“Our biggest cost is not power, or servers, or people. It’s lack of utilization. It dominates all other costs.” – Jeff Bezos

Any one who purchases a new tool or technology for an organization has a few big fears that they need to overcome.

1. Will the tool fix the current problem or reduce time involved?
2. Will people take the time to learn the new tool?
3. Will people adopt and use the tool?

The utilization of the tool is a crucial piece of information that many organizations will leverage to understand if the investment in the tool is needed or if it can be a cost-savings when it is time for renewal.

While this is done for tools, the same measurement and understanding of a company’s workforce should be done as well.

So, what exactly is capacity and utilization?

Capacity is the maximum amount that something or someone can produce. Utilization is the action of making practical and effective use of something. Put simply, capacity is the amount possible and utilization is what percent is being achieved out of the capacity. A bucket that can hold 1 gallon of liquid but only contains half a gallon of the liquid has a capacity of 1 gallon and a utilization of 50%.

When a company is able to understand the full capacity of its workforce and then utilize it appropriately, magic happens.

For companies that have full-time employees, it is simple to understand the work capacity of the workforce. You multiply the number of hours they work per week (40) by the number of employees in the specific field (marketing). So if your company has 500 hours of marketing-related work a week and you have a staff of 10, there are not enough employees to manage this workload. With 500 hours of marketing work to get done, but only have 400 hours of capacity (40 hours x 10 team members = 400 hours of capacity) then you’ve uncovered capacity issues.

Capacity gets a little more complicated for companies that rely on a part-time workforce, especially if it is not a set amount of hours that are evenly distributed across the team.

In order to maximize the utilization of your workforce, the capacity must be known. Best way to do this is to have the managers of your front-line employees ask for their work capacity or to have them complete a simple survey.

Now that we understand the capacity of our workforce, it is time to understand their utilization and how we can maximize it.

This seems pretty simple at first glance. You compute the number of work hours that need to be completed against the capacity of your current workforce and BAM, you have your utilization.

This works for jobs that can be done remotely and do not have significant time constraints.

When a person needs to be present or when “time is of the essence” then the work capacity and the required work to be completed needs to be segmented out accordingly. Segmenting the capacity out by these different categories as needed for your business is crucial to nailing the utilization of your workforce.

If Jeff Bezos is saying that it is the number 1 issue at Amazon, it should be a high agenda item for most companies.

What are some ways to improve the utilization of your current workforce?

Tools

• Provide them with the tools necessary to do their job more efficiently or automate admin activities so they can perform the tasks needed.

Training

• Provide them with proper training. You can’t expect to maximize utilization if your workforce doesn’t have a solid understanding on how to get there.

Tactics

• Are you using the right people in the right places? Understand the strengths and weaknesses of your resources and allocate them where they will be most effective.

Use Cases

A retail and merchandising company did not understand the capacity of its workforce and thus could not adequately predict whether they had a workforce to perform the jobs as described or have the bandwidth to take on additional customer requests.

• Managers collected information from their direct reports on their capacity, week in and week out.
• Once capacity was calculated, this number was segmented by region and measured against the total work needed to provide customer support to each region.
• Staff additions, subtractions and relocations were performed to utilize the staff to its fullest extent.

A global media organization was not able to handle urgent requests in different geographies around the world.

• A utilization of all staff in the responsible department was performed to best understand where there was excess capacity and where they were lacking.
• After segmenting by time-zones globally, the organization was able to adequately place individuals to adjust for typical capacity throughout the week.
• Cost savings were achieved as areas with over capacity were able to be reduced.

It all boils down to can you define your company’s ability to do work and the work that needs to be done.

If not, time to inspect what you expect.

While the explanation might seem a bit basic, the process to leverage workforce capacity and utilization requires the sleeves to be rolled up and to get dirty.

If the CEO of Amazon is worried about his company’s utilization of its resources, this should be at the top of your To Do List. If you’re not sure where to start, just reply to this email and we’ll take a look under the hood for you.

Let’s get to work.

Prescriptive Profits #30