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Study Shows Why Certain Companies are More Productive and Profitable

Posted in Business Strategy, and Leadership

Companies like Apple, Netflix, Google, and Dell are 40% more productive than the average company and have profit margins that are 30%-50% higher than industry averages, according to research from Bain & Company.

They start with about the same mix of star players (15 – 16%), but they are able to produce dramatically more output. It’s a mix of organization, priorities, trust, and leadership. Here is what they do different:

Grouping A Players

The average company follows a method of unintentional egalitarianism, spreading star talent across all of the roles. Companies like Google and Apple, however, follow an intentionally nonegalitarian method. They select a handful of roles that are business critical, affecting the success of the company’s strategy and execution, and they fill 95% of these roles with A-level quality. The rest of the roles have fewer star players.

Findings showed that for every member of the team that is not a star player, productivity declines and If 100% of the team is star players, productivity is extremely high.

Eliminating Organizational Drag

The average company loses more than 25% of its productive power to organizational drag, processes that waste time and prevent people from getting things done. This often happens as a company grows, as the tendency is to put processes in place to replace judgment. Research published in Harvard Business Review found that organizational drag costs the economy more than $3 trillion each year in lost output.

The most common processes relate to expense management. At most companies, there are spending limits and audits, and employees are tracked. At Netflix, however, there is no expense policy. The only policy is, ‘Act in the best interest of Netflix. The company is telling employees, “We assume you are not here to rip off the company, and we’re not going to put in place processes that consume human capital, waste time, and zap energy.” They tell employees to assume their best judgment, and they can be more productive if they’re not held back.

Inspiring Leaders

An engaged employee is 44% more productive than a satisfied worker, but an employee who feels inspired at work is nearly 125% more productive than a satisfied one, according to the findings. The companies that inspire more employees perform better than the rest.

Dell, for example, found that Sales teams led by an inspiring leader were 6% more productive than those that have an average leader. If you extrapolate that 6% it accounts for an extra $1 billion in annual revenue. Consider what [poor leadership] is costing your company.

The good news is, inspirational leadership can be taught. Smart companies recognize this and invest in it.

Vozza, Stephanie. Why Employees at Apple and Google Are More Productive. Fast Company. March 13, 2017. https://www.fastcompany.com/3068771/how-employees-at-apple-and-google-are-more-productive

Mankins, Michael C. and Garton, Eric. Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power. Harvard Business Review Press. March 2017

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