Ask any CEO and they will brag about increasing their employee headcount to indicate they are growing. Faster employee growth is a good thing for a company. However it is not always. The status quo is changing and whether we like it or not, we might be seeing a new way of determining which is the bigger and better company.
The pandemic has hastened organisations’ need to become leaner and focus on retaining core employees. Ideal comments of becoming leaner and agile are becoming a reality today.
The new game in the future is going to be who has fewer numbers of employees and produces greater amounts of output with those numbers. A lower headcount can mean making quicker decisions and tripling down on one’s strengths rather than getting wound up in red tape.
The focus on Revenue Per Employee might see greater interest than ever before. Revenue Per Employee or RPE essentially highlights how much money each employee is generating for the firm by dividing the total revenue of the company by the current number of employees. The goal might turn out to produce the greatest results with the least number of employees.
“I absolutely agree. Revenue per employee is a great key performance indicator to look at for businesses”
While the concept itself is nothing new, it has uptill now been a statistic for the technology space. However, it is not just the IT and ITes space which can use this metric, rather any business should be able to maximise their employee productivity by focusing on this. When they do, every employee acts and feels like an entrepreneur investing their time and skill into the company.
Let us take an example. Global messaging giant, WhatsApp was able to build the platform which today serves 1.5 billion users across 180 countries with only 55 employees. What the company focussed on was having quality talent in fewer numbers to drive higher growth. In addition, a lower employee headcount meant they could be more agile as an organisation.
Now let us take an example which is closer to home. World’s largest exporters of gold jewellery, Rajesh Exports, which had a net income of Rs. 1,265.78 crore in 2018, has only 383 employees. For a company that spans the globe, they made do a lot with far fewer numbers of employees.
Companies that focus on increasing RPE might not need to increase their headcount to grow. They can become leaner, perform better because they can move quicker and have less need for bureaucracy or overhead.
Moreover, focusing on revenue per employee means that efficiency of firms can be measured within a sector, like measuring oranges to oranges. The RPE ratio is most meaningful for competitors operating within the same industry because they face similar challenges, cost structures and tax regimes. Expanding margins and increasing productivity will determine who will thrive.
It is a good way to figure out how much of the business is reliant on people and how much of it is on other factors such as technology. For example, understanding in which areas technology comes into play, processes can be sped up by using solely technology and reducing human activity in those areas.
“Although HR is not solely responsible, it should hold itself accountable for increasing RPE across the organisation”
Alok Nigam, senior vice president and group CHRO, Bhartiya Group, is of the opinion that companies across sectors should look at revenue per employee. He adds that being productive and meeting all KPIs has to mean something and translate into money for the organisation. “I absolutely agree. Revenue per employee is a great key performance indicator to look at for businesses”, says Nigam.
HR’s role in driving higher RPE
A senior HR leader says that especially for people intensive and knowledge based sectors, RPE is an important measure. “For better revenue, one needs more capability. HR has to help with the skilling and training of talent to ensure the business grows”, she adds.
HR certainly plays an important role in driving better business outcomes by aligning business goals with the people agenda. The function of human resources is intrinsically tied up with ensuring higher returns per employee.
It begins with acquiring the best talent in the market by hiring all-stars who perform as per need in the company. Right from talent acquisition to retention and finally ensuring capability building for all employees, HR plays a direct role in helping businesses drive higher revenue per employee.
Kishore G.R, SVP-HR, Mphasis, opines that as a partner in the business, HR should hold itself accountable to ensure revenue per employee is high. “Through all the efforts of reskilling and upskilling, HR directly contributes to the productivity of an employee and through that, the RPE. Although HR is not solely responsible, it should hold itself accountable for increasing RPE across the organisation”, adds G.R.
Revenue per employee provides actionable and valuable information for any business. It tells employers how efficiently a company operates. For most companies, the largest expense is the people’s cost. Driving forward the RPE agenda can ensure that the efficiency of the company increases with the revenue generated for each unit of human resource in the organisation.