2.6 Tools: Productivity

A basic measure of performance for any process, organization, industry, or economy is its productivity. You increase productivity when you increase the value of outputs relative to the value of inputs. Depending on the process, there are different ways of measuring productivity, but the basic formula is outputs divided by inputs.

Productivity can focus on the utilization of a single resource (for example, using just the input of labor in the denominator), or it can take into account a variety of resource inputs in what is known as a multi-factor productivity measure. Consider the productivity measures illustrated in Table 2.2.

Each of these examples illustrates the importance of productivity. The server can compare his performance to other servers and learn if he needs to find ways to be more efficient with his time. The doctor’s office can compare productivity week by week to make sure they are providing the best care to their patients in a timely manner. A boutique might be able to compare the efficiency of one location to another across town.

As a warning: It is important to be careful about how you assess these measures, though. Do you want the doctor at your office to strive to increase the number of patients seen per week? If that were the goal, then what might happen to the quality of patient care?

In each case, lessons can be learned to help improve performance of valuable resources to achieve the best productivity possible. Productivity is an important metric for firms to evaluate over time, as it allows managers to spot problems or issues early and correct for them.