I’ve often been asked by clients to benchmark their company against the profit leaders in the industry. Early on, I look at overall company productivity. There are a number of ways to view this but I always start with value added per full-time equivalent employee. The use of part-time and temporary employees has grown through the years. The fact that they are not full-time does not mean they are not on the payroll. The hours paid to these people should be converted into the number of full-time employees they represent.

Most of the companies I have benchmarked fared poorly in comparison to the profit leaders in the industry. The answer as to why a company compares poorly in productivity is often obvious: too many people on the payroll. It shows up on the income statement with every line item showing payroll-related expenses being higher than benchmark levels.

However, companies that benchmark poorly are not the point of this article. What I want to talk about is the impact of low productivity on future growth. This is an area that few understand they need to look at. Given the environment we are operating in today, this could have serious consequences for your business if you don’t deal with it.