Discretionary energy: a key measure of productivity

Productivity is one of the main engines of economic and income growth for both countries and organisations. Some benchmarks being used to measure productivity include income per capita and compensation of employees, in relation to gross domestic product (GDP) – somewhat an input to output correlation. Are these benchmarks accurate and effective in determining the real productivity level and what initiatives could organisations put in place to ensure salary increment is in line with productivity improvement?

Input versus Output versus Outcome

Many people have heard of corporate urban legend where CEO have CCTVs installed in company cafeteria to monitor how much time their employees spend at lunch; or story of CEO who monitors attendance diligently by checking employees’ punch cards daily or deploying biometrics technology such as thumbprint recognition when entering office to monitor attendance and punctuality. There are also companies in some countries that award employees who did not take medical leave in a year, as they believed that full attendance at work equals “productivity not lost”.

These CEOs believed that time spent at work equals productivity. While this type of belief may be applicable or somewhat rings true in labour-intensive jobs for example, manually laying of bricks or baking of cakes, it does not apply to all jobs especially in this modern world and with the new generations of workforce.

Future of Work

Productivity measurement that organisations use now may not sustain into the future. In the future of work and digitalisation, jobs that carry the most value are jobs that require thinking capability, problem solving, ability to innovate, ability to forecast future needs and challenges, ability to drive or conduct ground breaking research. Success for these types of jobs cannot be measured using traditional “input vs output formula/method”. With technology such as mobile smart phones, virtual conference tools, virtual workspace, cloud storage and sharing of data and internet, employees who are well-networked and connected could easily deliver outcomes from anywhere at any time. It is about time for organisations to look at productivity at a different light where people are measured based on the outcome they are supposed to produce or deliver instead of the time they put in.

Right measurement of productivity

Let me share one classic example; on how organisations measure their productivity in terms of learning and development of their employees. Many organisations measure the “effectiveness” of their learning and development initiatives by measuring the number of training hours spent on training programs per employee. What these organisations failed to measure is the real “effectiveness” of the training programs in terms of how the training programs have impacted their employees’ work and contribution to the organisations.

First, there should be a proper segmentation of employees (for example by job families, job levels and proper training needs analysis done), ensuring that the different groups of employees attend the right training programs to drive the organisation’s objectives and to help them develop further for career advancement in their respective or chosen area; and/or to improve in their current job functions.

The right training programs could drive positive outcomes for the employees and organisations. For example, should you need to develop communication skills and presentation skills in your first-line managers, there should be assessment done to gauge their current competency level, then identify the best-fit training programs for them. Instead of just measuring the hours spent on attending the training programs, these first line managers should be re-assessed more comprehensively over a pre-determined time-period for example, in 3 months, 6 months, 9 months and in 12 months by soliciting feedback from various stakeholders, peers and even customers. In this case, such feedback is important for the business leader to see if the training programs have resulted in better / improved communication and presentation skills in their first-line managers.

Productivity should be aligned to business objectives or objectives of an initiative and should be measured based on key performance indexes (KPIs) set for the individual employees based on their specific roles.

Where do organisations start?

At Korn Ferry, we see more and more organisations conducting job evaluations and strategic workforce planning to drive sustainability of their people strategies, improve productivity level, efficiency and to ensure your have the right number of employees at the right level and at the right pay. Understanding where you are right now in terms of your workforce’s strengths and weaknesses; and what you want to achieve in future, aligning to your business objectives and strategy is crucial.

Backed by Korn Ferry’s research over the years and Korn Ferry’s Superior Performance Model, we see a strong linkage between productivity and discretionary energy at work. In a knowledge-based economy, where people are the primary determinant of organisational success, the extra effort of engaged employees is a vital asset. Engaged employees care about the future of the organisation and are likely to perform better on business-critical key performance indicators such as profit, innovation or safety.

Highly engaged workers are highly motivated and committed and they are enabled, being in the right roles working in a supportive environment. Organisations with highly engaged and enabled employees reported 4.5 times greater revenue growth, improved customer satisfaction by 89 percent and 50 percent more productive.

There are six components to driving superior performance and productivity for organisations as outlined in the table below.

For example, to ensure there is clarity in an organisation’s goals and aspirations, having an effective Employee Value Proposition (EPV), brand proposition, continuously communication driven by leaders are crucial. We must not forget that good leaders promote organisation enablers and people drivers; in turn, their leadership is enhanced by a superior working environment. Leadership is the wiring that directs discretionary energy between people and an organisation.

To drive commitment for example, organisations can start measuring the level of employee engagement by conducting an employee engagement survey to identify key areas of improvements to be action upon, share wins and success stories to further boast morale and engagement and most importantly to recognise your top performers and reward them accordingly. If you want to break away from thinking where salary is function of input and output, then we will always rely on benchmarking to know the right pay for the job. However, to motivate employees to put in discretionary energy, we will need to ensure their effort (which is measured by outcome and not just input) is recognised by giving compatible variable bonus / incentives.

These six components to driving superior performance and productivity for organisations can be adopted by small and medium enterprises (SMEs), multi-national companies (MNCs) and the public sector alike, albeit in different scale.

Sometimes, to drive superior performance and production in organisations would a chance in organisational culture. A few years ago, Korn Ferry Malaysia was being invited by a manufacturing client to design and drive core policy changes to move the organisational culture from a sales-oriented culture to a customer-service-oriented culture. This required a change of business model, processes and the mindset of the employees.

First, they conducted an employee engagement survey to find out what make their workforce tick and to identify areas of improvements. Next, they change the organisational structure to be reflective of the new business model which they would like to adopt. This is followed by educating their people especially front liners on how to focus on services rather than sales. They also align their employees’ KPIs to the new business model and objectives.

By changing the organisational culture and structure, this client was able to improve its customer services satisfaction level by close to 20 percent and maintain their market positioning considering they are in an industry which is increasingly challenging and overcrowded. The outcome was also long-term, as when their employees started focusing on customer service and being close to their clients, they also benefited from understanding their clients better in terms of their clients’ expectation and wants, leading to innovation and design of products which are highly receptive by the customers.

The best way to drive productivity is to ensure KPIs set are aligned to business objectives. Business objectives must also be communicated clearly by the leadership to all employees. When there is clarify, employees will understand how their performance will be measured and how their contribution will impact on the organisation, which in turn will impact their variable bonuses and career advancement opportunities. The organisational culture and structure must support practices that will drive the behaviour and outcome that you want in your employees. Remuneration will always be part of the equation, but organisation can focus their reward budget on the roles that are most critical to the business. Organisation should also provide platform and tools for employees and people managers to frequently review their own performance and that of their team to ensure timely intervention could be implemented to solve challenges and issues along the way.