Placement of Revenue per Employee as a KVM in EBM - CV or A2I?

Revenue per employee is something happening right now to impact current value. It is non-derivative.

By way of contrast stock options held by employees might, at least theoretically, have some bearing on the ability to innovate. Perhaps they will be more likely to stay until their options vest, and to do whatever it takes to drive stock price beyond strike price.

The following is my opinion only. It does not represent that of Scrum.org.  I may have a completely wrong interpretation but you asked for my thoughts so I am providing them.

The revenue generated per employee is a current value and basically a cost of doing business. If the number of employees change, the value will also.  If the revenue coming in changes, this value changes. It is not something that you can forecast with much certainty.  It is a trailing indicator. To me, revenue per employee fits in the Current Value area.  If you look up the definition of Current Value in the Cambridge dictionary, it states:

a method of accounting based on the cost of replacing assets at the prices that would be paid now, rather than at the prices they were originally bought for

The revenue generated per employee feeds into that equation since it is a point in time calculation.

Ability to Innovate is based upon past but does not vary based upon the number of employees. It is a measure of a companies ability to change what they are doing based upon external/internal forces.  It fuels revenue and thus is a factor that influences the Current Value of what is being evaluated. It is not related to how many employees you have.  It is not a measure of revenue. It is a measure of adaptability.  An organization might be able to generate mass amounts of revenue using old technology and dated processes.  The finance area is an example of this where it still uses old programming languages (i.e. COBOL) and old hardware platforms (mainframes or mid-range computers).  The need to innovate is not great so there is not an incentive for organizations to do so. 

I look forward to reading other's opinions on this and reserve my right to change my mind or to show my ability to innovate. :) 

First off, I want to thank both of you for your thoughtful and detailed responses. You've given me a lot to think about, and I appreciate the different perspectives you’ve brought to the table.

Addressing the Points Raised

@Ian Mitchell: I understand your point that Revenue per Employee is a non-derivative metric reflecting current organisational efficiency, which impacts Current Value directly. This is a solid argument, especially when considering how this metric reflects real-time operational effectiveness.

@Daniel Wilhite: I appreciate your detailed explanation and the clarification around Current Value as a trailing indicator and a reflection of the cost of doing business. Your point that Ability to Innovate focuses more on adaptability rather than employee-driven revenue is a crucial distinction.

My Perspective: Revenue per Employee Under Both CV and A2I

While I agree with both of you that Revenue per Employee has a clear place within Current Value due to its immediate reflection of organisational efficiency, I also believe it can have implications for Ability to Innovate (A2I) for the following reasons:

1. Resource Availability for Innovation: Revenue per Employee can impact how much financial and human capital is available for innovation. An organisation with higher revenue per employee might have more resources to invest in new technologies, research, and development—directly fuelling its ability to innovate.

2. Indicator of Long-Term Sustainability: While it's a point-in-time metric, its trends over time can indicate the sustainability of an organisation’s growth. If a company is consistently improving this metric, it might suggest that the organisation is not only efficient but also investing wisely in processes that will enable continued innovation.

3. Holistic Measurement: Revenue per Employee could be seen as straddling both CV and A2I depending on how it's used. In the short term, it reflects current efficiency (CV), but it also provides insight into whether the organisation has the financial flexibility and workforce capacity to innovate in the future (A2I).

4. Alignment with Strategic Goals: If an organisation’s strategy is to increase innovation capacity, improving Revenue per Employee could be a strategic goal under A2I. The metric would then reflect how well the organisation is positioning itself to support future innovation.

Conclusion

I believe that Revenue per Employee can be a versatile Key Value Measure (KVM) that, depending on the context, could belong to either or both categories. In practical terms, while it’s categorized under CV in the 2024 EBM guide, it might also provide valuable insights into an organization’s Ability to Innovate, especially when considered alongside other metrics.

I’m interested to hear more thoughts on this, especially regarding how others have used this metric within their EBM practices!

Thanks again for the stimulating discussion. I look forward to continuing this exchange!

while it’s categorized under CV in the 2024 EBM guide, it might also provide valuable insights into an organization’s Ability to Innovate, especially when considered alongside other metrics

Measures should provide these insights into other areas. It's an understanding of how and when they don't that makes a model informative.

There are many large corporates which rake in revenue but don't spend a red cent on innovation, and then go to the wall. What could they learn? Similarly there is no shortage of "Discovery stage" biotechs who can innovate until the eyes water, yet somehow don't own the shirt on their backs. Framing and understanding the gaps between measures is important.

One thing that you forget is that the revenue generated by software has little to do with the actual people that are writing the code.  It is dependent on the sales and marketing staff more than the software engineers. So it is a measurement of cost or value. Also, innovation is more of a market driven need than a technology desire.  Just as @Ian has said, there are a lot of very profitable companies that do not innovate because the markets that they serve do not need it. I have also worked for a couple of start ups that tried to innovate in a market and failed because no one would buy their products.

Revenue per employee is a good metric for establishing the value of the current item being measured.  It is usually paired with the cost per employee to help determine whether the value is positive or negative.  Can it also be used for other things?  Sure it can as should most metrics.  Metrics on their own tell you nothing.  Anyone that works with statistics know that individual statistics are mostly useless.  However, pair them with others and suddenly a story is exposed. Many statistics fit well with others to tell a consistent story.  In this case Revenue per Employee fits very well into the Current Value story.

Thanks for the stimulating conversation.