In a few instances, the impact of increasing process productivity or saving people’s time on the bottom line is clear and simple. For example, it may reduce the expenditures on overtime or contract workers.
However, beyond those few cases, productivity improvements for employees do not directly reduce expenditures, but instead increase capacity.
How much these improvements benefit the bottom line depends on how that capacity is put to use. The impacts can be extremely profitable or can amount to nothing — or worse!
For example, an organization has 30 people at an average cost per person per year of $50k. This organization is able to make major process improvements that achieve a 50% reduction in the amount of time required to handle the current workload. In theory, the impact of the productivity improvement would be the same — 30 people, 50% productivity improvement, $50k/year — should be simple math, right?
But in the real world, the impact would vary dramatically. Other factors, such as potential for sales growth, amount of attrition, transferability and scarcity of skills, etc. have a very significant impact on the value of any productivity improvements the organization may achieve.
In this example, it turned out that demand for the work is stable, neither increasing nor decreasing. Consequently, no new value-adding work is brought into the organization and there is neither attrition nor layoffs. People quickly add non-value-adding activity to fill the gap and make themselves look and feel busy.
Therefore, the productivity improvements produced neither revenue growth nor cost reductions; the impact of the improvement in is slightly negative — equivalent to the value of any time and investment expended to achieve the productivity improvement.
A good example of how, in many cases, conventional wisdom isn’t so wise!