This study seems fundamentally flawed. The Fortune 500 are the 500 companies with the highest revenue. This means that smaller companies only make it into the Fortune 500 if they already have very high revenues/employee. Since costs/employee are necessarily bounded, what the study ends up comparing is the productivity in the most profitable small companies with the productivity in the (roughly) average large companies. That's a serious sample bias and invalidates the conclusion, IMO.
The equally big flaw is that it focuses on the _average_ employee rather than the _marginal_ employee. If you want to decide to hire another employee, your concern is not how productive your average employee is. Your concern is whether the next employee will be a net positive or a net negative.
I'll bet that Wal-mart's marginal employee profit is almost exactly $0. In other words, Wal-mart has hired so many people that there is no benefit to hiring one more, and has been so efficient in getting lean that there is nothing to be gained from firing somebody. (Of course, that ignores individual performance, but on average.)
The same analysis might be true for Goldman. Even though the average Goldman employee is raking in hundreds of thousands for the company, it's not clear that Goldman would profit an extra $200,000 just by hiring the next average employee. It's very likely that Goldman has a limited number of opportunities to invest and that the current staff is enough to handle those and no more.
Walmart could open a new store. That would need more employees and, presumably, the store would generate a profit for the group. So looking at the marginal employee doesn't tell the whole story either - hiring one more employee isn't enough to open the next store, you'd need to hire another 30 more (or whatever the figure is) to see an increase in profit.
Isn't the Walmart population in the US roughly stable at this point? I would imagine that if WalMart could identify a location where a store would be obviously profitable then they would open it immediately.
Exactly. It's not that diseconomies of scale don't exist, but this study doesn't really show them. Every company in the S&P 500 is big enough to suffer from levels of bureaucracy unheard of in smaller companies; virtually all of them are as unwieldy as they are large.
This isn't showing Walmart is less profitable per employee than thrifty independent retailers and small, focused chains. It instead illustrates the unremarkable fact that Walmart is less profitable per employee than Goldman Sachs.
It would be interesting to see a study done on profitability per employee based against employee wage.
Now it's just a hunch, but my guess is that Goldman Sachs with it's approaching-six-figure average employee wage is going to be a lot more profitable per employee than mega-marts employing minimum-wagers by the thousand.
But S&P 500 are not the 500 companies with highest revenue. Its 500 companies selected by a committee to be representative of the american economy. Its not as biased as you suggest.
My bad, but I think the study would have actually been less flawed with the Fortune 500. S&P are subjectively chosen "market leaders"; thus you not only get the bias towards companies with large revenues, but also an opaque bias related to the committees non-transparent criteria.
The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges; the New York Stock Exchange and the NASDAQ. Wikipedia
I agree that companies with 3-100 employees will just not appear in SP500.
However, Mercury Interactive was included when it had around 1000 employees. 1000 is a lot, but you can still learn by comparing a company with 1000 employees to HP with 300,000.
I think you need to be even more granular than that. For instance, I doubt the same standards apply to startups hiring salespeople as well as startups hiring programmers.
I would upvote you 10 times if I could, if only because your comment should be pinned at the top of this thread. The fundamentals of this study are very flawed, and anyone reading the article should know as much.
Point and case - the number one firm on their scale 'Ambac Financial Group' has declared bankruptcy - turns out not so productive per employee after all.
