Organisation productivity measurement

Professor Jillian MacBryde from the University of Strathclyde says: “When manufacturers talk about productivity, they’re not talking about the same thing as the economists and politicians – they’re not even talking about the same thing when you go from company to company”

Such is the current fog enshrouding the productivity of UK businesses

The set of performance measures managers need depends on the level they’re’re at – organisation, process or task level – each set should cover the following areas and be focused on the few important areas under their control viz:

  • Financial results
  • Customers’ ratings on what’s offered them
  • Productivity levels
  • Team motivation levels
  • Corporate knowledge levels – within heads and files


Sadly, most managers, whatever their level, don’t have such a comprehensive set – many of their performance jig-saw pieces are missing, often leaving them dangerously exposed – they might have 100% of the financial information they need, many even too much, but only some 20% of the rest 

Hence, when it comes to productivity and measurement of whether they’re getting the most out of assets in their charge, most lack anything useful

But, if they don’t measure their productivity levels, they’ll be very lucky to improve them – it’s a major reason why the UK is said to suffer a long tail of under-performing businesses in most sectors, public and private

So what are the most important measures – the cardinals?

    • Cardinals = Revenue,  Costs and  % Profitability per product
    • Comments:
      • The great Arnold Weinstock of GEC fame used six financial measures:
        • RoCE = % Profits/ Capital Employed (CE) = Capital productivity
        • RoS = % Profits/ Sales = Sales productivity
        • Asset turn = Sales/ Assets (CE) = Capital productivity
        • Stockturn = Total cost of sales/ Total stock value = Sales productivity
        • Sales/ Employee cost = Labour productivity 
        • Profit/ Employee cost = Labour productivity


  • CUSTOMER RATINGS = Effectiveness
    • Cardinals = Rating of Price, Quality and Service levels received
    • Comments:
      • At organisation level, it’s vital that senior managers regularly monitor external customers’ ratings of the price, quality and service levels offered them – NOT what they think of what they offer them – many are surprised by the results – too many simply rely on skimpy analyses of customer complaints, warranty claims and/ or replacements needed
      • At process/ task levels, some end up serving external customers – most have internal customers who also need to be satisfied – they’re the guys next down the line to whom they pass work, and those guys don’t want to receive shoddy work which causes them problems and delay – hence, measures and systems should be in place to prevent such events regularly happening


  • PRODUCTIVITY of costly input resources
    • Cardinals = Productivity & Waste levels of costly resources i.e. Labour, Materials, Capital
    • Comments:
      • At organisation level, the productivity ratios = Total output/ Total input – but this is meaningless given many different outputs and inputs can be involved
      • Even partial productivity ratios – one type of output/ one type of input  e.g. cars/ man hour – are less than useful when output involves many different models of car and most production is achieved by robots, machines (i.e. capex), not humans
      • Efficiency, another productivity measure = How well total capacity is used = Actual net volume output/ Maximum output possible – this lets managers know their % scope to improve – but few know the capacity of a whole organisation, especially when they comprise many different inputs and outputs, entry and exit points – hence, this measure is only useful at process or task levels
      • Waste of outputs and inputs usually incurs huge but unrealised cost penalties
        • Output waste has four possible causes – each one can severely reduce gross output volume:
          • % rejects v regulations
          • % rejects v specifications
          • % rework v specifications
          • % returns from customers
        • Inputs waste = % actual gross input used/ minimum needed:
          • A% = % Available for work versus labour absent/ material stock-outs/ machines broken down
          • U% = % Utilised on productive work versus idle or wasting time
          • E% = % Efficiency when working, perhaps working slowly, below expectations


  • MOTIVATION of teams
    • Cardinal = A motivation index derived from surveying 10 factors most important to the team
    • Comments:
      • An organisations is a ‘team of teams’
      • The mood of those teams can have a major impact on customer satisfaction and productivity levels
      • Hence, managers should regularly monitor the mood of their team and act when necessary and not just occasionally notice high absenteeism or sickness rates
      • Organisation-wide employee surveys should identify where specific problems may lie – and, once held, employees expect the results to be fed back to them, and action to be taken if necessary


    • Cardinal = An index combining subjective assessments of important knowledge held ‘in heads’ or ‘in files’ which is readily available to the team 
    • Comments:
      • Corporate knowledge covers that needed to ‘keep the show on the road’ and also come up with new ideas for better ways of doing things
      • The availability, utilisation and efficiency of this vital input resource has become increasingly important to most organisations
      • Nevertheless, unlike other costly input resources, most managers have no measures to control it and so have to rely on gut-feel alone
      • Hence recruitment and training efforts are starved of knowing where serious gaps arise



  • Most managers, whatever their level, find it difficult to distil the few cardinal performance measures they need from the blizzards out there available to them
  • This is one big reason why there remains enormous potential to make big productivity improvements in all sectors, public and private – even in so-called vanguard or beacon organisations
  • Managers should stop using dubious measures simply because there’s no others available
  • Instead, they should find measures which put them in good control – otherwise, they’ll continue to be flying blind with inevitable results

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