Get ready to see productivity improvements everywhere.
We’ll be the first to admit that productivity improvements take a back seat to pressure points when companies are busy.
However, the best improvements can inspire us to break new objectives and targets, and what better way to do that than learning more about productivity?
Productivity measures the efficiency of a person, machine, factory, system, etc., in converting inputs into valuable outputs.
It is computed by dividing the average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period.
Productivity is a critical determinant of cost efficiency.
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Background Overview of Productivity
Productivity has been a topic of interest since the Industrial Revolution when businesses began to seek ways to optimize their operations.
Over time, the concept has evolved and expanded, encompassing not just manufacturing and industrial sectors but also services, agriculture, social capital, and even personal productivity.
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Different Types of Productivity
- Labor Productivity is the most common type, measuring a company’s output based on the number of labor hours put into the production process.
- Capital Productivity: This measures how effectively a business uses capital in production.
- Total Factor Productivity (TFP): This considers all of the factors of production – labor, capital, and even more abstract factors like technology or innovation.
- Multifactor Productivity: This measures the output per unit of combined inputs (capital, labor, energy, materials, and services).
Benefits of Measuring Productivity
Measuring productivity allows businesses to identify inefficiencies and implement strategies to improve output. It helps reduce costs, improve competitiveness, and can lead to increased profitability. It also provides a benchmark for comparing performance over time or against competitors.
Features and Opportunities of Measuring Productivity
Measuring productivity allows one to track performance, identify areas for improvement, and make informed decisions. Opportunities include increased efficiency, cost savings, and improved employee morale.
8 Ways to Measure Productivity in Business
- Output per Hour: This is a simple measure of labor productivity.
- Sales per Employee: This measures how much revenue each employee generates.
- Value of Output per Input: This measures the value of the output produced per unit of input used.
- Profit per Employee: This measures how much each employee contributes to the business.
- Task Completion Rate: This measures how many tasks are completed in a given time.
- Customer Satisfaction: This measures the quality of output.
- Employee Turnover Rate: High turnover can indicate low productivity.
- Use of Technology: Technology can significantly enhance productivity, and its usage can indicate productivity levels.
Challenges with Measuring Productivity
Measuring productivity can be complex and may not always provide a complete picture.
For example, a business might have high labor but low capital productivity.
Additionally, factors like quality of work, employee satisfaction, and customer satisfaction can be challenging to quantify.
5 Step-by-Step Instructions on How to Measure Productivity
- Identify the Inputs and Outputs: Determine what you will measure as inputs (e.g., hours worked, capital invested) and outputs (e.g., units produced, services provided).
- Collect Data: Gather data on inputs and outputs over a specific period.
- Calculate: Divide the total output by the total input to get a productivity figure.
- Analyze: Look at the productivity figure to see if there are any trends or patterns.
- Implement Changes: Based on your analysis, implement changes to improve productivity.
Pros and Cons of Not Measuring Productivity
Pros: Not measuring productivity can save time and resources that would otherwise be spent on data collection and analysis. It can also avoid potential issues with employee morale if productivity measurements are perceived as a form of surveillance.
Cons: Without measuring productivity, a business may miss opportunities for improvement. It may also struggle to identify problems or inefficiencies, which could lead to reduced competitiveness and profitability.
Conclusion
Productivity is vital to any business, influencing cost efficiency, competitiveness, and profitability.
While measuring productivity can be complex and time-consuming, its insights can lead to significant improvements and growth.
Therefore, businesses must understand productivity and make it essential to their performance measurement and improvement strategies.
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With 30+ years of experience, Catherine Fitzgerald, B.A., M.A., PGDip, founded Oak Innovation in 1995. Catherine received her Bachelor’s degree and Master’s from University College Cork. She holds qualifications in Professional Development And Training from University College Galway. She is completing a second Master’s from University College Cork. Since 1995, clients include Apple, Time Warner, and Harvard University.