06/ 22/ 2007
by Charles R. McConnell
Productivity defined
In simplest terms, productivity is defined as output per hour of work. Expressed in a more useful way, productivity, also referred to efficiency, is the ratio of output to input, expressed as a percentage (output/input = percent productivity). If output and input are equal, for example, productivity is at 100 percent.
Consider what happens with changes in quantities comprising the productivity ratio. When output increases at a faster rate than input, productivity increases. When input increases at a faster rate than output, productivity decreases.
The importance of productivity
Increases in productivity drive increases in the standard of living; because of increasing output, businesses can pay workers more without having to increase the price of products. But if wage increases outpace productivity gains, prices go up, setting off the classic wage-price spiral. When pay increases are not justified by increases in output, prices must necessarily rise, directly contributing to inflation.
Productivity is a key indicator monitored by the Federal Reserve in making decisions concerning the control of inflation. Productivity keeps inflation under control by helping workers obtain earnings increases without necessitating price increases. A steady, gradual increase in productivity can help keep the economy from falling into recession, so gains in productivity are crucial to its long-term viability. Healthy productivity increases allow the economy to grow faster without triggering inflation.
Constraints and barriers
Common constraints or limitations on productivity growth include:
- Outmoded tools, equipment or physical plant; aging productive capacity limits output potential
- Limitations on the availability of key materials and supplies
- Limitations on the availability of particular skills and capabilities
- Restrictions of inputs required from others (for example, a major producer's output brought to a halt by a work stoppage at a supplier's facility)
- Limited financial resources
Individual managers may have little influence on the effects of these constraints, but a number of conditions or circumstances also present barriers over which many managers can exert some control. These include:
- Lack of direction; everyone not pulling the same way
- Inappropriate organizational structure, including too much or too little division of labor, too much or too little direct supervision, too many organizational levels or inflexible or vague job descriptions.
- Inadequately administered pay systems that allow or perpetuating inequities
- Inadequate attention to management style and the selection and training of managers
- Limited or non-existent employee involvement
- Ineffective employee placement; inadequate hiring, orientation and training practices.
Improving productivity
Common reactions to declining or "soft" productivity often involve programs emphasizing strategic planning, participative management and motivational undertaking, such as total quality management (TQM) or management by objectives (MBO) and the like. Common reactions to sagging productivity tend to stress employee motivation. However, it often appears that this focus on motivation has no effect when a company's goals are not clear to everyone. Motivation cannot be addressed alone.
Improved productivity requires:
- Clear goals, challenging but realistic, with every objective related to a common purpose
- Reliable channels of communication, lateral as well as upward and downward
- The proper mix of resources, talents and strategies
- A creative climate that encourages innovation
- Appropriately motivated employees
Productivity measures are often needed for establishing a baseline for assessing change. But it should be clear that, though systems, measurements, and new methods may be needed, it's always necessary to look first at people—including managers. More often than not the key to improved productivity resides in responsibility shared by workers and managers.
Improving productivity
Henry Ford is credited with saying: "There's a way to do it better—find it." In reality there are often several better ways, but finding one of them requires openness to the possibility of improvement. In conjunction with the desire to become more productive, some changes in thinking are necessary. Some employees are inclined to believe that the way a particular task is presently done is the best way to do it. This is seldom true; improvement requires the unwillingness to accept conditions as they are and an attitude that leads to questioning every detail.
The greatest strides in improving work methods are made through the involvement of the workers. No one knows the inner working details of a job better than the individual who does it every day.
The pressure for productivity
In many businesses, fierce competition has intensified the need for improved productivity. Improving productivity and enhancing competitive position often depend on doing more with less. Businesses that succeed best and stay competitive are those that support employees and welcome their contributions. Healthy competitiveness and even organizational survival can hinge on productivity improvement.
