Productivity, Meaning, Definition, Measurement, Categories, Process

Table of Contents:-

  • Meaning of Productivity
  • Definition of Productivity
  • Measurement of Productivity
  • Planning for Productivity
  • Categories for Productivity Planning
  • Process of Productivity Planning

Meaning of Productivity

Productivity is a common measure of how well an industry, country, state or business unit is using its resources (or factors of production). In its broadest sense, productivity is defined as:

  • Productivity = Output/Input

The ratio of outputs to inputs is maximized as much as possible to increase productivity.

The terms ‘production’ and ‘productivity’ are frequently used interchangeably. However, there is a difference between these two Production refers to the total output. Productivity refers to the output relative to the inputs. Stated more clearly, productivity refers to the amount of services and goods produced with the resources used.

Definition of Productivity

According to Peter Drucker, “Productivity means a balance between all factors of production that will give the maximum output with the smallest effort”.

According to European Productivity Council, “Productivity is an attitude of mind. It is a mentality of progress, of the constant improvement of that which exists. It is the certainty of beings able to do better than yesterday and continuously. Productivity is constant adaptation of the economic and social life to changing conditions. It is the continual effort to apply new techniques and method. It is the faith in human progress”.

According to International Labour Organization (ILO), “The ratio between the volumes of output is measured by production indices and the corresponding volume of labour input is measured by employment indices. The productivity is a measure of how much input is required to achieve a given output”

When considering an industry, productivity can be expressed in the ratio between the value of the goods and services produced and the value of the resources utilized for this production.

  • Productivity = Value of goods and services produced/ Value of resources utilized for this production

So, productivity refers to efficiently utilising resources: land and buildings, materials, machines, and workforce. The combined use of all these resources determines the productivity of enterprises. Since higher productivity means more output from the same resources, it implies lower costs and higher net returns per output unit.

Measurement of Productivity

There are three major types of productivity measures as listed below:

  1. Partial Productivity
  2. Total Factor Productivity
  3. Total Productivity

1) Partial Productivity

 The final product in any activity requires inputs from various resources such as workforce, materials, energy, capital, plant and machinery, technology, and information. The input of all these resources enables the production of products and services as required. The quantity of each input varies from case to case. Considering the input of one resource to produce the output gives a productivity value, which is only partial productivity related to that particular resource. The ratio of the production of the product to the input of that factor would give us a partial productivity value associated with that factor.

Management needs to evaluate the effectiveness of the utilization of each resource. Suppose it is found from the measurement of partial productivity that any of the input resources are not effectively utilized. In that case, efforts are made to examine the issue to find out the reasons for the low partial productivity of that particular resource and to decide on possible improvement solutions. A measure of partial productivity plays a vital role in improving overall productivity.

  1. Labour productivity=  Output/ Labour input
  2. Capital productivity=  Output/ Capital input
  3. Material productivity = Output/ Material input

2) Total Factor Productivity

In any production process, many resource inputs are available within the organization, while others are purchased from outside. For example, a company could have its workforce but may purchase materials and services such as energy, machinery and equipment (say, on lease), marketing, advertisement, information processing, consulting, etc. In this case, the net output would be the difference between the total output and the value of the resources purchased from outside.

As it is known, labour and capital are the two most important inputs for any production activity. Total factor productivity is defined as the ratio of net output to the sum of associated labour and capital (factor) inputs and is represented as:

  • Total factor productivity =  Net output / (Labour + capital) inputs

3) Total Productivity

Total productivity is the ratio of total output to the sum of inputs of all resources. Notably, both the output and input are expressed in ‘real’ and ‘physical’ terms in one currency of a reference period, often referred to as the “base period.” The output and input are presented in rupees or any other currency.

The reduction to the base period is derived by dividing the output and input(s) values by the ‘reduction factor’ or ‘increase factor,’ depending on whether the prices of production and inputs have gone down or gone up, respectively. This would eliminate the effects of changes on the output and input(s) at different points in time and view the impact on a standard base period while computing the productivity ratios. Therefore, total productivity is presented as follows:

  • Total productivity =Total tangible output / Total tangible input

Tangible means measurable

  • Total tangible output = Value of finished goods + value of partially finished units + dividends from securities + interest + other income.

Total tangible input = Value of human, capital, material, energy and other inputs used.

Deflators are used to nullify the effect of changing prices from one year to another.

  • Deflator= Current year price / Base year price

Planning for Productivity

Companies that excel in productivity also tend to excel in making money. A productivity plan sets out concrete steps that the company and employees can take to improve productivity. Productivity is essential for the success of every organisation. A productivity program consists of a specific plan designed to improve productivity. An effective productivity plan addresses all areas that may potentially affect the overall productivity of an individual or organisation.

The organisational productivity plan typically addresses three main elements, such as tactical, operational and strategic planning. Managers and supervisors may also choose to create productivity plans for particular departments or employees.

Categories for Productivity Planning

Most of these factors fall beneath the three following parts of a productivity plan:

1) Tactical Planning

This type of planning might sound similar to strategic planning but represents a fundamentally different type. While strategic planning operates at a general level, considering long-term missions and goals, tactical planning deals with short-term goals and the specific actions necessary to achieve those goals.

For example, an automotive parts store may have a long-term strategic plan to open six branch stores in other cities. The tactical planning element will outline what needs to happen and likely who needs to do what to open the first branch store next year. Tactical planning enables the company owner to select the best individuals and resources for tasks, thereby improving productivity.

2) Operational Planning

Operational planning directly addresses how work gets done and who will do it daily. This type of planning encompasses details ranging from manufacturing facilities to the required staff numbers. Regarding productivity, this planning element can reveal areas where fewer workers can achieve the same output, identify more efficient work processes, and determine the most advantageous locations for establishing a store or production facility to deliver customer services or products.

3) Strategic Planning

This function operates at a very general level. Essentially, it seeks to define the objectives the business wants to direct its efforts toward, such as productivity, and how to align those objectives with its mission. This generally involves conducting internal and external analyses of the business, industry, and economic conditions. The data gathered helps the business analyze and understand potential areas where it can gain a competitive advantage and, consequently, where it needs to improve internal productivity.

Process of Productivity Planning

The following stages are involved in the process of productivity planning:

  • Stage 1: Establishment of a Comprehensive Productivity Programme
  • Stage 2: Productivity Planning Appraisal Process
  • Stage 3: Strategic Productivity Planning Process
  • Stage 4: Tactical Productivity Planning Process
  • Stage 5: Operational Productivity Planning Process
  • Stage 6: Measurement Technique Implementation
  • Stage 7: Improvement Action Implementation
  • Stage 8: Project Maintenance

Stage 1: Establishment of a Comprehensive Productivity Programme

A planning council should be established to initiate a formal comprehensive productivity planning program. The council will develop a basic implementation strategy, including training requirements, and focus on key priority areas and structures that accommodate the four components of CPPC. The council’s role will also include providing technical leadership to the planning teams, ensuring total involvement of all stakeholders (management and employees), reviewing plan assumptions, goals, objectives, and achievements, and facilitating clear upward and downward communication within the organization. The planning council is the focal point for all planning issues within the organization. The council is recommended to comprise members from all key functional areas of the business.

Stage 2: Productivity Planning Appraisal Process

The purpose of the productivity planning appraisal process is to understand the threats and opportunities in the environment in which the organization operates, as well as the strengths and weaknesses of the organization’s internal operating characteristics. A productivity plan is then developed to address both the weaknesses and threats. Action plans that will continue to maximize the opportunities and strengths of the organization are implemented.

Stage 3: Strategic Productivity Planning Process

Strategic productivity planning is concerned with long-range goals and objectives, and it is broad. It involves setting the primary purpose and direction needed by an organization. Based on the appraisal performed in stage 1, the organization formulates strategies and goals for the long term. Developing goals and objectives requires an understanding of corporate philosophy and operating strategies. This understanding helps evaluate productivity improvement concepts. Corporate philosophy usually consists of objectives, operating procedures, and environmental constraints. Objectives are interrelated rather than independent; hence, this process is complex and dynamic.

Stage 4: Tactical Productivity Planning Process

This stage of productivity planning is short-range and concerns itself with implementation. Tactical productivity plans support strategic plans and are pretty flexible. They are used to make production control, inventory control, resource requirement planning, labour planning, information planning, and purchasing decisions. Tactical productivity planning employs models in its planning process. These models describe, explain, and predict the behaviour of the system they represent.

Based on specific organizational needs, analytic models (linear programming, non-linear programming, quadratic programming, dynamic programming, integer programming, inventory models, queuing models, PERT/CPM models, reliability models, and Markovian decision models) or simulation models (Monte Carlo technique, heuristic technique, and operational gaming technique) may be used as aids in the planning process. In this step, the business sector carefully evaluates and redistributes the productivity plans. The assumptions and resources supporting the plans are streamlined to suit short-range business demands.

Stage 5: Operational Productivity Planning Process

Operational productivity planning is the last phase of the cycle. It is operational, as opposed to preparational. The other phases have all contributed to specifying the design and laying the foundation for developing the operating plan.

Operational productivity planning aims to assign specific actions to specific groups with complete instructions. To generate reliable plans, the ability of each group must be recognized. The assignment process must consider a group’s access to needed information, necessary data, qualifications, and experience. The delegated actions require appropriate tracking methods. The data and information processing must specify means for collecting, processing, storing, and transmitting data. Provisions also need to be made for reporting unplanned events. However, which events to register and the format to write them should be determined.

Stage 6: Measurement Technique Implementation

To assess the effectiveness of the implemented plans, measurement techniques like total, total, and partial productivity should be implemented. Edosomwan developed and tested a unique productivity measurement model for such situations. These measures should be used alongside other financial metrics, such as the balance sheet rate of return on investment and risk assessment based on cash flow. Record and address all potential problem areas.

Stage 7: Improvement Action Implementation

Improvement actions addressing all potential problems are implemented during this stage. These actions range from technical to people-oriented, customer-oriented, and task or technology-based. The crucial aspect is to monitor the impact of all implemented actions and make modifications as necessary.

Stage 8: Project Maintenance

Comprehensive productivity planning is not a one-time action. It entails an ongoing assessment of the organization’s requirements associated with the components of the CPPC. Periodic reviews, training, competitive analysis, economic monitoring, and other tasks must be conducted continuously. Implementing data collection and information systems can help alleviate the burden of tracking historical issues.

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