Everyone knows that no one set of numbers tells the whole story. When you're looking at productivity and efficiency, getting to the truth can be especially tricky. These two terms are not the same - yet they're sometimes used interchangeably.

It may be a bit of an oversimplification, but I like to think of the distinction between the two like this:

Productivity, also referred to as utilization or billability, is how well YOU manage your team's time. (How productive is the team? How well are they utilized?)

Efficiency is how well THEY manage their time. (How effectively does the team perform their project tasks, when measured by Level of Effort (LOE) or hours?)

How to Best Measure In-House Agency Productivity
The most straightforward way to measure productivity is by looking at how team members spend their time. It can be as simple as measuring billable time versus non-billable time or comparing time spent on project-specific deliverables versus infrastructure and support. An important consideration to add to this mix is the impact of downtime, such as when team members are waiting on client feedback, and PTO.

At this point, I also want to note an important caveat: employees cannot be consistently productive 100% of the time or they'll burn out. Plus, they sometimes need to engage in other critical non-project related activities such as general studio virtual and physical maintenance, professional development, mandated training and unexpected troubleshooting of equipment.

Let's use Cella's in-house agency at Merck, where I work, as an example. Productivity is tied directly to billable time spent working on deliverables for clients. Different roles have varying targets: individual contributors are expected to be 80% productive/billable, team leads 30% to 50% billable, and leadership roles are 10%. Of course, this doesn't mean our leadership is lounging around 90% of the time. They're focusing their efforts on studio infrastructure, operations, coaching and mentoring our teams and other activities that our model doesn't identify as "utilized" or "productive" time, since it's not directly related to producing client deliverables.

Because the majority of our individual contributors are hourly contractors whom we bring into our agency on an as-needed basis, we have the flexibility and the responsibility to ensure that the team achieves high overall productivity. When work is slower, team members may work fewer hours. When it peaks, we bring in more flex staffers. Although it's an art rather than a science, we've been tracking productivity at a team (and sometimes even role) level for five years. This history gives us a solid sense of when work is likely to ebb and flow. Based on that, we can anticipate what our upcoming workload requirements will be, and plan our resources accordingly.

How to Effectively Track Efficiency for Your In-House Agency
Assuming that you're hitting your productivity targets, let's move on to efficiency. You have everyone working the right amount of time on the right activities. That must mean everything is humming along perfectly, right?

Not so fast. This is when efficiency, our second critical metric, needs to be considered. It will allow you to track 1) what activities individual team members are spending their time on, and 2) how effectively or quickly the team as a whole is executing on its projects.

At the Cella engagement at Merck, we measure efficiency by tracking the number of person-hours the team assigned to a specific project needs to complete a pre-determined output. In other words, "How many hours did it take the team to make this slide presentation?" or "How many hours went into the production of this video?"

In order to accurately capture efficiency, you need to dig even deeper by identifying project-specific criteria. Not all jobs are created equally. Some slide presentations, for example, are five slides while others are 50. Some might contain only a few bullets of light text on each slide, while others call for the creation and review of extensive, data-rich graphs.

With that in mind, we track deliverables in multiple dimensions. We've defined more than 100 project types, and each one is assigned a complexity level (high, medium, or low). In effect, we really have close to 500 different pairings of deliverable complexities and types. Output is further subdivided and identified by components - for example, an individual "slide" rather than "slide presentation" or a "minute of video" rather than the entirety of the piece.

To track all of our projects, given the project criteria we defined, would be too labor-intensive, so we narrowed down the project types we track based on dollar and project volume, along with ones that offer the greatest opportunity to increase throughput. Even by limiting the number of projects we track, the process remains complex - but it's one that gives us a tremendous amount of actionable insights. For example, in recent years, we've rebuilt our Project and Account Management teams in response to an emerging trend: some of our more complex jobs were taking longer to execute. We determined this was not due to each team member becoming less effective, but rather that the more complex jobs required more team members and more handoffs, thus requiring more support from project and account management. The lesson here was that efficiency may not be about individuals working faster, but about teams working smarter.

The Productivity/Efficiency Sweet Spot
To expand on this point, while it might seem counterintuitive, productivity and efficiency don't always go hand in hand. In fact, increases in one might lead to decreases in the other. High productivity can lead to burn-out, which can actually reduce the efficiency of your team. As a result, your projects may be costing your company more money than they would if your group were utilized at a sustainable level. In other words, higher productivity is not better if it results in low efficiency. The goal is to find that sweet spot that allows for the highest amount of productivity/utilization without sacrificing both project-specific and overall studio efficiencies and ongoing operational improvements.

Ultimately, productivity and efficiency can be very helpful in identifying strengths and opportunities for improving your team and processes. Therefore, it's important to remember that these numbers are a means to an end, not an end in and of themselves.

If you're going to take on the effort of accurately tracking productivity and efficiency, you should have clear goals in mind. Do you want to adjust headcount? Avoid staff burnout? Reduce costs or pressure-test new processes? Unless you set definite objectives, you're generating numbers just to have them... and that is neither productive nor efficient.