Goal-based performance measures
The most common type of goal-based measures are those used by engineers and production managers who seek a refinement not present in many of the system-based measures.
Norman and Bahiri (1972) state that to engineers, productivity and efficiency are often regarded as synonymous. They consider that since only the parts of labor and machines that are utilized add value to the manufacture of products, consequently the appropriate efficiency measure is the extent to which value is added.
A good example:
- A lathe operator and his machine turn 10 feet of 5/16 inch EN60 bar into 100 acceptable components in an hour. Inputs are one 10foot bar, one machine hour and one man-hour.
- Outputs are 100 good pieces. The performance of this subsystem of the production system is therefore 100 pieces per man or machine hour or 10 pieces per foot of raw material.
It is from this view that the concept of standard time is derived and from which the disciplines of method study (to improve potential) and work measurement (to reduce ineffective time) have been developed.
When measures based on the work content of labor are used, standard hours or standard minutes of productive work can be compared to the actual hours taken to do this work which gives both an index of labor productivity (as numerator and denominator are in the same units) and a concept of efficiency (as there is implicit in standard time a concept of potential).
Other typical goal-oriented measures often used are those that can be applied when there is a clear relationship between a partial unit of input and a partial unit of output. For example, when a company has a relatively homogeneous product (one that has little variation), such as coal or steel production, output measures of productivity based on quantity or volume can be used. Examples of such ratios are:
- Gallons of oil refined
Volume of crude involved in the process
- Tonnes of steel produced
Work hours of labor involved
Problems associated with goal-related and partial measures of productivity problems associated with partial measures of productivity have been well documented (Norman and Bahiri (1972)), (Craig (1973)), (Kendrick and Creamer (1965)), (Minzberg (1981)). However, not all writers point to the operational and behavioral consequences of the use of such measurement, which, however exact or scientific they purport to be, have associated with them certain fallacies which cause misunderstanding.
The problems of partial productivity measures can be summarized as follows:
- Goal measures, especially labor measures, ignore other factors in the production process that may affect productivity.
- Their use may have an unintended effect i.e. the personal goals of individuals using the measure may distort the results in quite different ways.
- They may encourage a frame of mind that focuses on a mechanistic approach to work that is reinforced by both the measure itself and the method of measurement.
- They may be used as performance indicators of the whole firm whilst at the same time being primarily developed for another purpose.
Other factors ignored
Economists tend to use the term 'labor productivity' for measures of output obtained from inputs of labor, but business people use it for measures of labor efficiency. This is because in the short run they are unable to alter their scale of operation, length of production runs or capital equipment. This discussion is concerned with labor efficiency.
The Productivity Conceptual Model showed the variety of types of input that go into a productivity equation. Attempts to pick on just one and ignore the rest, especially if that one is easiest to measure, are bound to give a distorted picture.
By emphasizing selected aspects of the work, usually those most easily measured, productivity measurement forces attention and employee effort on those aspects of the work at the expense of others that may be more important, e.g. volume of output at the expense of quality, speed at the expense of flexibility, or measured effort at the expense of discretion and initiative.
Many of the productivity indices used by economists and business people are purely labor productivity indices. Their use can lead to serious misunderstandings and they do not always reflect an accurate picture.
A simple example will demonstrate the potential problem. Assume that a company reorganizes following a method study and work measurement exercise, and as a direct result raises the output per worker by introducing a higher quality of raw material. The index of labor productivity would rise, but conceivably the higher raw material and increased distribution costs could cancel out the labor cost saving.
Using a labor productivity index as a measure of performance, the workforce would almost certainly claim extra payments for harder or more effective work. Gains therefore made in labor productivity might not actually be gains at all if the cost of generating those gains is not considered. This suggests a requirement to look carefully at a company's production cost structure. Some more recently popularized measures, such as added value, avoid this problem.
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