivity is, what their measures are and what their strategy is?

Merry Christmas and a prosperous New Year to all.  I will be back in 2010.


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