HBR.org
This article originally appeared on HBR.org.
How much time does your organization squander? My colleagues and I gathered data about time use at one large company and found that people there spent 300,000 hours a year just supporting the weekly executive committee meeting. See the interactive to find out where all those hours went.
Some of that time was productive, no doubt. But organizations in general are remarkably cavalier about how they invest their scarcest resource, the time of their people. In this month’s HBR, we analyze why companies waste so much time and what they can do to conserve it.
How companies can use time effectively is just one piece of a larger and ultimately more important puzzle: how to increase the productivity of their people. Boosting human capital productivity (HCP), we have found, is a powerful and often-neglected pathway to better performance.
Our research quantifies what’s at stake. Using a decade’s worth of data for the S&P 500, we looked at revenue per employee, a crude but useful measure of HCP. Then we compared those figures with each company’s financial performance. Since revenue per employee varies widely among industries, we confined our comparisons to companies in the same business.
The results jumped out at us. The best companies — those in the top quartile of revenue per employee — did 30% better than their peers in return on invested capital, 40% better in operating margin, and 80% better in revenue growth. Those differences contributed to a whopping 180% differential in total shareholder return over the 10-year period.
Predictably, the differences were larger in people-intensive businesses, like software development, and smaller in capital-intensive industries such as semiconductor manufacturing. But the leaders in HCP outperformed the laggards in every industry. The difference in profitability, of course, makes a lot of sense — if you get more revenue per employee, chances are your costs are going to be lower than rivals and your profits higher. But higher HCP also goes hand in hand with significantly higher growth rates, a correlation easy to overlook.
Many business leaders intuitively understand the connection between HCP and performance, so companies around the globe have been trying for years to improve productivity. The most common approach is to cut head count and hope you can generate the same or more revenue with fewer people. But how often does that work? Many executives we talk to have led repeated restructurings, streamlinings, and right-sizings in the years since the financial crisis, without much to show for it. At some point, most realize that they can no longer increase HCP by reducing the denominator of the revenue-per-employee calculation. Instead they have to focus on increasing the numerator: the output they get from each employee.
So how can companies increase the numerator? In our experience, the key is to look closely at five potential obstacles and assess where they stand on each one:
- A company’s people may not be up to the job — the basic stock of human capital may lack the necessary skills to deliver great performance.
- The company may have good talent, but it deploys those people in ways that limit their effectiveness and output.
- The company may have great people and potentially effective teams, but its organizational structure interferes with high performance.
- The way people interact and communicate may require too much time for the level of output generated. (That’s where managing your scarcest resource comes in.)
- Finally, none of those may be the real issue — rather, it’s that your people aren’t sufficiently engaged or inspired to deliver their best work.
Take a look around you. Is anybody wasting your — or your organization’s — time?