Not too many years ago a major grocery chain in its quest to improve profitability launched a significant initiative to increase revenue per employee (per FTE or Full Time Equivalent). Given the narrow margins in the grocery business (not unlike banking and many other industries) such a campaign made sense because if you can increase sales per store without increasing employment costs proportionately, or better yet, trim the denominator (FTE's) in the equation while also boosting revenues, then this measure of operating efficiency (profitability) has to increase.
But, as so often happens in such cases where the tactic is to trim staff, the majority of the staffing cuts fell on the lower paid employees. Initially, this produced a "side benefit" as the change in mix served to increase average employment cost per employee, giving the chain bragging rights for having some of the best paid employees in the industry.
However, it wasn't long before service levels declined. After all, fewer checkers, stockers and sackers meant longer lines at checkout and shelves that were not always fully stocked. Customers that had long been accustomed to a high level of service quickly took notice and gradually started voting with their feet. Eventually, the plateauing of revenues in store after store led to a reassessment of priorities and their strategies such that staffing levels and mix were once again adjusted with an eye toward balancing the competing objectives of cost control and customer service.
Such admirable, albeit often competing objectives: increase revenues, cut costs, deliver a quality product or service all of which are in one way or another intended to enhance earnings reminds me of a sign I saw in a print shop some twenty-five years ago which read, "Quality.
And lest you think that grocers are the only ones susceptible to conventional wisdom gone awry, I've worked with more than one financial institution client intent on a similar strategy of minimizing staffing levels while attempting to grow via a major set of new customer service initiatives.
Truth be told, many banks have been preoccupied with a whole series of indicators for 30 years or more and some of those have become akin to the Holy Grail. One such "standard" in particular strikes me as the proverbial primrose path - namely assets(deposits) per FTE. When I entered the banking industry over thirty years ago, the goal was $1 million in assets per employee. Today, $3 million, $4 million or even $5 million in assets or deposits per FTE is the threshold many seek thanks to the benefits of automation and other operating efficiencies.
To some, this or a similar benchmark can become an overarching goal that is oft times misapplied if not misunderstood. That's because many (it seems almost all) organizations want to differentiate themselves on the basis of delivering outstanding customer service (speed/convenience). Management preaches it, teaches it, claims to provide it, tests for it, rewards it. Their thought being that if you increase customer satisfaction and thereby customer retention, each new customer you attract represents real growth rather than a replacement for the dissatisfied exiting thru the backdoor. Meanwhile, management constantly pushes the organization to run leaner and meaner as a strategy for boosting profitability via cost control (price). All the while knowing that keeping customers happy requires they deliver accuracy (quality) too. Do you see the anxiety this balancing act creates?
Sometimes, even the best organizations fall victim to conventional wisdom. And maybe, just maybe it is time we challenge some of those rules of thumb. Otherwise we might awaken one day to find ourselves far along a path we would rather not travel.
Just because some industry analyst declared some ratio the be all, end all 10, 20 or 30 years ago doesn't mean it is serving equally well today. For of this you can be certain: If you continue doing the things you've always done, the best you can hope for is the same result. But odds are, you will get diminishing returns as you seek to apply yesterday's solutions to today's problems.
Are there industry standards you are pursuing? If so, do you fully appreciate their implications and application? Are you certain they support all of your aims?