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Revenue per employee : A shortsighted productivity metric
I came across this piece in the Times praising US tech companies. The article uses revenue per employee (RPE) as a yard stick and claims "US IT professionals more productive". Basically we have Wipro,Infosys,TCS etc on one side and IBM,Dell, HP etc on the other. The arguments are backed up by numbers but the logic is flawed. I find it hard to believe RPE can be linked to a professional's productivity. The revenue a services company makes is broadly (ignoring systemic factors like currency risk, credit risk etc) dependent on the following :
- Bill rate (significantly higher for 'Western' players)
- Utilization rate (More or less the same)
- Offshore onsite mix (Much better for Indian players).
The higher RPE that US companies make is largely on account of the following:
- Significantly higher bill rate
- Broader portfolio that includes software products and consulting which traditionally have a greater RPE than pure services
- Higher onsite/offshore ratios leading to a higher top line for the same number of FTE's billed.
None of these factors have anything to do with employee productivity. In fact for certain types of engagements staffing more productive employees could reduce RPE! A better caption for the article could have been "US companies turning people capital into cash more productively".
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While the metric may be flawed, it is undeniable that in USA, one can get more productive work done per employee -that is you can get more work done per employee, because of BIC processes and higher level of computing skills. Low cost outsourcing offsets the drop in productivity. Ask anyone who has spent an equal amount of working and managing people in both the countries - and you will know. Please note this is not a reflection of our innate skills and capabilities - we can do it - but are usually good at it, if we are in the valley. There is more poor to average talent here, than the exceptional. We are building armies of dotnet programmers, who know nothing about an alogorithm, and you want them to be more productive than USA? This is one reason why we have so few IP driven companies,and why there is an innate urge to copy rather than innovate.
Comment by Sandip — August 6, 2007 @ 2:31 pm
Thanks for your comments Sandip.
Comment by Prakash — August 7, 2007 @ 8:08 am
well put…couldn’t agree with you more.
Comment by matthew — February 21, 2008 @ 9:01 pm
Thanks Matthew for the comment.
Comment by Prakash — February 22, 2008 @ 12:41 am