Productivity

The objective of a business firm is to provide value and satisfaction to the customers at a profit. Business
firms always try to maximise their profit, but the profit can be maximised only when the business
operations are efficient. Efficiency is measured by the capacity of a business firm to raise the productivity
of the existing resources so that cost per unit is reduced. Since cost and productivity are reciprocal to each
other a rise in productivity implies a fall in the cost of production which is reflected by higher profit.
In general sense, productivity is some relationship between input and output of an enterprise. It is a
quantitative relation between what a firm produces and the resources used. In narrow sense productivity is
the ratio between output and input. That is,
Productivity = Output/Input.
The amount of output per unit of input (labor, equipment, and capital). There are many different ways of
measuring productivity. For example, in a factory productivity might be measured based on the number of
hours it takes to produce a good, while in the service sector productivity might be measured based on the
revenue generated by an employee divided by his/her salary.
Definition of Productivity
1. Productivity is a measure of how much input is required to produce a given output, i.e., it is a ratio
of output to input.
2. Productivity is the ratio between the amount produced and the amount of resources used in the
course of production. The resources may be combination of material, men, machine and space.
3. According to Peter Drucker, Productivity means a balance between all factors of production that
will give the maximum output with the smallest effort.
4. According to OEEC (Organisation of European Economic Community), Productivity is the ratio
between the production of given commodity measured by volume and one or more of the
corresponding input factors also measured by volume.
Thus, there may be a number of ways to define productivity which clearly indicates the level of
performance corresponding to a given input. In general sense, productivity is the measure of how much
input is required to produce a given output.
Thus, PT = QT / (L+C+R+M)
Where, PT = Total Productivity
QT= Total Output
L= labour Input
C= Capital Input
R= Raw material and Purchased part input
M= Other miscellaneous goods and service input factors.
Productivity can be measured at firm level, at industry level, at national level and at international level.
Modern Dynamic Concept of Productivity
Productivity can be treated as a multidimensional phenomenon. The modern dynamic concept of
productivity looks at productivity as what may be called productivity flywheel. The productivity is
energized by competition. Competition leads to higher productivity, higher productivity results in better
value for customers, and this result in higher share of market for the organization, which results in still
keener competition. Productivity thus forms a cycle, relating to design and products to satisfy customer
needs, leading to improved quality of life, higher competition i.e. need for having still higher goals and
higher share of market, and thereby leading to still better designs.

Factor Productivity and Total Productivity

When productivity is measured separately for each input resource to the production process it is called
factor productivity or partial productivity. When productivity is measured for all the factors of production
together, it is called total factor productivity. Generally factor productivity calculations are required at
firm level and industry level, whereas total factor productivity calculations are made for measuring
productivity at national and international level.
Productivity of materials can be measured as output units per unit material consumed. It can also be
measured in terms of value generated per unit expenditure in materials.
For measuring productivity of different groups of operatives, different ratios can be used, which are
indicative of output/input relationship. For example, the productivity of assembly line work can be
measured as output units per man-hour or alternatively, the value of good produced per cost of labour on
assembly line.
Importance of Productivity
The concept of productivity is of great importance for the organisation. The resources are limited and they
should be used to get the maximum output, i.e., there should be tendency to perform the job by cheaper,
safer and quicker ways. The aim should be to use the resources at the optimum level to provide maximum
satisfaction with minimum effort and expenditure. Some of the importance of productivity are listed
below:
Higher productivity brings reduction in cost of production.
Reduction in price of goods.
Reduction in labour cost per unit of output.
Reduction in raw material cost through increase in the productivity of the raw material.
Better standard of living for people through increase in their income and improvement in the
quality of goods that can be made available at a cheaper rate.
Increase in the wages and salaries through schemes for sharing the gains of productivity.
Factors Affecting Productivity
Economists site a variety of reasons for changes in productivity. However some of the principle factors
influencing productivity rate are:
Research and Development: Investment in Research and Development may yield better method of doing
a work and better design and quality of product.
Plant Layout: The arrangement of machinery and equipment and their position in the plant and set up of
the work bench of an individual worker will determine how economically and efficiently production will
be carried out.
Scarcity of some resources: Resources such as energy, water and number of metals will create
productivity problems.
Work-force changes: Change in work-force effect productivity to a larger extent, because of the labour
turnover.

Capital/labour ratio: It is a measure of whether enough investment is being made in plant, machinery,
and tools to make effective use of labour hours.
Innovations and technology: This is the major cause of increasing productivity. Advanced production
processes involving the use of integrated and automatic machinery have been known to help in raising the
level of productivity.
Quality of work life: It is a term that describes the organizational culture, and the extent to which it
motivates and satisfies employees.
Employee Job Performance Factors: Human factor is a critical factor in the success of an enterprise.
Employees include men at the level of organisation right from the rank of file workers up to the top level
of executives. Employees attitude and performance have an immense bearing on the productivity.
Sometimes improvement in the technology is more than offset by changes for the worse on the human
side of productivity. Job performance factors include motivation, physical work environment and the
ability of the employee.
Motivation- It is determined by the willingness of the employee to work for the organisation and it
is related to productivity in direct way. The urge to do a work is very important to increase the
productivity. The motivation of the employee depend upon the organisation structure, leadership,
need, participative management, delegation and decentralization of authority, policies related to
recruitment, selection, induction and training, compensation, promotion, job evaluation,
performance appraisal, etc.
Although job satisfaction is not necessarily a motivator to higher productivity yet it prepares a
ground for high motivation. A person may be very capable but if he is not motivated, he can not
perform well on his job and vice-versa.
Physical Work Environment- Work environment include proper building, better lighting, improved
safety devices, reduction in noise, length of work, duration of work, suitable rest pause, etc.
though above factors are important, more important is the outlook of the employee towards the
work environment. The management should not run away from its obligation for providing the
most congenial possible working conditions to the employees.
Ability- Ability of the employee is directly related to the performance of the employee. The ability
includes knowledge and skill, personality, education, experience, training, etc. A person who is
deficient in knowledge and skill is likely to less productive than a person who is normal in this
respect.
Productivity Improvement Technique
Different methods of productivity improvement are classified asEmployee Based Technique: Employee based technique includes employee promotion, financial
incentive, job rotation, fringe benefit, education, training, employee participation, communication,
working environment, etc.
Material Based Technique: Material based technique includes material management, inventory control,
material reuse and recycle, quality control, material handling system improvement, etc.
Product Based Technique: Product based technique includes product standardisation, product
simplification, advertising and promotion, research and development, product reliability improvement,
etc.
Task Based Technique: Task based technique includes work measurement, job design, ergonomics, job
evaluation, method engineering, etc.
Technology Based Technique: Technology based technique includes computer aided manufacturing,
computer aided design, robotics, cellular manufacturing, assembly line production, maintenance
management, etc.