CHAPTER FOURTEEN
Measuring White-Collar Productivity
IN THE UNITED STATES, WHITE - COLLAR workers now substantially outnumber blue-collar workers, and they absorb an even larger share of the total wage bill. They account, for instance, for almost two-thirds of total hospital costs. Even in traditional blue-collar industries, automobiles, for instance, the total wage bill for white-collar workers is by now almost equal to that of the blue-collar force. Yet few managements seem much concerned with white-collar productivity. Their excuse: “No one knows how to measure it.”
But this is simply not true. The yardsticks we have may be crude, but they are perfectly adequate.
The most useful one is the ratio between the number of units of output, that is, automobiles made or patient-bed-days delivered in the hospital, and the number of white-collar people on the payroll (or white-collar hours worked and paid for). This measures a company’s or an industry’s competitive standing. Surely a company, whatever the quality of its products or its reputation in the marketplace, is at a serious competitive disadvantage if its white-collar productivity is substantially below that of its competition, whether domestic or foreign.
This ratio further enables us to identify the location of any shortage in white-collar productivity and its causes. For in addition to the ratio between output and total white-collar employment we can usually also measure the ratio between total output and groups in the white-collar force. And the yardstick indicates how much improvement can be aimed for with a fair chance of success. It does not yield some absolute, ideal figure but compares one organization with another competing one. And surely what one company has done another one can always strive for and hope to attain, if not to better.
Finally, this measurement tells us whether a company or an industry is improving white-collar productivity or losing ground and with it competitive position.
Most, if not all, of the $1,500 difference in labor costs between a small car made in the United States and one made in Japan is accounted for by wages, benefits, and union work rules, rather than by any difference in productivity. But Japan produces quite a few more cars per hundred white-collar employees than Detroit does. And it isn’t difficult to find out where Detroit lags. U.S. carmakers do not employ substantially more engineers per car made and sold than the Japanese do. They employ fewer—probably too few—white-collar people to serve dealers and customers. But Detroit does employ many more clerks, clerical supervisors, and clerical managers in recordkeeping, reporting, and controlling. It substitutes paper for information. This is a tenacious disease, but curable.
Measuring white-collar productivity has been the real “secret” of the successful profit-making hospital chain. “When we hear of a hospital that is for sale, we carefully look at its population base, its medical staff, and its equipment,” one chain’s chief executive officer explains. “When we find any of them substandard we don’t touch the place. But seven out of every ten hospitals are in trouble because of substandard white-collar productivity. And once identified it isn’t too hard to cure this. We expect a hospital, once we have bought it, to reach the white-collar productivity of the average hospital in our chain in twelve to eighteen months. That’s still quite low compared with our best-managed hospitals. But it’s usually enough to turn loss into a profit.”
The ratio between output and white-collar employment also enables us to compare the past with the present and to set goals for the future.
To know whether white-collar productivity goes up or down is especially important as a company (or industry) grows. In a rapidly growing business, the number of blue-collar workers usually rises in direct proportion to output, other things such as technology and capital equipment remaining equal. But white-collar employment should go up far more slowly than output and sales in the growing business, perhaps only half as fast. If it rises as fast as output or sales, let alone if it rises faster, the business is in danger of becoming noncompetitive, and soon. A loss in white-collar productivity is usually the first warning of the “growth crisis” ahead, and a highly reliable one. Even though the company gains market position, it loses competitive strength. And no one is more vulnerable to competitive attack than the company that combines market leadership with noncompetitive white-collar productivity. It invites attack but lacks the means to defend itself.
Actually, white-collar productivity, like all productivity, should go up steadily. If it doesn’t, it will soon go down. White-collar productivity therefore requires an improvement goal and the means to monitor progress toward it. This, too, the ratio between output and white-collar employment supplies, crudely but adequately.
There are three further highly useful measurements of white-collar productivity. They might be compared with the measurements of blood pressure and of weight in the aging human body: they give early warning of the most common and most dangerous degenerative tendencies.
The first of these is the length of time it takes to bring a new product or service successfully out of development and into the market. This may be the largest single factor determining success in a competitive market and is one in which the performance of U.S. business (especially of U.S. manufacturers) has significantly deteriorated in the past ten or fifteen years. This measurement is also the most easily available criterion of the effectiveness with which our most expensive resource, the knowledge worker, actually works.
Second, and closely related, there are the number of successful new products and services that have been introduced in a given period, especially as compared with domestic and international competition. This, too, is a measurement of the productivity of white-collar workers, and especially of knowledge workers. Again, U.S. manufacturers have deteriorated in this area during the past ten or fifteen years, both as measured against their earlier performance and as measured against foreign competition, for example, Japanese or German carmakers or Sony. By contrast, this is probably the area where America’s most successfully competing industry, financial services, has improved greatly, both against its own historical record and against foreign competition.
And third, there are the number of supporting-staff people and, especially, of levels of management needed for a given output. Ideally both, and especially the levels of management, should not go up with volume at all. Perhaps in modern organizations both should actually go down, for there is something like an “information economy of scale” just as there are manufacturing “economies of scale.” But surely if staff services and management levels go up as fast as output, let alone faster, the business does not manage its white-collar productivity and will soon lose competitive strength.
None of these things is particularly new or particularly sophisticated. Large American retailers have known the number of customers served by salespeople and the number of sales made since Sears, Roebuck introduced these productivity measurements around 1930. This explains why the large American retailer is still more productive than retailers elsewhere, excepting only the British chain of Marks & Spencer. And no one at Bell Laboratories can remember a time when the productivity of scientists and engineers was not evaluated and appraised on a regular basis.
Yet most of American management, and practically all of our public discussion, pays no attention to white-collar productivity. It focuses on blue-collar workers. Improving blue-collar productivity is, of course, highly important, and way overdue. But it is rearguard action. We cannot hope to compete against the vast supply of young, low-wage blue-collar workers in the developing countries through blue-collar productivity, no matter how much we improve it. The only competitive advantage the United States—and every other developed country—can have lies in making productive its one abundant resource: people with long years of schooling who are available only for white-collar work. For the rest of this century, and far into the next one, the competitive battle will be won or lost by white-collar productivity.
(1985)