For most of the 20th century, when labour-intensive manufacturing industry dominated developed economies and direct labour was the main input resource, measuring ‘how much you got out’ of ‘how much you put in’ was usually not a problem:
Output volumes were easy to count
Input resources were covered (mostly) by counting the number of direct labour employees used or the hours they worked
Productivity was defined as: Output volumes/ Labour inputs
This partial ratio was taken to be a good measure of the total productivity of any manufacturing company
It was also used at process or task level, when most work was either ‘blue-collar’ or highly repetitive clerical ‘white-collar’ – most workers were wanted for their hands, not heads – their brawn, not brains
The issue facing most companies at the time was how to maximise output volumes from the input resources available in order to maximise profits – they assumed all output could be sold, no matter how shoddy or late it was
Then, in the second half of the twentieth century, service industries came to dominate western economies plus quality and service levels became the big issues – together, they pushed the ‘old’ productivity ratio to the sidelines
It took many years to realise that productivity was still the most important issue facing any organisation, but the ‘old’ ratio missed much of the new picture
The ratio of outputs to inputs still mattered but:
‘Outputs’ somehow had to include quality and service level outcomes – effectiveness in other words
‘Inputs’ had to include other increasingly important physical inputs such as indirect labour, materials, energy and capital – plus mental inputs of corporate knowledge and employee motivation levels
Better measurement of productivity has been needed ever since
