Throughput, not productivity, is what matters
12/13/2010 12:45 PM EST
Discussions about R&D return-on-investment (RoI) among semiconductor industry executives often turn to engineering productivity. They're often surprised when I assert that productivity isn't that important—at least as far as R&D performance metrics are concerned. A far more important metric is engineering throughput.
Throughput measures rate of output and therefore quantifies how fast you develop products. Productivity measures how efficiently you develop them. Throughput is about cycle time. Productivity is about cost. The more productive your teams, the fewer engineers needed to develop products—hence the lower the development cost. But what's more important, cost or time-to-market?
Throughput's dimensions are "output per week." For example, output quantified in "Design Units" yields Design Units per Week. Unlike productivity, throughput ignores the amount of manpower the team expends to create that output. It simply quantifies the output and divides it by the project's duration (concept to release-to-production), measuring output per unit of time.
The distinction between throughput and productivity is important because time-to-market usually trumps all else. I'm not suggesting efficient development isn't important, but throughput, and therefore time-to-market, is what usually generates the most revenue and profits.
R&D organizations can increase throughput on their projects in four ways: (1) by raising the average productivity among team members, which means executing tasks more efficiently and therefore expending less effort; (2) by increasing the number of hours in the standard work-week—not particularly popular among engineers, but one that often finds favor with management; (3) by eliminating low value-add activities that consume project resources, thereby increasing engineering resource utilization; and (4) by increasing the project's staffing level.
The first two—increasing productivity and encouraging longer hours—rarely yield competitive advantage. That's because nearly all R&D organizations pursue them (to survive), enabling them only to keep pace with the industry norm.
The latter two – increasing utilization and staffing—are the opportunities for differentiation and competitive advantage. Most companies are reluctant to pursue these insidious root causes of low throughput. That's because eliminating non value-added tasks can be contentious and politically unpopular—nobody likes to hear their job has little value add. Likewise, increasing staffing level means taking on fewer projects, which can also be quite contentious and riddled with politics.
Ronald Collett is president and CEO of Numetrics Management Systems, Inc. www.numetrics.com.