Last week, we focused on quality and its impact on IT Value. This week, we will take a look at productivity and its impact on IT Value.
IT is often credited with increasing productivity and for good reason. It is a proven fact that IT does increase productivity. The question is: how do you measure this productivity gain? How do you connect it to IT investment rate of return?
First, let us see specifically how IT increases productivity.
There are four ways in which IT can increase productivity:
- Doing things faster
- Doing more with less
- Reducing learning curve
- Eliminating rework
Doing things faster
We have discussed the IT value impact of doing things faster in the section on “time to market,” so we will not belabor the point in this section.
Doing more with less
The logic is simple. Organizations do their work through processes. In other words, they deliver their products/services i.e. value to their customers through processes. Processes consume resources – material, time and labor.
Theoretically, one can deliver “the same for less” by making processes more efficient i.e. by reducing the steps in a process or reducing the material and/or labor consumed or reducing the processing time.
IT automates processes - by definition this makes them faster and consumes less labor. One can also consume less material through these automated processes because their precision is greater than that of humans and so is the waste.
I would caution you against automating without optimizing because it is akin to making a dumb thing faster! I would also like to point out that it is not in every business’ interest to automate – there are some customers who prefer “hand crafted” and are willing to pay a premium for it. Not all processes lend themselves to “effective” automation, given the limitations of technology – I could not use MS Word’s voice recognition feature to type this article, for example!
But we targeted “more” not “same” for less! How do we get to that with technology?
One obvious advantage of technology automation is that it can help crank out more “widgets” in the same time and unlike humans does not tire or take breaks in its work schedule.
But there is another aspect to technology powered automation – the ability to analyze past performance. This can pinpoint opportunities – mistakes that must not be repeated; ideas that should be implemented. The result? Better decisions.
This ability for decision support is what gives the most bang for the IT buck. It is this ability that provides the “most” in “more” for less. It is also this ability that provides the effectiveness in the IT value equation.
Reducing the learning curve
Whether we like it or not; whether we recognize it or not, we, humans, learn things iteratively through “do and learn” cycles. Each successive cycle is more effective and efficient than the previous one. Reducing the time between these cycles can therefore result in higher productivity.
The key assumption in this theory is that there is knowledge retention. Again, there are limits to both the quantity of knowledge one can retain and its retention over time.
IT can help with both aspects of knowledge retention. More importantly, it can help with converting this knowledge into action through systems.
The field of knowledge management and expert systems is too vast to cover in this article. I would leave that discussion to some other time, however, point out that one of the great productivity improvement opportunities through technology is in reducing the learning curve, thereby:
- Making the same employee more effective and efficient and,
- Making new employees more effective and efficient through knowledge transfer – no need to reinvent the wheel
I would also like to point out that this can be accomplished through simple means. For example a simple online training portal can help improve employee productivity by teaching them the mundane tasks in a systematic manner. They can take these training modules whenever they have time. For example, customer service representatives can learn “in between calls,” thereby reducing the need to take them off the call center for an extended duration.
It is not a state secret that rework results in lower productivity and higher cost. In the time an employee is correcting their mistake, they could be making forward movement. Not to mention the material wasted in rework.
Can systems reduce rework?
The question of rework is moot in automated systems because do not make mistakes. Well, if they have been programmed correctly or else they will repeat a mistake very efficiently!
Training systems can further help reduce rework by teaching employees how to “do it right the first time.”
On operational systems, user centered design and extensive help can further help reduce rework.
Now, we must make a connection between this increased productivity and the IT investment one had to make to get it. How do we measure this productivity?
You may have already noticed that the reason I split these productivity gains into the four buckets is to make their measurement easy and meaningful. Each of them provides metrics that make this task easy.
Take for example, reducing rework. One can measure the productivity gain through, increased output as in:
- Reduced call volume at the call center
- More calls handled by same customer service representative (this MUST be viewed in combination with the quality of calls as reflected in customer satisfaction scores)
- More products made in the same time
- Less product returns
At every point in the organization, there is an opportunity to reduce rework. I have provided four examples. There are 4000 more that I could not provide for the sake of brevity.
Fortunately, each of these metrics can also be converted into dollars and cents. For example, reduced call volume means lowered costs – number of call handled by a rep multiplied by average salary can give us the number saved. Similarly, we can easily calculate the money made through “more products made in the same time” by multiplying it with the product price. (This calculation does not factor in the time value of money calculations done in “time to market” but provides a ballpark figure)
Common pitfalls in measuring productivity
Often, we forget that more does not mean better. Take for example, measuring the number of calls taken by a customer service representative. Just because they are taking more calls does not mean we have improved productivity. We must measure the quality of each call as well – for they might be taking more calls and delivering inferior quality as a result!
We must also remember that not all increases in productivity are of the same value. Rolls Royce makes a few hundred cars a year. Increasing that number might not be productive because they might not be able to sell them all – after all they have a limited market. Needless to say their focus should be on improving the quality of each vehicle delivered.
Similarly, increasing the productivity of a call center rep can provide less benefit than increasing the productivity of a sales rep for the former, at $10-20/hour delivers less value in dollar terms than the latter at $50-100/hour does.
Productivity gains also follow the 80-20 rule. The first 80% of gains come at a lower investment than the last 20%. As a matter of fact each percentage point gain after the 80% comes at an incrementally higher cost. The decision then is: at what point is a gain in productivity not worth the investment?
Follow the Series
Part I: A Framework for IT Value
We are going to start with a definition of IT value and its imperatives.
Part II: A Framework for IT Value
In Part 1, we lay the foundation for a discussion on IT Value. This week, we look at specific areas where IT creates value.
Part III: A Framework for IT Value
In Part 2, we focused on revenues. This week, we look at the costs in the IT value equation.
Part IV: A Framework For IT Value
In Part 3, we discussed the cost dimension of IT Value. This week, we will discuss the time to market dimension.
Part V: A Framework for IT Value
In Part 4, we discussed the time to market dimension of IT Value. This week, we will discuss the quality dimension.
Part VI: A Framework for IT Value
In Part 5, we focused on quality and its impact on IT Value. This week, we will take a look at productivity and its impact on IT Value
Part VII: A Framework for IT Value
In Part 6, we focused on productivity and its impact on IT Value. This week, we will take a look at customer satisfaction and its impact on IT Value
Part VIII: A Framework for IT Value (Risk Dimension)
In Part 7, we discussed customer satisfaction. This week we will look at the risk dimension of IT Value.
About the Author:
Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit http://www.startsmarts.com/. Or feel free to contact Sourabh at Sourabh.Hajela@StartSmartS.com