How to Measure Employee Productivity in the Workplace

As the saying goes, time is money and that couldn’t be truer in our modern economy. Knowledge workers – those in sales, marketing, finance, customer success, legal, and engineering, to name a few – comprise a huge portion of the workforce. According to Gartner, over 100 million knowledge workers are in the U.S. with over 1 billion globally.

Knowledge workers “think for a living,” making time their most critical resource. Simply put, the more time employees spend engaging in activities that matter – driving innovation, solving complex problems, and managing other employees – the more value they deliver. That’s where the concept of employee productivity comes into play.

As Peter Drucker said in Knowledge-Worker Productivity: The Biggest Challenge, “The most valuable assets of a 20th-century company were its production equipment. The most valuable asset of a 21st-century institution (whether business or non-business) will be its knowledge workers and their productivity.”

Employee productivity has long been a top metric for businesses and service industry leaders. Yet, it has stagnated in recent years according to the US Bureau of Labor Statistics. Productivity data from the Institute for Corporate Productivity (i4cp) shows U.S. worker output at its lowest since 1947, with labor productivity growth at a historically low rate of 1.1% from 2019 to 2023. This jives with McKinsey’s findings that over half of employees are relatively unproductive at work.

That’s of concern for all impacted – including employees. Improve productivity and you drive overall economic growth and higher incomes.

Can You Measure Productivity?

In past decades, boosting employee productivity was a matter of equipping them with the machines and tools to perform manual tasks more efficiently. Today, the productivity formula is not so simple.

Let’s start with the fact that employee productivity is defined differently depending on the source. According to the U.S. Bureau of Labor Statistics, employee productivity is a matter of calculating output per hour of work. Others would say it’s the value delivered within a certain time period.

No wonder measuring employee productivity can be elusive, particularly when it comes to knowledge workers. A paper by the U.S. General Services Administration (GSA) sheds light on this challenge: “…knowledge work is intangible and difficult to categorize in subgroups and partly because the existing productivity measures and performance review systems are rooted in ‘machine age’ organizations that are much more product than service oriented.”

In other words, the U.S. Bureau of Statistics’ formula doesn’t apply to knowledge workers since their outputs are usually intangible (and often driven by collaboration with colleagues), and organizations don’t often track hours worked by salaried employees. In fact, it’s increasingly difficult to distinguish between time spent working and our personal lives as these become blurred in a hybrid work world -- and mental or physical health becomes part of the work/life balance equation.

This helps explain why research by AWA’s Workplace Performance Innovation Network in conjunction with the Centre for Evidence Based Management (CEBM) concluded that it’s impossible to come up with a single universal measure for knowledge worker productivity. 

Why Measure Employee Productivity?

Despite challenges measuring employee productivity, it’s a key metric in organizations of every type and size. After all, when knowledge workers depart a company, they leave a “knowledge vacuum” since they take their knowledge and experience with them. In turn, this hurts the company's productivity.

The GSA says, “In all organizations, knowledge workers are a large category of workers that continues to grow. They are also the most expensive workers in organizations and are essential to realizing the organization's business strategies.”

Taking this further, Drucker believed an organization’s survival depends on its ability to make knowledge workers more productive. In other words, employee productivity will become a bigger competitive advantage over the next few years.

Plus, as they say, you can only improve what you can measure. Put another way, driving higher employee productivity starts with understanding how employees stack up.

That said, are productivity metrics the best way to measure employee performance? Increasingly, we see employee engagement used as a gauge. That’s because engagement -- closely tied to employee morale -- is a precursor to productivity. According to McKinsey research, employee disengagement – and subsequent attrition – could cost a median-size S&P 500 company between $228 million and $355 million a year in lost productivity.

How to Measure Productivity in the Workplace

Our survey found that full-time employers across industries use the following metrics to measure productivity:

• Employee output (64%)
• Employee engagement (46%)
• Company revenue (44%)
• Customer retention (39%)

Yet one thing is clear in the era of knowledge workers: the quality of an employee’s performance matters just as much – if not more – than their total output. In other words, the following formula does not apply in many cases:

Productivity = Output/Input

When measuring employee productivity as it relates to quality, many organizations turn to employee assessments, customer satisfaction surveys, and even 360-degree reviews to track progress. With that understanding, it follows that how organizations measure employee productivity starts with their strategic business goals. With those goals defined, workplace leaders and managers can determine specific objectives that help best with measuring productivity.

Some would argue that managers are best positioned to measure employee performance since they have the best view into it For example, a sales leader might determine that the average number of deals and total revenue per quarter are the top performance and productivity measurements. On the other hand, the VP of Customer Service might measure employees' productivity by tracking first-contact resolution and mean time to resolve (MTTR). Executive leadership then aggregates those measures to understand the company's productivity.

Others – including Peter Drucker – feel employees can best gauge their own performance. After all, knowledge workers, in particular, know how to address the task at hand. As such, these employees spend time as they see fit to get the job done.

However, manager and employer perceptions can vary widely. Consider the results when Microsoft polled both employees and workplace leaders about productivity. While 87% of employees reported being productive at work, only 12% of leaders shared the same confidence.

Perhaps that’s why McKinsey cautions that employees’ “self-reported performance is a useful and revealing way to measure performance” but reminds us that it’s not the only one.

Though there is no perfect formula for productivity measurement – or one-size-fits-all employee productivity calculator – workplace leaders and managers can call upon these suggestions to develop their own measures. Of course, most leaders will do so in the context of hybrid work.

Strategies to Drive Higher Employee Productivity

The good news is that new data shows hybrid companies outperform remote companies and full-time in-office companies. That said, office workers spend 48% of their typical work week in the office on average, but say they need to spend 63% of their week there to maximize their productivity.

 In addition to creating an organized work environment optimized for hybrid work – which includes space management – here are three ways to encourage employees to spend more time in the office and increase productivity.

 1. Build trust

Let’s start with the “trust gap” revealed in the Microsoft survey. The research by AWA and the CEBM proposed a productivity formula mapped to six factors – including trust. Essentially, employees work better and most collaboratively when they can trust that their knowledge and expertise will be used responsibly and fairly. At the same time, employees must trust the expertise and information shared by a colleague.

So, it follows that building trusting relationships is an essential workplace goal.

Organizations can enable this by making it easy for employees to share collaborative spaces where they can openly discuss issues and exchange ideas face-to-face. By tracking that space usage – and seeing when and where employees meet – workplace leaders gain a view into employee productivity. They can also make more of the desirable spaces available – securing employees' trust in the process.

 2. Provide quiet spaces

Though some people can work with conversations swirling about, many do their best thinking and deep work when all is quiet. As an article in IBM Education underscores, “Knowledge workers are known for being highly creative and productive employees; however, their productivity and ability to think about ‘big-picture’ business solutions can be stymied when they have to shift their focus to other tasks.”

In fact, almost 50% of full-time workers surveyed by RingCentral said quiet spaces help them be more productive. Given that’s the case, it’s wise to provide distraction-free options.

Knowing this, organizations can offer a variety of workspaces within the office, including areas dedicated to heads-down work. Doing so will empower employees to freely book a room or office separate from an open floor plan to focus on the work at hand.

3. Check in regularly

The same Microsoft survey found that 73% of employees need a better reason to go into the office than just company expectations. Moreover, younger generations are looking to connect in person with senior leadership and their direct managers. It so happens that this ties into another of the six factors defined by AWA and the CEBM: perceived supervisory support.

In the knowledge worker world, managers play a critical role in paving the way for employees to contribute their knowledge and ideas, collaborate with others, and get their work done. That’s more than enough impetus for leaders to engage in a straightforward activity known to accelerate employee performance: giving attention to employees. This can be as simple as asking about priorities for the week and whether employees need help to address them.

Data from ADP shows that employees whose managers check in with them weekly using this approach are up to three times as likely to feel “all-in” at work and, as a result, more likely to go all-in in their work performance.

Productive Workplaces Start with Better Tech and Processes

While measuring employee productivity is a nuanced exercise in the knowledge worker age, it’s critical to continually improve performance and the workplace experience. When it comes to improving productivity in hybrid work environments, workplace leaders consider various factors as they call upon workplace automation technology and processes that support and enable employees to do their best work.

By hitting upon the right ways to measure individual efforts and productivity levels, they gain an accurate picture of employees' performance while ensuring employees feel supported to do their best in the workplace.

Want to learn more about the role of the office in productivity? Check out this blog on how to use your space to your advantage.