Conference 7.286::digital

49.0. "A criticism of Revenue/Person" by EDSVAX::CRESSEY () Sat Jul 27 1985 04:18

    Several times now, I've seen some figures bandied about that show that
    IBM's revenue per employee is higher than DEC's.  In general, this has
    been used to support the argument that there are too many employees at
    DEC and that some DEC employees should be laid off.

    While per employee revenue in a given period may be an interesting
    figure, uncritical acceptance of it as the basis for action may result
    in DEC taking actions that are not in its best interest.  There are some
    implicit assumptions in using that metric to measure something like
    'productivity' that need to be made explicit.

    First, it should be acknowledged that there is a lag time between when
    a given bit of work gets done, and when that work is reflected in revenue.
    This delay is short for someone who fulfills orders, a bit longer for
    someone in sales or manufacturing, and quite long for an engineer designing
    a future product.

    Second, This lag time between productivity and resulting revenue 
    causes different effects on the revenue/employee metric for different
    growth patterns of a company.  If a company is growing, the productivity
    of its engineers will be seen as lower through this metric than
    it will for another equivalent company that is not growing.  The
    reason for this is that a growing company will have a lot of employees
    working on future products whose customer base will be larger than
    the company's current base.  The stagnant company will have a relatively
    smaller percentage of employees working on future products.

    So, in order to make the comparison between DEC's productivity and 
    IBM's using the Revenue per Employee yardstick more meaningful, you
    would have to say something about each company's growth rate, relative
    to its own size.  I'm not sure of the exact mathematics that should be
    used.

    Simply putting the two metrics next to each other paints a misleading
    picture.

    Dave

re .0:

>    While per employee revenue in a given period may be an interesting
>    figure, uncritical acceptance of it as the basis for action may result
>    in DEC taking actions that are not in its best interest.  There are some

The same is true of any single measure (or small collection of measures) of an
organization.  One of the problems that any publicly owned company has is that
in most cases much of the ownership is in the hands of institutional investors,
many of whom seem to judge a stock by a small collection of measures.

Bob Fleischer