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CALCULATING REVENUE PER EMPLOYEE IS EASY - BUT IS IT MEANINGFUL?

Future of fax machines and value of a college education foster queries.

Question - What kinds of human resources policies and strategies do you use to ensure that your revenue per employee is at an optimum level? Shirley Yang, Hong Kong (shirley sclpinet.clp.com.hk)

Answer - Revenue per employee is a simple calculation to make, but it's not a good measure of efficiency.

To calculate a company's revenue per employee, you merely divide its number of employees into the amount of its annual revenue. A 100-employee corporation that takes in $20 million a year has revenue-per-employee of $200,000.

All things being equal, achieving $200,000 per year in revenue per employee is better than achieving only $150,000. But it's rare that all things are equal.

An organization that needs relatively few employees, perhaps because it outsources some work, may have high revenue-per-employee. But it may not be as efficient as another company that has somewhat lower revenue-per-employee because it employs more people and does everything inter-nally.

I'm not suggesting that it's bad to outsource. On the contrary, Microsoft outsources all the time - for functions from landscaping to CD-ROM manufacturing. We focus our internal work force on those tasks where we have greatest competence, such as writing software and managing big projects.

Outsourcing will get more common as communications systems such as the Internet make it easier for companies to work with outside suppliers as readily as they work with in-house departments. As this trend accelerates, revenue per employee will become even less meaningful as a measure of efficiency.

Companies that are managed with the goal of achieving a certain amount of revenue per employee run the risk of encouraging outsourcing in situations in which it may not make sense. Managers tend to come up with clever ways to move tasks outside a company to protect an internal budget - even when it isn't in the broader interests of the company. The reverse can happen, too.

A manager with an insufficient outsourcing budget may hire employees to do a task that would be better performed by contractors. Many companies control their payroll very well but fail to discipline the outsourcing budget. This can lead them to not really see where costs are rising.

Microsoft's human resources strategies focus on attracting good employees and keeping them happy and productive. We don't consciously strive for a particular average revenue level per employee.

Instead, we focus on what percentage of the revenue pool is devoted to broad categories of expenditure, such as research-and-development, the cost of goods, personnel and marketing.

Any company, even a small one, can take the same approach. I tell entrepreneurs to find a role-model corporation in their industry and study its profit-and-loss statement. Get to know, off the top of your head, what percentage of revenue goes into various cost pools. Then ask yourself: Can you achieve that? It's a much better approach than paying too much attention to revenue per employee.

Question - Do you think the fax machine represents an interim technology like the typewriter, ultimately to be squeezed out by e-mail?

RGolden dechert.com

Answer - It won't happen overnight, but it's very likely that the fax machine will fade in popularity.

Electronic mail is faster and more flexible. It also works for documents that aren't - or can't be - printed on paper. PCs are often used to send and receive faxes, eliminating paper at one or both ends of the transmission.

This is quite different from e-mailing a document, though. A facsimile is just the image of printed pages. In contrast, an electronically transmitted document gives the recipient the ability to search, edit or manipulate its content.

Still, using a PC to send a fax will make a lot of sense until e-mail addresses are as common - and as commonly known - as fax numbers are today.

Question - I graduated from high school and now own a small software company that I run from my house. My goal is to make a fortune. Since you never actually graduated from Harvard, it made me realize even more that college is a waste of time. Ignoring all the media hype and sales pitches, what are your thoughts about what I am doing? Brian Wiles, Cameron Park, CA (brian brisoft.com)

Answer - You're almost certainly making a mistake, unless you're faced with a far better opportunity today than you think you'll ever face again.

It concerns me to hear young people say they don't want to go to college because I didn't graduate.

For one thing, I got a pretty good education even though I didn't stay long enough to get my degree. For another, the world is getting more competitive, specialized and complex each year, making a college education as critical today as a high school education was at one time.

College is a great time to learn about the world and spend lots of time with people your age. It's not smart to get locked into a particular career track until you see more of the choices.

College can be a fun time, too. There's no real reason to be in a rush. You're going to be working a lot of years. What's the hurry?

I loved my years in college and, in many respects, I regretted leaving. I did it only because I had an idea - founding the first microcomputer software company - that couldn't wait.

It may seem ironic, considering that I didn't get my degree, but Microsoft focuses its hiring for most positions on college graduates. We believe that the maturity and learning that a college education offer are invaluable, and we've seen that people with liberal arts educations bring wider knowledge of the world to bear on their jobs.

I've said it before, and I'll say it again: Go to college.