Definition and components of productivity
Productivity has been generally defined as a ratio of a measure of output to a measure of some or all of the resources used to produce this output. Defined in this way, one or a number of input measures can be taken and compared with one or a number of output measures.
When attempts are made to include all inputs and all outputs in a system the measure is called a total productivity measure (TPM). Palik (1979) explains in his definition that the inputs used in a process can be hours of labor, units of capital, and quantities of raw materials compared with the consequent output.
Revisiting the Productivity Conceptual Model, the roots denote the inputs to the system, the trunk the conversion process and the branches, leaves and fruits the systems outputs.
The model shows two fundamental problems:
- Selecting different factor, inputs and outputs, can derive different measures of productivity.
- The diversity of the sum of the factor inputs and outputs, many of which are of a qualitative nature.
Notwithstanding these, there is little debate about the need to be able to measure productivity, for without it comparisons of performance are not feasible and control action cannot be properly taken.
The question is 'what do we measure, and how do we collect and analyze the data we collect?' What factors are chosen for measurement, how important these are, and how that measurement is made is probably best gained from an analysis of the specific reasons why companies should wish to measure productivity. Teague and Eilon (1973) have outlined the main reasons why productivity should be required to be measured.
- For strategic purposes in order to compare the global performance of the firm with competitors or similar firms.
- For tactical purposes, to enable management to control the performance of the firm via the performance of individual sectors of the firm either by function or product.
- For planning purposes, to compare the relative benefits accruing from the use of differing inputs or varying proportions of the same inputs.
- For internal management purpose, such as collective bargaining with worker representatives.
Thorpe (1982) has looked more closely at some of the specific measurement requirements of companies under these headings and looked at the data collected for the purpose, how it is used and the ambiguities and problems that occur. The areas examined were:
- The measurement of work content and the reward of labor
- The determination of staffing levels by comparison
- The appraisal of managerial performance
- Investment decisions
- The measure of organizational effectiveness
Longitudinal studies of 63 organizations (Bowey et al. (1983)) found that amongst the problems and the choice of a measure, were:
- Conceptual problems that relate to the exact measurement of productivity improvement and exactly how company performance improvement is brought about
- Perspectives of how different people view productivity
- Operational problems relating to the collection of data and the synthesis of data of different types
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