The Myth of Productivity Cost Savings

We’re well into the NCAA’s March Madness and according to the outplacement firm Challenger Gray & Christmas, the first week of this year’s tournament will cost firms $1.8 BILLION in “unproductive wages.”  Really? Call me a non-believer, but I don’t buy it.  CEO John Challenger refutes my disbelief by saying, “Those who insist there will be no impact are kidding themselves. It might be a slight drop in output or it could be slow Internet connections as bandwidth is sapped by employees watching streaming feeds of the games.”

I have not looked at the details of the study, for instance to see if they factored in the increases in productivity at the local watering holes, and I’m not saying there is no impact, but to make such a claim is akin to fear mongering.  Do we really think that companies lost $1.8 billion in revenue last weekend solely due to the NCAA tournament?  This is where the great myth of productivity cost savings lies.

To make such a projection likely has the following assumptions:

1)      Every minute of the work day is productive

2)      The work that is supposed to be competed does not get done or is delayed

3)      A minute wasted/saved/etc. by any employee is a minute to the bottom line

4)      Productivity is measured using paid hours, not just hours worked (otherwise you can’t put a cost on it)

If anyone truly believes these assumptions, then to use the words of Mr. Challenger, they are “kidding themselves.”  To refute:

1)      Every minute of the work day is not productive.  To assume that in service organizations that every person is 100% utilized every minute of the day is a fantasy.  Even in the world of the assembly line, with tight time standards, there are allowances given for fatigue, rework, etc.

2)      The work that is supposed to get done gets done, usually on time.  A significant number of employees who have the ability to research on “company time” are likely salaried employees and are exempt from overtime, therefore, time they spend on brackets is made up on their own time.  Can you imagine if Monday morning someone came to work and said, “Well, the reason I didn’t get that assignment done was because I was filling out my brackets….”  That would likely be their last day with the company!

3)      A minute saved or wasted does not translate directly to the bottom line.  Over time, and if there are enough minutes it can, though not on a 1:1 ratio.  The only way the bottom line is impacted is if you reduced actual hours paid (overtime of regular), or reduced staff.

4)      The only way that you can put a dollar cost on productivity is to base it on hours paid.  If based on hours worked, then the dollars used have to be adjusted, and that gets very convoluted.

Why is this relevant?  Because organizations use and get fed this line from vendors all the time.  How many times have you been told that by installing this new “system” that it will reduce your costs through productivity savings?  Well, as I stated above, unless you reduce your staffing, or your actual hours paid, there is no real savings.  There may be “opportunity” savings that you can translate to reduce staffing or hours later, but by saving each person 10 minutes a day does not equate to 10 minutes of reduced costs.  On the other hand, you could use your new “savings” to increase throughput or sales.  But that’s increased revenue and not reduced costs.

The morale – be careful when people start throwing dollars around productivity savings.  They may not be real….

Let me know your thoughts!

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