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How to measure productivity in a knowledge economy

When a business produces intellectual capital and intangible assets, it is not effective to measure success as a direct function of production—and this leaves many organizations struggling to accurately assess employee productivity. To recognize invaluable team members and identify poor performers, it’s critical to make sure you’re looking at the right metrics.

When a business produces intellectual capital and intangible assets, it is not effective to measure success as a direct function of production—and this leaves many organizations struggling to accurately assess employee productivity. To recognize invaluable team members and identify poor performers, it’s critical to make sure you’re looking at the right metrics. 

Tracking and analyzing employee performance incorrectly can produce useless data and sidetrack all your efforts to build efficiency and productivity into your operations. In a world of hybrid and flex work where effectiveness can be hard to quantify, what tools and processes can organizations use to measure employee performance?

Why Organizations Struggle With Measuring Employee Productivity

Tracking employee productivity may seem straightforward, but many organizations struggle to do so accurately. Most work these days cannot be quantified as “units/worker/day.” According to the National Statistical Office of the UK, typical metrics for productivity will only apply for the 80% of the economy that is the market sector where a business receives money for their goods and services. This makes it easy to observe their output and measure their productivity. Even when using effective methods, there are several reasons many productivity measurements go wrong: 

  • Lack of purpose in the measurement process. Tracking productivity and performance must be done with a goal in mind, and not for the sake of judging, rewarding, or punishing people. 
  • Lack of trust. If your employees don’t trust the organization and its management, they are unlikely to acknowledge the measurement results. Leaders must create a transparent environment where employees feel the productivity evaluations are done fairly and honestly. When organizations apply productivity tracking to pressure employees and force performance, employees may resist being tracked
  • Measuring the wrong metric. Typical measurement of hours worked can be ineffective for hybrid and alternative work schedules. Innovative time tracking solutions that allow for flex and hybrid work are important to foster transparency and accountability. 
  • Lack of empowerment. Organizations that don’t empower employees to succeed often convey that measurement is a non-productive activity, and data is irrelevant. 
  • Lack of engagement. Employees often view performance measurement as a necessary evil. Current productivity measurement methods do not encourage employees to see productivity evaluations as a way to improve their performance, but rather as a means for management to evaluate them. 

When poorly implemented, performance reviews and productivity tracking create employee frustration, leading to the very outcome they try to prevent: a decline in productivity. 

Is Productivity the Wrong Metric to Measure?

Productivity is defined as the rate of output per unit of input. Key Performance Indicators (KPIs), are widely used, with 79% of organizations using KPIs to measure productivity at the beginning of the fiscal year. In today’s economy and with new ways of working, this measurement cannot accurately reveal an employee’s contribution to the organization. 

Outdated labor productivity metrics can be counterproductive when the world is increasingly focused on producing knowledge instead of physical products. The traditional measurement of output vs. input presents two problems: 

  1. We measure outputs instead of outcomes. Progress toward shared goals cannot always be measured in concrete ways.
  2. There is no measure of the quality of the output. Therefore, a metric can mislead business leaders regarding progress; for instance, suppose an organization produces four mediocre products instead of two great ones. Which is better for the organization? 

Instead of measuring productivity in terms of output, organizations must include other factors contributing to their success. Quality of outcomes and the overall impact an employee has on the bottom line are some factors they should consider. 

How to Use Technology and Best Practices for Effective Employee Productivity Measurement

Organizations can improve how they measure productivity while at the same time increasing performance by following these simple steps: 

Identify Your Baseline

Every journey starts somewhere, so when starting out to improve productivity tracking, you must establish where you are. Typically, you measure operation output numbers divided by the number of employees. In a knowledge-based organization, this calculation needs to change to reflect other types of output. 

Because knowledge workers’ product is thinking, you need to use qualitative metrics to measure their productivity. One way to create a baseline of productivity is to collect data from workers by asking them how they feel about their work. 

You can add a quick questionnaire at the end of a work session, asking them to rate their work day. You can use agree/disagree statements, like: I feel I didn’t get much done. I completed all my work successfully. I feel overwhelmed by tasks. Open-ended questions are also useful, although more difficult to quantify and analyze. There are applications that allow employees to submit anonymous responses so your team members don’t need to fear being identified.  

Once you know what is normal for your business, you can set your targets for improvement. 

Define Your Goals and Targets

Use industry benchmarks to reveal insights on what would be beneficial productivity goals for your organization. Use these objectives to help determine your business goals and set productivity targets. Be sure to reflect on your organization’s actual capabilities compared to other  industry leaders. 

Defining Tasks in a Knowledge-Based Economy

In knowledge work, the task is rarely evident and easy to identify. For example, a digital marketer may consider attending a meeting with a client one task, and setting the criteria for an ad campaign another task. 

Because not all tasks create the same value for the organization, measuring tasks for themselves can lead to a lack of clarity. Take the time to drill down and identify the tasks that form the core processes in your organization. Assign a value to each one. 

More Software, Less Manual Work

Simplifying tasks with software is one of the easiest and more effective ways to increase productivity and measure it without creating a burden. Employees who see their tasks simplified are more likely to be productive and embrace performance measurements. Determine which processes are not adding value to your core business and automate them. 

Quality Is as Important as Quantity 

Evaluating the output of a knowledge worker is infinitely harder than measuring how many bottles they can fill in an hour. That’s why assessing developers by the number of lines of code written per hour is useless. 

Quality must be a factor when assessing productivity. What the employee produces is as important as how much. For instance, if a developer spends time thinking about the solution to a problem before writing a single line of code, does it mean they are less productive than another worker who produced 100 lines of standard, repetitive code? 

Quantify Goals and Achievements

Once your goals and tasks are defined, assign a value to each one and start collecting data. Measure your observations against the benchmark you set in the first step.

Identify which workers are most active in these high-value tasks and are contributing more to your organization’s overall goals. Those are your productive employees. 

Measuring Productivity in a Digital Economy

How we measure productivity in our digital world is rapidly changing across industries. As companies embrace digital transformation, the old methods of measuring productivity become obsolete. Organizations should implement practices adapted to knowledge-based work to measure productivity accurately. This is done through identifying current strengths and weaknesses, setting goals, building efficiencies, and focusing on what matters.

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