"Market power is critical to the future of design firms. There is neither time nor the resources for design firms to know all they need to by themselves. Who do they look to? They look to Kerry Harding for support, thoughtful ideas, useful advice, and coaching...he offers a complete tool kit of ideas for professionals."

James P. Cramer, Hon AIA, Hon IIDA
Chairman & CEO
The Greenway Group
Norcross, GA

Changing the Productivity Paradigm

October 19, 2006
by Kerry Harding

When a handful of AE firm executives were asked what image sprang to mind when they heard “employee productivity,” one envisioned rows of oarsmen seated in the belly of a Viking ship, the captain standing over them with a whip, demanding that they stroke faster. Another remembered the classic “I Love Lucy” episode where Lucy and Ethel get jobs wrapping chocolates and, after seeing their initial prowess, the supervisor accelerates the candy-covered conveyor belt beyond their capacity to keep up.

What struck me most about this exercise was that, without exception, the term “productivity” had an immediate, negative connotation. That is part of the problem.

Whether subliminal or overt, the perception begins in many undergraduate design curricula that creativity consistently drives the design process. And, since creativity can be neither mandated nor measured, it can only surface in unpredictable strokes of genius which must be patiently anticipated, as the adage says, like “waiting for a watched pot to boil,” without being subjected to outside limitations. As young professionals graduate and enter a realm where, for the first time, everything they do has an associated value, they are at first bewildered, then reluctant to accept the fact that the fruits of the design process is now measured in much more specific ways than the response to “TA-DAAA” when a design solution or detail is revealed.

While most employees define productivity as “getting the most amount of work for the least amount of money,” that is mostly true if you’re operating a manufacturing facility, call center or telemarketing company. In a professional service environment such as an AE firm, productivity is substantially more complicated than that because of the number and nature of the variables involved in, instead, maximizing value.

For example, one young architect, in his first month on the job, was given a sheet of construction details to complete and left alone to finish the work with the admonition to “call me if you have any questions.” A week later, the project manager stopped by his desk to check on his progress and was dismayed to discover that, instead of the 24 details he had expected to see nearly completed, found merely one beautifully drawn section of a curtain wall. Obviously, there was a distinct gap between expectations and productivity, which communication could have helped resolve.

While definitions of and ways to measure productivity vary, the basic way to express it is the ratio of output to input, or in the case of an AE firm, the ratio of total billings (output in dollars) by total compensation costs (input).

Maintaining accurate employee productivity statistics can enable the AE firm manager to answer a number of questions such as:

How many employees do I need to hire to increase my billings by X dollars?
How do I measure my investment in training and education?
How does my firm’s employee productivity compare to other firms like mine?
Among my core staff, how has their productivity changed over the years
How much more work could I produce if I increased productivity by 10-15 percent?

It can also be used as a component of determining the incentive aspect of compensation for an individual, project team, or manager, provided that there is some way to tie it to objectives or improvement from previous benchmarks.

How can you benchmark current productivity and subsequent improvement? Here is a set of commonly used staff productivity measures that apply to the AE firm arena.

Average revenue per employee Defined as the total billings divided by the total number of employees, this is an indication of how much revenue staff produce. Improving productivity will increase this number.

Average cost per employee Defined as the total expenses divided by the total number of employees. Improving productivity will decrease this number.

Average profit per employee If profit is the difference between billings and expenses, this is where employee productivity can be most clearly reflected from one period to the next. Productivity will broaden the gap between billings and costs and indicate how your staff training is managing to do this.

Return on human investment ratio Though this seems much more complicated than it is, it is a core staff productivity measure. Defined as (revenue- (costs-total remuneration) = total remuneration. This indicates that for every dollar invested in compensation, the return on profit generated on a dollar for dollar basis. A ratio of 3:1 would indicate that for every dollar invested in paying staff, three dollars are generated in profit).

Remuneration/revenue Dollars spent on remuneration expressed as a percentage of turnover, this productivity measure reveals how much of the billings generated are used simply to pay people. The more productive the staff, the smaller the ratio.

Remuneration/costs This productivity measure should be considered with the previous ratio. Remuneration/costs gives an indication of the significance of staff as an input in the firm; remuneration/revenue indicates how productive those staff are.

Average remuneration per employee Staff are paid and, in return, there is an expectation that they provide the firm with value in some way. Average remuneration per employee allows you to consider the productivity measures identified above-the return you derive from your staff.

Absence rate This is a measure of outcome; indicating the level of employee health and/or dissatisfaction. Absenteeism impacts staff productivity and higher than normal results should be investigated to understand the reasons why.

Resignation rate Like absenteeism, the resignation rate is an outcome measure. The loss of staff is a loss of resources which has major productivity implications when you factor in the need to recruit, hire and train their replacements.

Training spent/compensation This is an input measure. Training investment, particularly in the area of CAD and other computer tools for drawing, financial management, and specifications as well as skill-based seminars, hopefully helps staff be more effective and productive and should be considered along with other productivity measures.

Each of these ten productivity measurement tools should be evaluated together to best identify the emerging trends on which future corrective actions should be based to meet management objectives.

Once firm managers learn to quantify the variables of measuring AE firm productivity, they can begin the process to eliminate time-wasting practices, processes, and procedures; improve the delivery of services to the client; price services more accurately and negotiate more accurate, profitable contracts.

Finally, top firm executives can best enhance firm productivity through ensuring that the following are accomplished:

People are matched to the “highest and best use” of their skills with the appropriate job descriptions. Too often, professionals who are successful at a particular aspect of firm practice such as design, project management or construction administration are promoted out of their distinctive area of competency by upper management seeking to either reward or retain them. Because someone is a great designer does not automatically make them a great managing principal.

Establish a culture where productivity is communicated by word and deed. The most productive firm environments I have ever been in (and, coincidentally, the most profitable as well) are those environments where it is understood that everyone both works and plays hard - just not at the same time. Helping people understand how productive they are and sharing, firm-wide, the results of consistent application of productivity measurement will send a message that it is an essential, valued business component.

Hire balanced professionals who understand that we are in a position where both the process and solution each have value. Recruiting the right people from the start who are talented, skilled, hardworking people who understand their fit in the firm and matching them with a management team that knows how to inspire and empower them to do their best with the established project framework of budget and schedule will help enhance firm productivity without more draconian measures.

Kerry Harding is president of The Talent Bank, Inc., an executive search firm based in the Washington DC area, specializing exclusively in AE firm recruitment. He is a former managing editor and current contributing editor to DesignIntelligence.