Why You should focus on productivity and not efficiency

I’m known among my friends for being rather pedantic (to put it mildly!), and I was drawn into what seemed like a particularly trivial semantic debate the other day. The question at hand was whether efficiency and productivity were the essentially same concept, and hence could be used interchangeably.

At first glance, it might be tempting to see them as equivalent. Both have to do with improving the ratio of inputs to outputs.  Efficiency is usually defined as doing the same with less, according to Michael Mankins in an article published in the Harvard Business Review in March 2017[1], while productivity is defined as doing more with the same. Therefore, a focus on efficiency leads to a reduction in the denominator of the output/input ratio, while a focus on productivity seeks to grow the numerator while holding the denominator constant. From that perspective, one might therefore conclude that they are basically the same. However, from a business perspective, the outcome can be very different.

An efficiency focus is fundamentally a negative mindset – it is about reducing, taking away, eliminating. It often leads to zero-sum thinking and adversarial discussions, where someone often needs to make a sacrifice in order to achieve the desired savings. One source of concern in many companies is the risk of job losses if efficiency improves. It is also inherently limited, since costs can only go to zero, and becomes exponentially more difficult to achieve once the obvious sources of waste have been eliminated. Although it has been the dominant paradigm in management science for many years, there are limitations to a pure focus on efficiency.

In contrast, a productivity focus tends to be positive and expansive, looking at the potential that can be achieved. This should trigger collaborative discussions that engage and excite the team. According to Mankins, inspired employees are 125% more productive than merely satisfied employees – and infinitely more beneficial for the company than disengaged zombies!

Let’s focus on one specific application – in sales pitches. As a sales technique, productivity is a more powerful frame than efficiency. I’m currently at a startup that provides HR management systems on a software-as-a-service model. The technology can seamlessly integrate hiring, rostering, timekeeping and payroll, greatly simplifying and streamlining HR and operations. The sales team, constantly nagged to ‘focus on benefits not features’, has usually tried to sell this software on efficiency grounds – man-hours saved in the rostering process, time and manpower savings in payroll processing, reduction in the time taken to hire for specific shifts, etc. In many ways, this is perfectly understandable, as the benefits are quantifiable and tangible, and easy to communicate to the client.

The alternative framing, which we are starting to roll out, is to focus on the productive potential that the software unleashes. Yes, efficiency rostering saves the manager time, but of greater significance is the time it frees up for him to do the higher value-adding activities that contribute to the bottom line. Yes, better hiring saves time, but more crucially, it ensures that sections of the restaurant are not closed at peak hours due to a shortage of staff.

This reframing can overcome two possible barriers to a successful sale – limited return on investment (ROI), and fear of job losses. Whereas the client had previously been thinking of ROI in terms of man hours saved, he is now thinking about the revenue upside that can be achieved with those saved hours. An hour of the manager’s time, assuming roughly 200 hours worked a month and $3000 in salary, is in theory worth $15 – and some owners might not even count the savings since they are already paying the salary! In contrast, that same hour spent training and motivating staff would be worth many times more, given that the cost of turnover can be crippling for a business.[2] Similarly, ‘recruiting staff faster’ might be worth a few hours of HR executive salary – perhaps $50. In contrast ‘opening the mezzanine section at lunch every day’ could be worth thousands of dollars each month. It becomes much easier to show that the profit impact will be many multiples of the cost of adoption!

The second barrier is the fear of job losses. Pushing the time and cost savings associated with the software might impress the general manager, and the sales team will often leave the meeting feeling upbeat, only to be told a few days later that the client has decided not to adopt the solution. Why? You can be sure that the operations manager has used all the ways and means at his disposal to argue against the solution, because of the perceived threat to his job. Instead, if you generate excitement about the potential that can be achieved with the time you free up, you can get everyone to buy into the vision.

I hope by now I’ve convinced you that productivity and efficiency are indeed very different. One man-hour saved can either be worth the worker’s hourly wage, or the revenue upside from effective use of that time, a figure that should be many times higher. So focus on productivity, and engage your client in positive, collaborative discussions about the large potential upside. Hopefully, this will improve the productivity of your sales team as well!

[1] https://hbr.org/2017/03/great-companies-obsess-over-productivity-not-efficiency

[2] Research has found, for example, that it might cost as much as 2 months salary to replace even a low-wage hourly worker https://www.americanprogress.org/wp-content/uploads/2012/11/CostofTurnover.pdf

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