Productivity Declines: Does it matter?

According to the U.S. Department of Labor, as reported by Bloomberg, employee productivity dropped last quarter at a 2% annual rate. The common wisdom is that we have pushed an overstretched workforce as far as we can, but there could be other reasons.

One is that sales are declining, but not sharply enough to warrant layoffs just yet. Small business generates about two-thirds of the new jobs in America. Those owners who survived the Great Recession by reducing staff are reluctant to do so again without a clear indication of what is coming.

Large corporations  can reduce head count to meet short-term profitability objectives. As long as hiring and training costs are treated as immediate expenses, rather than the long-term investments they should be considered, layoffs create an immediate improvement to their bottom line.

Small business owners can’t afford to ignore the cost of bringing a new employee up to speed. Throwing away the training investment in any new hire is wasteful, regardless of the accounting treatment it engenders. In a small business, waste is simply waste. Making the bottom line look better in this quarter at the expense of future profits is nonsensical to an owner. He or she has to take a longer term view.

computer usersAn alternative explanation for the productivity drop, and one that isn’t even mentioned in the media, is that employees are simply being less productive. As one owner said to me earlier in the week; “I look into every office, and the person inside is staring at a computer. How am I supposed to know if they are accomplishing anything?”

It’s a good question. He might more accurately ask “How do I know if they are accomplishing what they are being paid for?”

Back in the dark ages before portable cellular phones, most workplaces had a prohibition against using company telephones for personal business. It was easy enough to track. If an employee was engaged in  a personal conversation you could tell, and calls were billed individually with documentation of the number dialed. Unfortunately, that billing methodology led us to unwittingly term the forbidden behavior as using the company telephones (theft of equipment capability), rather than using company-paid time (theft of personnel capability). With personal communications devices, the rationale quickly became “I’m not using the company’s phone.”

Most employers stuck with this hardware-based policy logic as computers, and then Internet connections became ubiquitous. The logic fails, however, when the time wasters are built-in, or promoted by the company. Operating systems come with pre-installed games. Supervisors forward jokes or cute videos to subordinates, who then redistribute them to coworkers.

Policies against using the Internet for personal reasons are difficult to enforce, and have been shown to be most violated by management. Disciplining an employee becomes impossible if he or she can produce one non-business email from someone higher up on the organizational chart. Forbidding personal cell phone use in the office is tougher to justify if you use that same phone to contact an employee when he is in the field.

One of the biggest challenges is defining misuse. We can start with using company resources for illegitimate activity, like online gambling or illegal downloading. From there, however, things get murkier. If employees can have a radio at their desk, can they therefore stream an Internet music station? If someone communicates via email with a staffer in another location, can they use that same email account to invite them to a party?

Productivity measurements may be important to economists, but on an individual level they become meaningless. Business owners must rely on what an employee accomplishes to judge performance. The melding of work and personal communications means that we have to trust employees to act as adults, and guide them with clear objectives rather than rules for behavior.

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