Productivity is a measure of how efficiently outputs are produced from costly inputs
Sounds simple – but, if it means anything to anyone, it can also mean different things to different people, especially when used at micro or macro levels
At the MICRO/ ORGANISATION LEVEL productivity measurement is used to:
- Check that most output is being obtained from the mix of costly resources employed so as to minimise unit costs, thereby maximising private sector profits or the number and quality of public sector services possible from the tax-payers’ money made available
- Check that the organisation is continually improving its performance – and, if it is experiencing low productivity growth, identifying whether the problem has anything to do with the workforce, the methods they use or a lack of investment in new machinery or technology
But the countable output of most organisations, public as well as private, is a mix of goods and/ or services – even car factories usually produce more than one model and each model varies widely in terms of quality, cost and so price
And most organisations employ a mix of costly inputs – workers with varying experience and skills, a variety of raw materials and SFGs (Semi-Finished Goods), and capital investment in different machines, equipment, IT systems and buildings.
All the above are measured in different dimensions so they cannot be combined into one total output and input figure, other than if converted to cash
Hence the only meaningful productivity measures available at organisation level are partial productivity measures, comparing the output of one single good or service with the input of one costly input resource:
- That means they’re confined to cover no more than a single process or task
- And the only costly input usually measured is labour (numbers or hours) with no allowance made for the wide range of skills and experience nowadays found in most organisations
Bald productivity measures at organisation level are thus of limited use
In addition, a set of cardinal measures is needed if managers are to fully understand how well their teams are using their assets, covering:
- Waste – for any resource, task or process:
- Availability % = Is it available for use when needed?
- Utilisation % = Is it used on productive (adding value) work when available?
- Efficiency % = Is it used to its maximum capacity?
- OCT = Order Cycle Time = The ‘end-to-end’ time experienced by the customer, from placing an order to receipt and his satisfaction with it:
- This is another measure of wasted time as well as the service level offered to customers
- OCT for a process manager may seem to be 10 days i.e. acceptable
- OCT for a customer may be 100 days i.e. unacceptable
- Effectiveness = Customers’ ratings of actual outcomes:
- re Price, Quality and Service levels experienced
- Useful both for external and internal customers
- Should be regularly monitored – and linked to any complaints system
At the MACRO/ NATIONAL LEVEL, productivity measurement is confined to labour productivity which is said to measure how efficiently national output is produced by the entire workforce – but:
- GDP is a seriously flawed measure – it misses much, errors abound, estimates all used frequently – and it measures economic activity/ transactions, and so involves double-counting, not total national revenue or net income (profits) and so what we can afford
- Labour input statistics only use numbers or hours worked:
- They ignore labour quality – and it’s skills and experience that’s key in this new mental world, not hands and hours input – it’s results that count, not effort – a half-hour of one Einstein could be worth hundred workers nowadays
- They ignore inputs of capital machines/ AI/ automation/ robots which can make L look more and more productive
- National productivity, calculated as GDP/ Labour numbers or hours is thus seriously flawed – so much caution is needed when using it to compare with other nations
- And national prosperity, defined as GDP/ Capita, is an equally dubious statistic which also ignores all the investment and inheritance from previous years – buildings, infrastructure, institutions, sectors, systems etc
- Yet we are constantly bombarded with media headlines, especially if bad news, announcing that UK productivity has fallen by 0.1%, say:
- Q. What would a government minister then be prompted to do?
- A. Nothing – just offer the voting public more bromides about ongoing investments in ‘this and that’ whilst recognising that ‘there’s always more that can be done
- To be fair, many economists recognise the flaws in GDP but nevertheless base their various theories and solutions on them, saying ‘there’s nothing else available, or better’
- We say, if there’s nothing else available, devise something new that would be credible and useful to government ministers, economists and other interested parties – and not something akin to the incomprehensible (to most) MFP/ TFP or GVA formulae
- In the meantime, even nothing might be a far better option than current GDP related data for ministers deciding on taxation and government investment levels