By Christopher J. Minnick
The traditional bill-by-the-hour approach to services is a relic of a dying economic age.
Popularized in the 1950s by the American Bar Association when it became concerned that the income of lawyers was falling behind that of doctors and dentists, the idea of charging by units of time — the hour — was meant to replicate the efficiencies of mass-production manufacturing. Instead it incentivizes someone to spend more time than necessary on routine work rather than the more nuanced tasks that require specialized, valuable insight.
And yet the billable hour is still the most commonly used method by companies to buy contingent workforce services. Why? Because the billable hour is easy for people to wrap their head around and measuring productivity is supremely difficult.
At its most basic, worker productivity is simply a measure of how efficiently he or she works. In essence, how much does someone produce for each hour spent on the job? Once easy to calculate for assembly line workers in traditional manufacturing jobs that were once at the core of the economy, it’s much more difficult to calculate productivity for the service jobs and knowledge-based work that dominate today’s economy. In truth, most companies have little idea how to measure the financial value of ideas and the people who come up with them. The amount of time spent on a task or the output produced may have little to do with how productive someone truly is.
The answer lies in creating broader and more nuanced measures of productivity for knowledge workers, especially those with a special expertise, that account for the quality, effectiveness and impact of someone’s work, not just the quantity of the output. Different types of knowledge workers differ in the way in which they transform knowledge into business value. Some carry out routine tasks as individual contributors and others complete complex tasks collaboratively amongst a wider group of workers. The specific contribution of highly skilled, knowledge workers to business value consists in their capability of professional judgment—their ability to apply a comprehensive body of knowledge to individual and rather complex cases.
The following figure is a classification structure for knowledge workers that can be used by companies to assess productivity.
Click image to enlarge.
As companies seek to mature their workforce practices to achieve competitive advantages, taking on “the great management task of this century” is a great place to start.
Christopher J. Minnick is executive vice president of Brightfield Strategies, which helps Fortune 500 companies with contingent workforce strategy initiatives.