Osets the risk associated with underestimating demand

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Unformatted text preview: : only 27 percent of the companies surveyed track value added per person, for example. Yet these output KPIs are essential for measuring true performance—both of people and of a business.2 (See the sidebar “Workonomics: A More Useful Way to Calculate Profit .”) To improve employee performance, companies must not only measure but also take action on the performance KPIs they select. (See the sidebar “Total Workforce Management at Deutsche Telekom.”) This involves setting predefined values for their human resources KPIs and establishing efficient processes to improve disappointing scores. Fewer than 40 percent of surveyed companies have targets and follow-up processes in place for input related KPIs, and fewer than 20 percent for output-related KPIs. And only rarely do companies motivate employees and hold middle managers accountable for reaching goals by linking performance, measured against KPIs, to compensation. 2. For more information, see Felix Barber and Rainer Strack, “The Surprising Economics of a ‘People Business,’” Harvard Business Review, June 2005. T B C G • W F P M A Exhibit 11. Companies Rely More on Basic Input-Related KPIs and Often Lack Efficient Follow-up Processes Target values, processes to improve results, and compensation linkage to KPIs are rarely used (% of respondents) Input-related KPIs are used much more widely than output-related KPIs (% of respondents) Employee head count 68 Cost of personnel Inputrelated KPIs 62 Training time per employee Training costs as percentage of total budget 46 41 Value added per person 27 ROI of training 14 ROI of recruiting Outputrelated KPIs 13 Percentage of new hires receiving top performance ratings 0 Use of metric Target value 12 10 20 30 Process to improve results 40 50 60 70 0 10 20 30 40 50 Compensation link Sources: Proprietary Web survey with 5,561 responses; 833 responses in this section; BCG/WFPMA analysis. Workonomics A More Useful Way to Calculate Profit At many companies, personnel costs exceed capital-related costs, which skews the relevance of traditional capitaloriented performance metrics such as return on capital. A company with few hard assets on its books can post seemingly high returns but nonetheless be struggling. Alternatively, it can post volatile returns when the underlying business is sound. Another approach, which we call workonomics, shis the focus from capital to people and thereby provides a more accurate indication of the fundamentals of the business. (See footnote 2 on page 24.) The standard calculation for earnings can be reformulated in a few quick steps to achieve this shi , in which people become a source of value rather than just a cost factor. Start with the calculation of earnings before interest and taxes (EBIT): Revenue Depreciation EBIT = R – MC – D – PC Earnings before Material interest and taxes costs C P A Personnel costs Employees are at the core of the value chain, so restate the equation to show the contribution per emplo...
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