Productivity - what it is, how to measure it, and how to improve it
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Introduction
Many people consider themselves capable of improving productivity. However, in my experience, many don’t understand the basics – what it is, how to measure it, and how to improve it. This article looks to address these points.
Productivity is the key to unlocking better returns from finite assets. Countless leaders study and enact strategies to increase productivity, a pursuit akin to finding the Philosophers’ Stone. It's a quest that resonates with managers, politicians, economists, and any entity that measures inputs and outcomes, from national economies to a small workshop.
The emerging economies are not just growing; they are thriving. Their larger and mainly younger workforces are improving their education, skills, and abilities to acquire and use tools and techniques, paving the way for a future of unprecedented growth. However, falling birth rates and ageing workforces in the developed world?make it increasingly difficult to sustain what Adam Smith called ‘the natural progress of opulence’.
The countries of the West can only hope to keep increasing their wealth if the higher costs resulting from rising living standards are matched by increased productivity. The paradox is that only if more is produced by fewer people can employment be sustained or improved. This presents managers with a complex and enduring challenge.
Companies operate in diverse landscapes, from expanding, profitable markets to declining sectors with tight margins. Many face threats from rapidly evolving technology or unforeseen cost increases. In such scenarios, managers must often act swiftly to restore profitability and investor confidence. Addressing falling productivity is a crucial, albeit challenging, task.
Approaches to improving productivity have gone under many descriptions: improving gross margins, restructuring, reducing costs, applying Lean, and turning companies around. However, the fundamental goal has been the same: to achieve better financial results by improving effectiveness, removing wasted effort, and improving efficiency to help cope with new, more challenging circumstances.
Why is productivity such a problem?
Why do inputs always seem to grow faster than outputs? How is it that managers always seem to need more members of staff? Managers trying to boost productivity find that, often, the problems lie with people: that their initiatives meet resistance from instincts that lie deep.
The manager knows that organising work to minimise inputs and costs and maximise outputs of goods and services is the right way to reduce unit costs and speed up delivery. Up go the company’s profits and everyone’s living standards. So why do most end up adding people to the team, increasing complexity, and building inventory? They must know that this raises costs and lowers productivity when they should be improving the productivity of the assets they already have.
There are many insightful aphorisms to remind us of the shortfall in productivity. Parkinson’s law points out that:
?‘Work expands to fill the time available’,
?And its companion, too is rarely challenged:
‘It is the busiest person who has time to spare’.
Experience shows that, without managerial attention, the workforce can grow faster than the work it is employed to do. This may be because:
‘Managers tend to enlarge their teams’.
Some managers (perhaps unconsciously) see bigger teams as the route to better jobs with more responsibility, money and security.? Employees have frailties too:
‘Employees make work for each other’.
And in my experience, it has often been that:
‘People naturally elaborate work rather than simplify it’.
Left alone, work evolves into more complex forms.
These generalisations are supported by evidence. Left unchecked, employees multiply. Efficiency and effectiveness slump. Productivity dwindles. People who genuinely understand how to improve productivity want the customer, not the employee or manager, to define ‘output value’.
What improves productivity?
For such a ‘simple’ concept, productivity has many manifestations. Its origins can be traced back to well before the Industrial Revolution, since when war and the motor car drove it on.
In any enterprise, productivity – at its simplest – is output for input.
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Outputs and inputs should be measurable and related to costs. Each element should be under managerial control. Managers should be responsible for productivity and have the autonomy and the means to improve it.
The model below expands the definition to include money and outcomes. It introduces other measures, such as economic efficiency and effectiveness. Utilisation (of people and assets), waste and quality are other factors.
If productivity is the ratio of outputs to inputs, there are three general approaches to boost productivity:
Action one: Increase output without increasing input?
Action two: Decrease input without decreasing output
Action three: Increase output and decrease input
Lots of people suppose that raising productivity means increasing output. It isn’t necessarily so. Higher output is only a gain if customers buy it. So, the?output needs to be defined carefully. Making more products or providing more services than are required is ‘overproduction’, leading to (wasted) inventory. A better equation for productivity might be:
Productivity is woven through a network of ‘processes’ and ‘operations.’
A distinction must be made between the flow of products and services (the process) and the flow of work (the operation). Most managers understand the main processes in the business and how to analyse and improve them. However, to increase overall productivity, they need to focus equally on how operations work.
Processes exist to transform items or needs: to convert raw materials into finished goods or requests for service into services provided. A process change can affect the item's flow, the time taken, the organisation's responsiveness, and the quality of the goods or services.
Operations change the agents (the people, machines, equipment, etc), how they are used and the work they do on the item or need. A change in operation improves the flow and consumption of effort, productivity, and costs.
'To make fundamental performance improvements, it is necessary to distinguish between product/service flow (the process) and workflow (the operation).'
Shigeo Shingo
A process is completed through a series of operations. However, improving an operation may only boost the efficiency of some of the process. Processes and operations demand different approaches. If one aims to improve overall productivity, it is essential to understand their relationship and how they interact.
The home truths of improving productivity
Many books have been?written on improving productivity, and there are thousands of courses on the subject. No doubt, a new management fad will come along soon, proclaiming to be the silver bullet. However, when all is said and done, there are some valuable and timeless philosophies on raising productivity.
Increasing productivity can be tough, and many leaders spend a long time formulating strategy, but too much thinking prevents action. There is a tendency to look back and cling to old processes embedded in the organisation’s ‘tradition’. However, the only tradition we should consider in the workplace is?valuable, productive work.
That is why some successful organisations deliberately employ external consultants who have not become imbued with all the historical reasons why something cannot be done. In scrapping old ideas, one of the first that needs to go is the attitude of excess - of holding on to or producing more than is required ‘just in case.’ A business should not drift; it should continuously search for new, innovative ways to raise productivity.
Change should not be made for its own sake. But it should be embraced if the new way is better. No firm is ever performing as well as it could be. Unlock the full potential of people and be amazed at what can be achieved.
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Helping Leaders secure lasting Business Performance Improvement | Renowned Business Improvement Coach
4 周Great message Pete. Keep up the good work!
At Woodward Consulting, we make sure all your transformation initiatives are successful. If you'd like to know more, email me at [email protected]
1 个月Thanks, Peter, I particularly liked the points about using internal ideas, as this avoids problems with implementation later on. Nice point.
Project & Strategic Organizational Leader
1 个月Pete, thank you. I especially appreciate the points about “the only way to understand a problem well is to observe it directly…” and “When making improvements, use people’s wisdom, not the firm’s money.” To effectively solve an issue, like productivity, you first need to understand the underlying problems. For example, on one of our projects, we found that bringing facilities closer to the work site significantly increased available productive time. It may sound simple, but sometimes straightforward solutions make the biggest difference. Thanks again for sharing these insights.
Helping organisations with large scale transformations
1 个月I like this Pete, lots of familiar stuff in here. ‘Keep thinking, ‘double the good and half the bad.’ Is a comment I’ll add to my repotoire !
Thanks Peter, a really clear article with alovely mix of explanation and anecdote. Especially liked your 8 steps for improving productivity.