People value creation: 1+1>2
10 Apr 2020
Does your organization have the answer to these three critical questions?
- Is the employee cost growth slower than the growth of revenues?
- With the increasing scale of organization, are employees getting more productive?
- Does my organization policy center around “employee well being” or “business well being”?
With rising growth and performance pressures, changing customer needs, and evolving business dynamics, businesses today rarely get the bandwidth to think about these questions.
Organizations are built on the fundamental principle of 1+1>2.
Organizations are created for a purpose – to enable individuals to do tasks that they could never have individually been able to accomplish. Imagine a single individual creating an iPhone, an electric car, an airplane, or for that matter, even a match stick. Teams help divide tasks and accomplish much bigger objectives. Organizations are much like ecosystems, where individuals are mutually benefiting from the work of one another, whether directly or indirectly, and organization policy is the order and governance of the ecosystem.
People Value Creation: PVCs
At Praxis, the principle of 1+1>2 lies at the core of our organizational philosophy, and we help clients practically achieve this aspiration. Organizations that achieve this, we refer to them as “People Value Creators” and this phenomenon as “People Value Creation”. In practical terms, companies who have demonstrated an above threshold real productivity growth (revenue per employee, net of inflation) over a 5 year period are referred to PVCs or people value creators.
5 things you must know about people value creation:
- It is a first-principles approach to an organization: Productivity should increase as organizations grow, that is why organizations exist. The PVC approach to organizations focuses on effort, throughput, efficiency, yield, skills, cross interaction, direction and leadership. The PVC approach to organization is sustainable and builds a strong foundation for a company.
- It is a marathon: Companies typically achieve a demonstrable real productivity growth over a minimum 5 year period. Best in class PVCs have demonstrated 40-50% absolute growth in real productivity over a 5 year period, meaning, they have almost 1.5x their revenue/employee in a 5 year period.
- Most organizations drift away from people value creation: As companies grow, their focus on productivity declines. Unfortunately, not all companies drive productivity and end up throwing people at a job rather than making the job and employees more efficient. Some of the hiring and layoff debacles in the Indian e-commerce industry are a testament to this cycle. Globally, ~75% of the top 500 companies have seen a decline in productivity (revenue/employee) in the period of 2011-16. Within India, >50% of the companies have seen a decline in productivity over the same period.
- PVC is one of the strongest determinants of business performance: Our clients are especially intrigued to see the stark difference in business performance between PVCs and non-PVCs. PVCs typically demonstrate 10%+ incremental revenue growth, 10%+ incremental EBITDA growth and 7%+ incremental stock price growth. The sheer difference in performance due to only one factor, that is PVC, is alarming, but not surprising as PVC is centered around “productivity growth”.
- PVC is the core driver of employee happiness and employer brand: Contrary to what one may believe, employees, working hard and getting more productive are happier. This is because they feel challenged, are learning faster, growing their compensation and career faster, work with smarter people, are motivated, and feel a sense of pride working with an organization with a “PVCian” culture.
"The PVC approach is so first principles and centered around business performance that we have incorporated this framework across all our offices and brands. It is fresh and brings a whole new yet simplistic perspective to creating value from the organization."
We at Praxis, help organizations unlock productivity from employees to accelerate their revenue growth and profitability improvement. Our teams have worked with over 50 clients globally around their organizational issues.
Authored by (at the time of writing):
Aryaman Tandon, Leader, Organisation Productivity Practice
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