The One KPI Every Board Should Be Tracking but Isn’t
In today’s fast-paced and competitive business landscape, productivity is the cornerstone of success. Yet, many organisations struggle to define and measure it effectively. Without accurate productivity measurement, businesses risk operating inefficiently, missing growth opportunities, and falling behind their competitors. Understanding why measuring productivity is essential and how to do it correctly can unlock untapped potential and drive long-term profitability.
The Importance of Measuring Productivity
Productivity is more than just a buzzword; it is a critical business metric that reflects how efficiently an organisation converts resources—such as time, money, and labour—into meaningful outcomes. It’s like the heartbeat of a business. Measuring productivity provides several key benefits:
Photo credit : Gerd Altmann
Informed Decision-Making
Productivity data empowers business leaders to make strategic decisions based on facts rather than assumptions. Whether it’s investing in new technology, reallocating resources, or refining processes, data-driven decisions are more likely to yield positive results.
Identifying Bottlenecks
Accurate productivity measurement helps pinpoint inefficiencies within workflows, allowing organisations to address issues before they escalate. Understanding where time and resources are being wasted can lead to targeted improvements.
Enhancing Employee Engagement
When productivity is measured transparently, employees gain clarity on expectations and performance metrics. This fosters a culture of accountability, motivation, and continuous improvement.
Aligning with Organisational Goals
Measuring productivity ensures that day-to-day operations align with long-term business objectives. This alignment helps in maintaining focus and avoiding resource misallocation.
Driving Profitability
Ultimately, improved productivity translates to higher efficiency and profitability. Businesses that consistently track and optimise productivity can achieve sustainable growth and a competitive edge.
PWQ and GVA: The Right Metrics to Measure Productivity
Traditional productivity metrics such as profit or revenue per employee are flawed proxies for measuring true organisational efficiency. Instead, businesses should focus on two essential metrics:
Productivity Wage Quotient (PWQ)
As introduced in UNBLOCK, the PWQ is a powerful measure that compares an organisation’s productivity with its mean average salary. If the PWQ is greater than one, the organisation is operating profitably; if less than one, it indicates potential financial inefficiencies. This metric helps business leaders understand whether their workforce is generating sufficient value relative to their compensation.
Gross Value Added (GVA)
GVA measures the value an organisation adds to its inputs (e.g., raw materials, services) to produce outputs. This financial metric provides insights into how efficiently a business converts resources into profit. GVA, when monitored alongside PWQ, offers a comprehensive understanding of productivity at an organisational level.
Why Traditional Metrics Fall Short
Revenue per Employee: This metric does not take into account any inifficiencies in the products and services an organisation buys in order to deliver the revenue. It’s a lot like the ‘turnover is vanity, profit is sanity’ sentiment, revenue alone can mask all manner of poor producitivty, and even high levels of revenue per employee might result in a loss making organisation.
Profit per Employee: While useful, profit figures can be influenced by short-term financial decisions and accounting practices that don’t reflect underlying productivity. Employees cannot connect with this number, because there are so many component parts that are out of their control, not least the compensation of their colleauges and the directors.
Instead, using PWQ and GVA allows businesses to track true productivity trends and avoid common pitfalls associated with traditional financial metrics.
Making Productivity Measurement a Habit
For businesses to truly benefit from productivity tracking, they must incorporate PWQ and GVA into their regular reporting cadence. It is recommended that organisations measure these metrics quarterly, using trailing 12-months data, and include them as key performance indicators (KPIs) in board packs. This consistent measurement allows businesses to:
Identify trends and patterns over time.
Make timely strategic adjustments based on data.
Ensure accountability at all levels of the organisation.
Conclusion
Measuring productivity is not just about tracking numbers; it is about gaining actionable insights that drive meaningful improvements. By adopting a balanced and strategic approach to productivity measurement—focusing on PWQ and GVA—businesses can unlock new opportunities, enhance employee engagement, and achieve long-term success.
Are you currently measuring productivity in your organisation? If not, now is the time to start. Embrace data-driven decision-making and set your business on a path to greater efficiency and profitability.