Productivity Metrics Not Just for Factories

By Demos, Darryl; Dinkin, Les | American Banker, November 5, 2002 | Go to article overview

Productivity Metrics Not Just for Factories


Demos, Darryl, Dinkin, Les, American Banker


Productivity - the goods and services produced from each hour of work - is the magic elixir of economic progress, according to Federal Reserve Chairman Alan Greenspan. It is why we, without working longer hours, live better than our grandparents did.

Given productivity's importance to revenue and earnings growth, it surely must be of critical concern for financial services executives, right?

Wrong.

In fact, return on revenue per unit of labor or expense does not appear to be a critical agenda item in the boardroom. Revenue growth and expense management and reduction are, but revenue per full-time employee is generally not.

When we polled senior executives at major U.S. financial services firms, these simple productivity measurements were surprisingly not represented through specific metrics or delineated corporate goals. They consistently mentioned three reasons for this. We'll call them the three productivity myths.

Myth No. 1: Productivity is about widgets. It applies only to the manufacturing and retail industries, not services - and especially not financial services.

Myth No. 2: There is no practical way to measure productivity, especially in financial services.

Myth No. 3: Productivity just means "cost reduction." Revenue is not relevant.

On a macroeconomic level, productivity is defined by gross domestic product. It equals the value of goods and services divided by total labor hours. The GDP, and therefore productivity, measures how much value is produced for each unit of labor.

Value in financial services, from a metric point of view, can actually be seen as overall profit or revenue per full-time employee or equivalent. The most likely candidate for this metric would be operating profit divided by total FTEs. The key is to pick your measurements and track them over time for specific lines of business, customer segments, operating departments, and functions, as well as for the organization as a whole.

This approach supports the overall development of the enterprise and the deliberate strategic and tactical efforts to make it healthier. Productivity is best understood as a metric and a process that financial services firms implement to raise the value of employees' output.

However, extraordinary gains in this metric do not happen by accident - you must pick a solid strategy and optimize your people, processes, and technology to deliver the expected results.

We believe that senior executives should know the value their firm produces for each FTE, in both the front and back offices. We also believe productivity can and should be considered a critical metric in any industry, including financial services.

In effect, we are looking at the return (both revenue generation and reduced cost of work produced) for each dollar invested in the enterprise and in specific functions (for example, sales generation and processing). There are two kinds of productivity: expense-driven and value-driven.

Expense-driven productivity involves cutting costs and can deliver significant improvements in profitability.

Keep in mind, however, that though the cost of input declines, the value of output stays flat. There is improved profitability with no improvement in quality. Investing capital and restructuring jobs are examples of what we call "value-driven productivity."

Value-driven productivity increases the value of output and reduces the cost of input, which improves profitability and strengthens long-term competitive advantage. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Productivity Metrics Not Just for Factories
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.