On 2010-06-22 11:45:00, Allan Engelhardt wrote in CYBAEA Journal:
We have a mild obsession with employee productivity and how that declines as companies get bigger. We have previously found that when you treble the number of workers, you halve their individual productivity which is scary.
We now re-do the analysis four years later and, just because we can, we are using the leading companies of the London stock exchange instead of the largest American companies.
The results still hold. We called it the 3/2 rule: treble the number of workers and you halve their individual productivity. Large companies with ten times the number of employees are ¼ as productive as their smaller competitors.
Employee productivity is a big issue. If all the FTSE-100 companies achieved their average profits per employee, then the index would generate almost £1 trn of additional net profits for the economy.
So what is happening? We can postulate a couple of effects. Companies may legitimately choose to be in a high-volume, low-margin business. High-margin business may not scale well or scale with the number of employees.
But I wonder how much of this effect is down to communication. Bigger companies may have more meetings with more people attending slowing down decision times, innovation velocity, and productivity. It sounds right for many of us who have worked in companies of different sizes.
You can see the technical details of the analysis and run it yourself at: Employee productivity as function of number of workers revisited.
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