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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:
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Output volumes were easy to count – output specifications varied little
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Input resources were covered (mostly) by simply counting the number of direct labour employees used or the hours they worked – skill and experience levels were ignored, deemed to be much the same
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Productivity was defined as: Output volumes/ Labour inputs
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This partial ratio was taken to be a good measure of the productivity of any manufacturing company
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It was also used at process or task level, when most work was either ‘blue-collar’ or highly repetitive clerical ‘white-collar’ – workers were wanted for their hands, not heads – their brawn, not brains
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The issue facing most companies at the time was how to maximise output volumes from the costly input resources available in order to maximise profits – they assumed all output could be sold, no matter how shoddy or late it was
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Then, in the second half of the 20’th century, service industries came to dominate western economies, and quality and service levels became the big business issues – together, they pushed the ‘old’ productivity ratio to the sidelines
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It took many years to realise that productivity was still the most important issue facing any organisation, but the ‘old’ productivity ratio missed much of the new picture
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The ratio of outputs to inputs still mattered but:
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‘Outputs’ somehow had to include quality and service level outcomes – effectiveness in other words
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‘Inputs’ had to include other increasingly important inputs such as indirect labour, materials, energy and capital (e.g. costs of factories, production lines, machines, equipment, systems, ICT) – plus corporate knowledge and employee motivation levels
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Better measurement of productivity has thus been needed ever since
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A single measure will no longer suffice covering a whole business unit will no longer suffice – a set of cardinal measures is needed to provide the big picture of any organisation’s performance level
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This set should be made up of at most 10 measures per manager, whatever his or her level – it covers the most important outcomes, outputs and inputs employed by any manager and his team viz:
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Financial outcomes
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Customer outcomes
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Physical inputs and outputs
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Mental inputs
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And when the same set of measures is used by all managers at all levels, this provides them with a common language for understandable communications both up and down levels of the organisation – and from side to side
