Jesse Jacoby
Adam Grant, the youngest tenured professor at the Wharton School of the University of Pennsylvania and New York Times bestselling author, suggests that work should be measured in terms of the value of output rather than the volume of output. Productivity is usually about the volume of output, which means that more is better. Grant says that you need to focus on the worth of what you produce rather than how much.
Why would he say that, and what does it mean for you?
80/20
Let’s remind ourselves of the 80/20 rule, or Pareto’s Principle. Pareto was an Italian economist who noticed that there was a predictable relationship between input and output.
He observed that it took only 20% of input to produce 80% of the output, and that the remaining 80% of input was used to obtain the meager 20% of output that was left over. That means, for example, that if you worked just two hours per day for four days, then you’d accomplish more than three-quarters of your work for the week in that short time. Of course, that work time would have to be focused and uninterrupted, but if you could do it consistently, you could obtain greater productivity than you’ve probably experienced in a very long time.
Inside of every 80/20 is another 80/20, which means that as you do less, you accomplish more with the time that you have. This means that nearly two-thirds of what you actually accomplish can be done in less than 5% of your time, and more than half of what you do can be achieved in less than 1% of your time.
That seems counterintuitive. How can doing less make you more productive?
The answer seems to be found, at least in part, in the fact that rest and recovery are as important as the work itself. That means that if you concentrate only on the 20% that gives you all those results, but ramp it up fourfold, that you won’t necessarily get greater productivity. That’s because it’s the rest and relaxation that enables you to accomplish so much is less time. There may be things where you achieve more, but it won’t be a linear improvement. Like everything else, there will be diminishing returns.
Human beings aren’t machines. Not only do they need to relax physically, but also mentally. Three or four hours of focused mental work is the limit in a day even for those who are accustomed to intense study. Generally speaking, lesser mortals are only that productive for a couple of hours at most each day. Ninety minutes in an eight-hour day just happens to be 20% of that day. It’s why some managers arrive an hour or so before everyone else. It’s because they get more done in that time than they will after everyone comes in.
Those who have worked from home have discovered that they, too, can accomplish a lot more in less time because they can take breaks at will. In other words, they can rest and recover when they need to, rather than at a prescribed time.
The 80/20 Principle is only about volume. It doesn’t consider value. And according to Professor Grant, that is where you should put the emphasis.
Value
If you have to make a choice, and you probably will, then value is more important than volume. That doesn’t mean perfection, by the way. It only means that you do your best. You’ll have to sell many more units where the margin is small than you will of something else where the margin is much bigger.
There will always be buyers at both ends of the spectrum, but in the long run you’ll leave money on the table if you consistently go for the low end of the market.
Why?
Because that’s where the most competition is to be found. They’re there because it requires more work and more resources to produce something of high quality than it does to produce it with low quality.
Perry Marshall points this out in his book, 80/20 Sales and Marketing. His power curve shows that there are a proportion of your prospects who won’t buy from you because both the quality of what you produce and the price tag is too low. You can add a substantial amount to your bottom line by offering something that has a lot of quality at a high price tag, even if you only sell a few of them.
Oil companies have been known to raise the price per gallon of gasoline, even though it meant selling less, because in so doing, the overall all income increased.
Less is more.
We’ve become so used to competing for business on price that we’ve forgotten to compete on quality; on value.
How do you evaluate by volume?
As far as employees are concerned, you evaluate by volume when you determine the value that they contribute by the number of hours they work. In other words, time is the currency; not value.
When you consider value in terms of time, then it’s the same as saying that the more time that’s required to perform a particular job, the more valuable it is; and you know that that simply isn’t true.
For instance, do you pay your slowest employees more than the ones who accomplish more in less time? That’s probably unlikely, and yet you deliberately charge more for the things that take the most time to produce.
How do you assess value?
Ever since the 18th century, when the English Industrial Revolution kicked off, value has been assessed by the cost of materials plus the time it took to produce an item. Before that, master craftsmen were paid solely for what they did. The name for it was piece-work.
Piece-work reflected the labor of a skilled worker. Only the unskilled were paid for time.
If you value your employees, then you’ll pay them for what they do; not how long it takes them to do it.
Employees should be paid according to what they do, not how long it takes them to do it
This means that work needs to be measured in terms other than hours. Hourly pay rates only make it easy for accountants to determine organizational costs. They don’t delineate between the skilled and efficient as opposed to those with lesser abilities.
Various companies and countries are considering 4-day workweeks. The Netherlands has the shortest workweek in the world. They also have a reputation for a very high work ethic.
In a New Zealand company, new employees start out with a five day workweek, but if they can get their work done in less time, then they can shrink their workweek to four days.
Doesn’t that make more sense?
Why pay people to accomplish work that can be done in four days by spreading it over five? Of course, there will be managers who will simply raise the standard, expecting people to work at the four day pace for five days. That’s what the 18th century factory owners did in England, except that people worked 6-1/2 days per week each of which was so long that it was said that the beds never got cold.
Of course, working people that hard is counterproductive, because people can’t work at that level of intensity. What managers then and now have failed to recognize is that It’s because they work less that they can accomplish more in fewer hours.
In that same New Zealand company, if in those four days your productivity decreases, then you have to come in five days per week. That means that what matters to them is what their employees accomplish; not how long it takes them to do it.
So it’s up to you. Do more in less time, or work a longer week. In this way, companies reward efficiency. When you reward efficiency, you’re recognizing them for doing good work. This is a known motivator.
You can encourage efficiency by letting people go home early if they’re finished, or promote procrastination if all that matters to you is the time they spend at work.
And remember, too, that according to Parkinson’s Law, work expands to fill the time available. Is that what you want? To fill time?
Products should be priced according to the value to the customer, not how long it took to make them
Here’s a novel idea. Consider pricing your products according to the value that they have to your customers rather than the number of hours it took the collective efforts of your employees to make it.
You may argue that it’s not possible to do this because more time is required. But consider this: Kawasaki tells it’s mechanics how long a particular job will take, and the price that the customer is charged for that work is predetermined.
Although time is part of their billing process, the price is the same whether the work takes five minutes or five hours. That means that the value of the work supersedes the time that it takes to complete it. Contrast this with a consultant who may bill you for time spent irrespective of what was actually accomplished.
How to shift from a volume-based to value-based productivity
Analyze everything you do on the basis of the value that contributes to your organization
The first thing you must do is to analyze everything you do in the organization on the basis of the value that it contributes, not only to your enterprise, but also to your customers.
Accountants typically show fixed and variable costs. Labor is a cost. But what do your employees do that adds to that cost, and how could your costs be reduced if they stopped doing some things?
Analyze everything you sell on the basis of the value it delivers to customers
Here’s something else to think about. If the time frame is reasonable, your customers don’t care how much time you spend to produce what they want; but they do care about the value of the item when you deliver it.
Some management consultants, though not many, bill on the basis of the results they get for their customers. Those who do this earn more money for themselves because of it. Having skin in the game increases their commitment, too.
Educate everyone on what it means to be value-based
You’ll have to educate or re-educate nearly everyone in your organization in order to get them to think about how to be value-based. That’s because most of them have been taught that time is money. It isn’t. Only value is money. Online businesses have shown us this. Some of the most valuable information that is sold via the Internet took a comparatively short time to produce; but that didn’t make it any less valuable.
Redesign organizational policies such that they support value-based outcomes
Your organizational policies and procedures must support the value-based outcomes that you claim to want. If they don’t, then employees will continue to emphasize quantity, rather than quality; time, rather than efficiency.
Even in places where something like Six-Sigma is in place doesn’t necessarily guarantee a value-based approach. That’s because it’s possible to minimize error in inferior products or services.
Change your reward system so that those who create the most value reap the greatest rewards
Among the policies and procedures that you change must be your reward system. This is one area where organizations have really dropped the ball. Egos have gotten in the way, and so instead of rewarding those who have delivered the most value – via sales, for instance – they’ve penalized them by reducing the rewards, and all because a senior manager or two felt that they should earn more.
If you want to increase productivity in your organization, then you must deliberately organize everything to that end. You must recognize that more is possible, but only by doing less. You need to find the sweet spot, rather than try to outsmart the system.
