Measure the increase in productivity per employee using the formula for Total Factor Productivity.
Accomplishment may be measured by the increase in productivity per employee. For many, calculating productivity has been nebulous and argumentative. Total Factor Productivity permeates industries from service and software to the manufacturing of products and goods. Since no formula of any value goes without an acronym, call it the TFP. As a calculation, TFP looks like this:
XX% CiR − (0.4 constant * XX% CiA) = TFP
Here is an explanation for Total Factor Productivity:
CiR represents the “Change in Revenue (per employee)”. If an illustrative small company or business unit with $218 million has 1,400 employees has a revenue of $155,000 per employee. If the following year they grow to 1,500 employees ad realize revenue of $257 million, they will realize $171,333 per employee or a positive change of 14.2 percent.
Constant represents a baseline and 0.4 is being used, although it could be modified. Careful, however, as the MIT Professor Robert Solow received a Nobel Memorial Prize for his work. He discovered that 0.4 represents the best overall constant to use. If used by others, it also allows for direct comparison.
CiA represents the “Change in Assets (per employee)”. If our illustrative company or business unit grows its assets from $60,000 per employee to $70,000 per employee, it has realized a 16.7 percent increase in its CiA.
Therefore, using our illustrative results above, the calculation would look like this:
14.2% CiR − (0.4⊂ * 16.7% CiA) = 7.5 percent TFP
TFP now represents gains made in labor productivity, less gains from investing in capital. TFP can be driven by various factors including cost cutting, increased market share, new products, or getting something out of idle assets (eg, vacant property). New technology has been cited as the largest driver in the USA economy for increasing TFP, including hardware (eg, GPS or geo-positioning systems equipment) and software improvements (eg, resulting in fleet and fuel optimization).
TFP measures the revenue for each employee and also factors in capital assets and investments in equipment, information, and technology.
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