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Part One
Productivity
Introduction
productivity. Productivity is the ratio of what is produced by an operation to what is
required to produce it.
Productivity =
Output from the operation
Input to the operation
Single-factor productivity
Often partial measures of input or output are used so that comparisons can be made. So,
for example, in the automobile industry productivity is sometimes measured in terms of
the number of cars produced per year per employee. This is called a single-factor measure of
productivity.
Single-factor productivity =
This allows different operations to be compared excluding the effects of input costs. One
operation may have high total costs per car but high productivity in terms of number of cars
per employee per year. The difference between the two measures is explained in terms of
the distinction between the cost of the inputs to the operation and the way the operation is
managed to convert inputs into outputs. Input costs may be high, but the operation itself
is good at converting them to goods and services. Single-factor productivity can include the
effects of input costs if the single input factor is expressed in cost terms, such as ‘labour costs’.
Total factor productivity is the measure that includes all input factors.
Multi-factor productivity =
Output from the operation
One input to the operation
Output from the operation
All inputs to the operation
Worked example
A health-check clinic has five employees and ‘processes’ 200 patients per week. Each
employee works 35 hours per week. The clinic’s total wage bill is £3,900 and its total
overhead expenses are £2,000 per week. What are the clinic’s single-factor labour productivity
and its multi-factor productivity?
Labour productivity =
Labour productivity =
200
5
200
(5 × 35)
Multi-factor productivity =
= 40 patients/employee/week
= 1.143 patients/labour hour
200
(3900 + 2000)
= 0.0339 patient/£
Improving productivity
One obvious way of improving an operation’s productivity is to reduce the cost of its inputs
while maintaining the level of its outputs. This means reducing the costs of some or all of its
transformed and transforming resource inputs. For example, a bank may choose to locate
its call centres to a place where its facility-related costs (for example, rent), are cheaper. A
software developer may relocate its entire operation to India or China where skill labour
is available at rates significantly less than in European countries. A computer manufacturer
may change the design of its products to allow the use of cheaper materials. Productivity
can also be improved by making better use of the inputs to the operation. For example,