Some conceptual problems
Productivity differs from production. Production refers to an increase in output over a given period of time; productivity is concerned with the ratio of output to an input. Many writers explain productivity in terms of this ratio with little further elaboration.
"Productivity is the quantitative relationship between what we produce and the resources we use" (Currie (1972)).
"The volume of output which is achieved in a given period in relationship to the sum of the direct and indirect effort expended in its production" (Smith & Beeching (1968)).
Productivity ratios usually relate units of one single input, for example $'s labor cost, number of worker days or total cost, to one single output, for example financial measures such as profit or added value, or physical measures such as tonnes produced or standard minutes of work produced.
These ratios in themselves and the definitions given take no account of efficiency, a concept important in evaluating productivity.
The concept of efficiency presupposes an ability to identify a change in the productivity ratios. Managers are more likely to want to compare with their competitors and assess the scope there might be for productivity improvement. Efficiency takes this aspect of productivity into account and makes comparisons to some known potential.
Traditional labor measures of productivity where standard hours are compared to productive hours give good examples of efficiency measures, as they give both an index of labor productivity as well as a concept of how well labor is working or being utilized. Such measures show whether organizations are 'doing things right', but they give no indication of whether an organization is doing the 'right things'.
Simon (1957) defined the criterion of efficiency as dictating "that choice of alternatives which produce the largest result for the given application of resources". The conclusion to this approach has led, it is claimed (Minzberg (1982)), to "the maximization of efficiency as a value".
In practice it does not mean the greatest benefit for the cost, but instead the greatest measurable benefit for the measurable cost. Baldamus (1961) points out that "as the word efficiency has no scientific fundament, we are inclined to assume without question that to maximize efficiency is desirable if not indeed the chief purpose of industrial enterprise". Writers have related the preoccupation with efficiency to the development of a measurement cult that precludes many of the less quantifiable yet nevertheless essential ingredients of a successful enterprise.
The concepts discussed so far completely more relevance and the effectiveness of the work done, since they measure only those inputs and outputs that can either be converted into a monetary sum or readily quantified in some other way.
The normal systems of productivity and efficiency do not normally take account of the factors relating to the way people work. Elements such as the initiative they use, flexibility, cooperation and adaptability are not incorporated in the measures of input.
Consider the value of a highly efficient production of a mountain of un-saleable goods, or an individual pursuing his own target and refusing to cooperate with colleagues who are falling behind. By such practices it is quite possible to maximize individual efficiency, but not that of the organization.
Research (Bowey et al. (1982)) has highlighted effectiveness as a vital dimension in improving performance. Consideration of effectiveness is therefore a vital dimension of productivity and failure to take it into account can produce a false assessment of true performance.
Taking into account effectiveness brings a qualitative dimension to the measurement of productivity. The problem is that some components of productivity are easier to measure than others. Hours worked or materials consumed are more easily quantified than the level of customer satisfaction, the quality of the product or the extent to which an organization has the right calibers of staff.
For this reason productivity can also be said to have a strategic dimension. But in taking effectiveness into consideration, new technologies or developments in the market should be taken into account.
Next | Strategic dimension