In early June, the U.S. Labor Department loweredits estimation of first-quarter productivity-growth to 2.8 percent on anannualized basis. The revision came in large part because companies arestill cautious about hiring new workers and are adding more hours totheir existing labor forces instead.
There is always some debate over the accuracy of government laborstatistics when so much of the economy is driven by services rather thanthe output of easily measurable items like steel or cars. And thatraises fundamental questions in our industry, as executives strive toimprove engineering productivity:
• How should we measure product-development productivity?
• And why is measurement important?
Productivity drives development throughput in your R&D organization —the higher the productivity, the greater the throughput. And throughputis a measure of how much product the engineering organization churnsout during a given period of time.
There are three ways to boost R&D throughput:
• Add headcount
• Increase work-hours per week
• Raise utilization and productivity
The first two have downside: Raising R&D headcount increases cost,and more hours lead to workforce burnout and high turnover.
The only viable long-term strategies for sustaining high throughput areto increase engineering utilization and productivity.
Increasing R&D utilization—the percentage of the engineeringworkforce’s effort spent on revenue-generating activities —isamong the quickest and most effective ways to boost throughput. That’sbecause it essentially increases R&D resources without incurring additional cost.
Organizations struggling with low utilization find their engineers spendmore than half their time on non-revenue-generating activities, such assales, customer support, and product support — all of which should behandled by different groups. In large companies, that means millions ofdollars a year are being squandered.
Engineering organizations in best-in-class companies, however, spend 73percent of their engineering time on activities that generate revenueand create persistent value. By shrinking the amount of time engineersspend on projects that get canceled, non-core research, myriad internalinitiatives, and so forth, companies can significantly raise theirutilization rates and, in the process, reduce R&D spending and/ordevelop new revenue-generating products.
Productivity — the second factor driving throughput — is the amount ofengineering output per unit of labor expended to create that output.Productivity is a function of efficiency. Only by improving efficiencywill productivity rise. Analysis of R&D efficiency compares theeffort a particular set of engineering tasks should consume towhat they actually consume. Reducing the effort needed to complete a setof tasks raises efficiency, which increases productivity, and thisgives rise to higher throughput.
Boosting productivity requires a reliable measurement system—oneyielding accurate baselines and fair comparisons. Additionally, a robustmeasurement system paves the way for managers to determine the absoluteminimum staffing projects need to finish on time. At that point, theprojects are “optimally understaffed,” which means the projects can bestaffed to levels that assume the teams will meet an improvedproductivity level.
About the author :
Ron Collett is founder and CEOof Numetrics Management Systems, Inc. (Cupertino, Calif.), whichprovides semiconductor and embedded systems companies with fact-basedproduct-development planning software that lays the foundation forimproved productivity.
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