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High growth, low productivity?

After looking at this year's Soft.letter 100 data on growth rates and sales-per-employee ratios (Soft-letter, 4/7/92), a friend of ours posed an intriguing question: Do the numbers suggest that high growth and high productivity are mutually exclusive? Common sense suggests that it's tough to double or triple sales without some inevitable loss of efficiency. But, much to our surprise, high-growth software companies don't seem to come up short on productivity.

For purposes of comparison, we first extracted the top 20 growth leaders from the current Soft.letter 100. Since sales-per-employee ratios vary by company size, however, we couldn't simply compare our top 20 growth leaders against the entire Soft.letter 100. Instead, we tried to compare average productivity levels in like-sized companies:


When we sifted through these numbers, we found that average productivity among our growth leaders fell within 3% of the averages for our 1st and 2nd Quartiles (the 50 largest companies)--a statistically insignificant variation. Lower down on the list, we found somewhat greater differences: In the 3rd Quartile, high growth companies ended up 38% more productive, while the three growth leaders in the 4th Quartile were about 15% less productive than average. Clearly, there's no important trend here.

We often hear that productivity comparisons shouldn't be applied to high-growth companies, who tend to hire extra people in anticipation of future sales and focus most of their management attention on maximizing growth rather than "counting paperclips." Maybe so--but, somehow, the industry's most successful growth leaders apparently haven't had to make this tradeoff.
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:software industry
Date:Aug 29, 1992
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