in Leadership

Measuring Right Things: Utilization Versus Efficiency

In manufacturing world, there is a direct correlation between how much machines are utilized and how much they produce. This works because machines do the work that is non-linear and there is very little variation in producing exactly same unit of work. Utilization is the extent to which installed capacity performs actual work. Less idle time means more utilization.

Knowledge work – where people find optimal ways to apply their knowledge to a given context in such a way that it produces the best possible business result – is very different. In this world of work, more utilization does NOT always equate with more productivity and efficiency. With re-usability, someone can churn a great deal of work in a short time whereas a tiny piece of work/defect may take up days to solve. Being busy, in this world, does not mean progress and when people seem to be sitting idle, it does not necessarily mean they are not working.

In HBR article “Six Myths of Product Development”, authors Stefan Thomke and Donald Reinertsen say –

Processes with high variability behave very differently. As utilization increases, delays lengthen dramatically. Add 5% more work, and completing it may take 100% longer. But few people understand this effect.

And when companies focus solely on measuring and improving utilization alone, people will respond to that expectation accordingly. People will seemingly remain (or report) busy all the day when nothing real is accomplished. More utilization without visible gain in efficiency is a waste.

Instead of focusing on utilization, we should focus on efficiency – how much real work gets shipped and how well. Efficiency encourages people to work smart, focus on quality and find best possible route to achieve the desired business results.

For this, we should focus on building a system where efficiency is more likely to happen. We need to engage our people to the purpose of our product/organization. We need to give them autonomy and promote self-organization. We need to share feedback early and often. Most importantly, we need to trust them.

And we need to monitor real progress instead of simply trying to occupy people for 8 hours everyday!