Productivity is a measure of the efficiency of production, expressed as the ratio of output to inputs used. Performance is defined as the accomplishment of a given task measured against preset standards of achievement, such as accuracy, completeness, cost and speed.
In the wider context of performance management, productivity is measured against productivity KPIs. In their simplest form, productivity KPIs, such as # Units per man-hour, stand at the basis of both modern and older performance evaluation systems. However, it is only but natural that we ask ourselves the following question: How much productivity is there left to both measure and reflect on performance?
In her book, The Measurement Nightmare: How the Theory of Constraints Can Resolve Conflicting Strategies, Policies, and Measures (1999), Debra Smith talks to her readers about a real-life situation, based on one of the most common productivity KPIs in use: # Units per man-hour. And it all starts with defining the KPI. According to her, # Units per man-hour is a “summary of standard costing’s use of standard labor hours and standard labor rates, resulting in labor variance analysis and decisions designed to improve.”
“There is not one productivity indicator that does not reflect on performance. And there is not one neglected faction of performance that does not impact productivity in one way or the other.”
From here on, Debra Smith describes this particular situation in which, on an intuitive basis, some executive manager from a manufacturing company decides to increase # Units per man-hour by cutting labor costs with highly automated machines. So, instead of six loom operators, four were assigned to tend to one loom per shift.
And the effect was as expected…at first. # Units per man-hour had increased at the loom. However, because of the downtime of the looms which now increased, the total output of the looms had decreased.
Due to a lack of attending operators, the downtime of the machines escalated up to a point where it impaired all subsequent processes. When that happened, all downstream processes began to suffer from starvation. % On-time delivery of products declined, $ Labor costs went up due to # Overtime and, instead of going up, $ Net profit went down.
Debra Smith’s account of the negative side effects one productivity measure can propagate, when taken out of the context of performance, stand to show that there is more to productivity in performance than counting outputs per unit of input. And this is more visible when dealing with the most popular dimension, which is labor productivity.
In the context of performance management, labor productivity can be translated through individual KPIs. When dealing with employee performance, individual productivity KPIs become part of a more complex performance evaluation system. The overall individual performance index simulates an average between the score of the individual performance scorecard, the individual competencies score, and the employee behaviors score.
Where do KPIs fit into this equation? Productivity KPIs are mindfully incorporated into the individual performance scorecard, to best reflect the quantitative aspects of employee performance. And this is where everything gets tricky and we start asking ourselves: How much of one employee’s performance should be measured in terms of quantity?
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Let’s take, for example, the automotive industry. With automotive manufacturing, productivity is a key performance indicator that measures the total production volume of the actual manpower, while taking into consideration the effective days officially scheduled for each automobile.
The core performance indicator of the automotive industry is # Hours per unit or # HPU, and it reveals the number of hours required to build a car. However, at its basis, this # HPU cannot be measured outside # Available manpower, # Effective working time, and # Individual production volume. Let’s add % Absenteeism rate to this reasoning.
When dealing with target production volumes it is important that the plant works at its full throttle to achieve those targets. Given this requirement, % Absenteeism rates should not be overlooked, as they have a major impact on the # Effective working time, which here on, impacts the # Production volume, and, ultimately, the # HPU.
However quantifiable, % Absenteeism rates also reflect on less quantifiable variables. This further takes us to the issue of % Employee engagement: a roughly quantifiable, uncontrollable driver of not only productivity but of performance as well.
So, how much productivity is there left, to both measure and reflect on performance? A great deal. And maybe the best way to look at it is by envisioning this revolving cartwheel…this continuous circle, which turns productivity into performance and vice versa.
All things considered, there is not one productivity indicator that does not reflect on performance. And there is not one neglected faction of performance that does not impact the former in one way or the other.
For more articles on productivity improvement, click here.
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Editor’s Note: This article has been updated as of September 18, 2024.
Remote work and the implications of continuing the process, including its potential impact on employee performance, are widely discussed. However, there is no right answer, and it is not one-size-fits-all.
The future of work includes flexibility, employee experience, agility, and the responsible use of artificial intelligence (AI)—these significant shifts impact where and how employees work. With an increase in remote work options, we have seen positive trends in work-life balance, employee empowerment, inclusivity, and an increase in diverse talent. These factors are also known to increase employee productivity and retention. According to BCG, a considerable population of employees are ready to leave their jobs if they find their flexible work arrangements unsatisfactory. Based on their survey, approximately 90% of women, caregivers, individuals identifying as LGBTQ+, and those with disabilities, deem flexible work options as crucial in determining whether they will continue or resign from their current employment.
Remote work productivity is subject to debate due to various factors that must be considered. Some suggest remote work can increase productivity due to a flexible schedule, no commute, and fewer interruptions. While many employees thrive in a remote work environment, some find it challenging due to the discipline it demands.
Remote work was on the rise even before the COVID-19 pandemic. A July 2023 report from Stanford University found that working remotely has doubled every 15 years. Then, when the pandemic occurred, although devastating, it provided a new perspective for those previously constrained, forced to relocate, or live in less favorable locations to work for a specific company and advance their career. Worldwide ERC states that around 56 million Americans moved to new residences between December 2021 to February 2023 due to COVID-19-related shutdowns and the surge in remote work and online education. With such a huge increase in their number over the past few years, this begs the question: do employees working remotely demonstrate productivity?
Taking a deeper look into the study by Standord University, researchers shared that remote work employees’ productivity differs depending on perceptions—the nature of the research and the conditions under which it was conducted. The report revealed that workers believed productivity was higher at home (approximately 7% higher), while managers perceived it lower (around 3.5% lower). Another example, according to a poll by the video presentation applications mmhmm, 43% prefer office work and 42% favor working from home for peak productivity. Moreover, 51% of employees stated that working asynchronously or having the flexibility to set their schedules contributed positively to their productivity. Perceptions aside, the Stanford analysis found a 10% to 20% reduction in productivity across various studies.
The bottom line is today’s company culture is crucial. Ensuring work-life balance and putting the employees in the driver’s seat are the best ways to retain and increase productivity because they will feel valued and empowered. In a 2022 Microsoft employee engagement survey, 92% of employees say they believe the company values flexibility and allows them to work in a way that works best for them. An even higher percentage (93%) are confident in their ability to work together as a team, regardless of location. People have different preferences—some individuals opt for a hybrid approach, while others choose either remote or in-person work exclusively.
Regardless of the work setup, company leaders and human resources (HR) or human capital management (HRM) executives should ensure that they can still make a lasting impact on employee performance. One measure involves establishing key performance indicators (KPIs) that assess innovation, program, project, and product success—the output, not the physical location. Another crucial step is developing a strategy that includes all future work options, such as in-person, hybrid, and remote choices. Employees tend to be more productive if there is a level of empowerment that allows them to decide where to do their best work.
Planning in person events makes a difference. Leaders who bring new hires and internal transfers, new to the team, on-site for several days should see an uptick in productivity post-gathering. In-person team or company-wide gatherings 1-4 times per year provide employees an opportunity to reset and socialize. Moreover, managers should bring teams together for major program and project kick-offs. When onsite in person, people being present makes a difference. Discourage using Teams or Zoom when employees are in the general vicinity. I have seen companies spew the importance of in-person just to fly employees into a specific location and have people take meetings from their desks or in a different on-site building-conference room, defeating the purpose of in-person interaction.
Having organizations foster all work options is critical and foregoes having to decide which is best. There is no right or wrong answer to this challenge; it should be considered a new way of working and requires future-forward ways of thinking, just as we do with emerging technologies.
Interested in more articles on productivity improvement? Click here.
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About the Guest Author:
Dr. Malika Viltz-Emerson is a Senior Global Human Resource Leader at Microsoft. She has over 20 years of experience in human capital management. Her mission is to identify and address the real-world challenges and opportunities for employees and the company, and design and implement optimal solutions that leverage the latest tools, technologies, and processes.
Editor’s Note: This article has been updated as of September 18, 2024.
The Balanced Scorecard (BSC) is one of the most important performance management tools used to improve business functions and their outcomes. This tool is used not only at the organizational level but also at the departmental level.
By using departmental scorecards, managers are able to get detailed insights into the performance of their departments. The scorecards can also determine the responsibilities of the employees in terms of achieving strategic objectives.
To implement an effective balanced scorecard for the departmental level, organizations should take into consideration these best practices.
Develop the Right Template
Employees are often asked to collect data since every manager knows that it is essential in generating qualitative insights. However, the different performance reports could easily lead to different interpretations. A well-designed template leads to a clear, structured reporting and improves communication through standardization.
The template should contain four perspectives that meet the organization’s strategic needs. The most commonly used perspectives are Financial, Customer, Internal Processes, People Learning, and Growth.
Moreover, the template should also display the objectives associated with each perspective and the KPIs associated with each objective. For each KPI, the target and thresholds, the trend, and the previous and current result should also be presented.
Choose the Right Objectives
When preparing a departmental scorecard, one of the most important steps is to select the right objectives for the different categories, and those objectives should align with the organizational and departmental strategy. Through the cascading process, the organizational objectives and KPIs are translated from the strategic level down to the departmental level.
The departmental scorecard must contain some specific objectives depending on the activities of the operations team. The same objective can be cascaded to more departments, each of them measuring it through different KPIs. Some organizational objectives may not be cascaded to lower levels.
For example, the objective of the Financial perspective is to Increase profit. This organizational objective can not be directly cascaded to the human resources department since the human resources department has no direct influence on the revenue of the organization. However, they could reduce their spending in order to increase organizational profit. Therefore, the objective for the human resources department could be to minimize operational costs. Since the sales department is responsible for profit generation, they can cascade down this organizational objective without any modification.
Choose the Right KPIs to Measure Chosen Objectives
As mentioned before, it is recommended not to cascade all objectives and KPIs from the organizational level to the departmental level, but organizations may add specific ones that represent the department. The most important attributes in KPI selection are relevance, clarity, and balance.
In many cases, organizational and departmental scorecards may not be enough to communicate the organizational strategy to all employees. Therefore, individual scorecards should also be created for them.
Data Sources for a Balanced Scorecard
During the scorecard development process, organizations may find it hard to determine the right objectives and KPIs. Objectives and KPIs must be based on relevant data. There are two types of sources of data to consider: primary and secondary.
Feedback from internal stakeholders can be considered as an internal primary data source, while feedback from external stakeholders is an external primary data source. Secondary internal sources could a company’s previous reports and strategy plans, while smartkpis.com and academic articles are external secondary sources.
Figure 2: Marketing Departmental Scorecard Example
Benchmarking is a highly structured process which aims to improve the performance of an organization by comparing it with other competitors or with the market’s best practices. Secondary benchmarking refers to a benchmarking study that is based on data which is accessible to the public and the comparison is usually done within a specific industry. The gathered data comes mostly from annual, sustainability or financial reports of the companies chosen as benchmarking partners.
Although less complex and much more limited, secondary benchmarking has specific advantages, as it is easy to deploy and it has the capacity to highlight key relevant aspects about the industry – trends or top performers. Moreover, secondary benchmarking helps identify the industry’s common and primary benchmarks, and it can form the basis of a very well structured primary benchmarking project.
For a better understanding of the importance of the key performance indicators (KPIs) used, it is mandatory to comprehend the difference between KPIs and benchmarks. Benchmarks play a key role in any benchmarking project and they can be seen either as the company’s goals, or as a baseline.
In the first case, companies usually choose benchmarks based either on the industry’s standards, or on top performance in the industry. These two set the performance level for all the other actors within the industry. In the latter case, benchmarks are used to highlight the current level of performance and to enable goal setting to increase performance.
In both cases, it is mandatory to have a performance management system in place and to measure performance through KPIs on a regular basis, at the departmental or organizational level. A performance management system pinpoints the current level of performance and enables organizations to see the differences between their performance and the industry’s average level of performance or that of the best performers within the industry.
However, in practice the situation is quite different and given the fact that organizations measure different indicators based on the key elements of their strategic objectives and their development strategy, a lot of differences between indicators or measurements can be spotted.
For example, some companies may focus on constantly innovating and improving their products, while other organizations within the same industry may perceive a high customer service performance as a key driver for their development. In this case, it is only natural that the production KPIs for the first type of organization would include:
One the other hand, organizations like the one in the second scenario will focus on KPIs such as:
% Drop call rate;
% Customer calls answered in the first minute;
% Agent utilization;
# Call handling time;
# After call work time; or
% Calls answered within SLA.
While this can block the actual comparison stage of a benchmarking process, it can also be seen as an opportunity, because it can drive organizations to change their focus, or at least consider giving more attention to another part of their business based on the common KPIs used within the industry.
One other important aspect to consider when choosing KPIs for a benchmarking project is the availability of data. For a complete and relevant output, you need to make sure that the chosen KPIs are reported by most of the benchmarking partners, or that the data has been available for more than just one year.
This will on one hand help you during the comparison process, and on the other hand, it will make it possible for you to spot the pattern of development of a single company. It will be hard to draw any insight, if just one organization reports that KPI and if data is available for a single year.
Based on the experience gained from deploying benchmarking projects and working with KPIs, the specialists at The KPI Institute have encountered one recurring issue which may impact the deployment of a benchmarking project. This issue concerns the terminology used when referring to KPIs and performance management in general.
Each company uses its own terminology and refers to specific processes in a language fostered by its organizational culture. Although two companies might measure the same indicator, they might be using different words and formats to express it.
For example, in the latest benchmarking project deployed by The KPI Institute – the Secondary Benchmarking Report Series within the Utilities sector – we have noticed that when referring to interruptions, some organizations named this term “supply interruptions” and others “interruption time.”
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Hence, to make sure that the results of a secondary benchmarking project are as accurate and as complete as possible and that similar KPIs are easily identified, I would recommend to start the data analysis phase with standardizing the names of all indicators from the data base according to TKI’s standards:
Use a short and concise name;
Add a symbol in front based on what the KPI measures;
Use the same name for indicators measuring the same process.
Moreover, the unit of measurement might differ from one company to another – some might measure the interruption time of supply for 100 customers, while others for 1000.
Another KPI example from the Secondary Benchmarking Report Series within the Electricity sector is the rate of electricity consumption, which can be measured in GWh or in MWh. Having different units of measurement affects the final output as the data cannot be compared.
For the first example, the data can easily be manipulated in such a way that it can be compared. If we are interested to report the numbers for 100 customers we can multiply the results for 1000 customers by 10. In the second case, we want to standardize units of measurement such as GWh and MWh, by simply converting one of them into the desired one, as per international standards.
In conclusion, make sure that you use these three simple recommendations in order to choose and standardize the indicators for your benchmarking report, as this is a very important step in the beginning of any benchmarking project:
Consider the availability of data during the KPI selection process;
If you wish to know more about benchmarking and all the challenges associated with it, The KPI Institute’s training program, Certified Benchmarking Professional, is designed to fill the gaps you might have or to provide complete new knowledge about aspects on how to conduct a benchmarking study.
For further knowledge, feel free to download any of our webinars that are focused around the idea of Benchmarking or take a look at our Benchmarking Solutions, which span from audit services to Benchmarking framework optimization.
Interested in more benchmarking best practices? Click here.
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Editor’s Note: This article has been updated as of September 17, 2024.
Benchmarking—i.e. learning from best practices—can boost a company’s performance by enabling a learning experience that relies on underlining the best in-class practices and their integration into your own organizational processes. Moreover, it allows companies to focus on strengths and weaknesses in comparison to those of their main competitors and, as such, it supports them in strengthening their position on the market. Nowadays, benchmarking is one of the most frequently used strategies for improving business performance.
Best practice benchmarking allows companies to conduct a comparison of performance data obtained by means of studying similar processes or activities performed by other organizations, and identifying, adapting, and implementing the practices that produced the best performance results. This represents the most powerful type of benchmarking, as it focuses on “action” and it is used for learning from the experience of others.
Through benchmarking, companies can easily determine which of their procedures would benefit more from improvement strategies and what they should do to become more productive and profitable. Comparisons are actually made in business on a daily basis, as companies need to know where they stand, in regards to their competitors, and frequently ask themselves questions such as: “Why are others better?”; “What can we learn from them?”; or “How can we catch up and become the best in our sector?”
Even if many companies have already adopted practices for measuring their performance by monitoring key performance indicators (KPIs), this aspect should be just the first one in calibrating an organization’s business performance. Hence, benchmarking sets some standards against which these key performance indicators can be measured and compared to.
Benchmarking can be used in any business to compare KPIs, and processes performance, to certain industry standards. As a general methodology, there are three questions to answer prior to starting a benchmarking study in your organization:
What will be benchmarked? ( e.g. processes, results)
Against what will your organization be benchmarked? (e.g. standards, other organizations)
How will be benchmarking used? (e.g. for continuous improvement, for evaluation)
The concept of benchmarking also relies on the idea that performance numbers can mean less when analyzed without having a point of reference (a benchmark) as a comparison starting point. For example, in airline industry, an airline company has a turnaround time of 55 minutes. Is it good, or bad? It is hard to find the answer, unless you compare this 55 minutes turnaround time to an objective standard, such as the industry average turnaround time for other airline companies.
Therefore, benchmarking enables a company to discover its performance gaps in comparison to another company and incorporate processes belonging to leading firms into its own process flow in order to increase performance and close gaps.
In conclusion, as measuring performance through KPIs has become a standard practice for most of companies that want to improve their performance, the next step necessary for improvement that should be considered is to implement a benchmarking study, aimed at comparing their performance against that of best practitioners. Without benchmarking, performance improvement could be limited, as it will only measure performance in isolation, with no reference to any industry standards or competitors’ results.
About the Guest Author:
