Choosing the right KPI is probably one of the most crucial decisions a company has to make.
At Nedap, after of lot of experimenting we finally found the KPI that perfectly fits the nature and DNA of our company: the added value per employee. With added value per employee we simply mean the gross margin generated divided by the number of employees.
For us, this is not just a number. In a more conceptual sense it’s an indicator of the value of ideas. Ideas about technology and markets and how they are translated into products. In general, if ideas are about average and these result in middle of the road products, chances are that the added value will be limited as well. But when you have breakthrough thoughts and you can convert them into powerful and elegant solutions that truly have an impact on the daily lives of the users of this product, the added value can be sky high.
One has to be careful when employing this KPI. It should not be used to steer day to day business. But it can be a real eye opener when considering different business models, the way ideas and knowhow is ‘being monetized’. There are basically three different types: hourly fees, projects and products. In the early days of our software efforts, customers often asked us to provide them with support during the implementation phase of our software. We quickly employed a few project managers and implementation specialists.
As a result, it soon became clear to us that this ‘hourly fee’ business model has one big drawback; it is not ‘scalable’, turnover and profit can only grow by increasing the number of employees. So, the added value per employee will not grow! Further investigation made it clear that the annual average added value per employee in the IT-services industry is around EUR 100K. At Nedap – it’s actually EUR 179K. This means that if we would expand our hourly fee business, our average added value per employee would shrink!
That is why we decided to focus all our efforts on the third business model; creating and selling products. We are convinced that the best way to ‘leverage’ all our brains is the convert our ideas and perspective on markets and technology into leading products, whether they are electronical devices, server software or software subscriptions. Products that have a real positive impact on the daily working lives people like nurses, shop staff or farmers.
Our focus on the added value per employee as the number one KPI makes sense financially and in terms of profitability. But more importantly, it reflects the way we look at people. At Nedap we are primarily interested in what a talented and driven individual can contribute to a team, a project, a new invention, a client and even to society. We are not a company where the number one priority is to keep the costs per employee as low as possible. On the contrary. We focus on what people can add and not what they cost.
It’s a fundamental view on the importance of our number-one asset – human capital – that is actually visible at Nedap’s HQ. We work in an open space, with a great variety of inspiring spaces and a dynamic atmosphere. Is it the most cost-efficient floor plan? No, of course it isn’t, but that’s not the point. We are not a company where flexible working has become a euphemism for jamming as many employees on a couple of square meters. We provide our people with a creative space, both literally and figuratively. It’s actually a wonderful example of practice what you preach.
Ruben Wegman, CEO
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