PRODUCTIVITY

WHAT IS PRODUCTIVITY?

• Productivity is a measure of output per unit of input. Inputs include labor and

capital, while output is typically measured in units produced, revenues and

profits. Productivity is related to efficiency, firms which can produce more

outputs with the same inputs (or the same output with less inputs) are utilizing

their inputs more efficiently and are therefore considered to have higher

levels of productivity.
 WHAT IS PRODUCTIVITY?

Productivity results in the enhancement of the production process.

The more productive the firm is, the better able it is to transform inputs into

output at a relatively low cost. This is as a result of producing more without

using more input resources.

 PRODUCTION VS. PRODUCTIVITY
• There can be an increase in productivity without an increase in productivity.

• Production – increase in the amount of output that is produced.

• Productivity - increase in the output per input.

 IMPORTANCE OF PRODUCTIVITY
• Productivity is used to assess how well the firm is using its inputs to produce
output

• The level of productivity gives managers the opportunity to plan, control and
improve efficiency within the organization

• Workers can benefit from increased productivity by receiving increased salary

and incentives. This can improve motivation.

• Higher levels of productivity can result in lower production cost for the firm

• Shareholders will also benefit from high productivity as the firm will generate
more profits which will be shared among them.
FACTORS AFFECTING PRODUCTIVITY
 LABOUR-MANAGEMENT
RELATIONS
• This refers to the relationship that exists between management and the
workforce.

• A good relationship can foster improvements in productivity, while the

opposite is also true.

• Relationships can therefore be improved by management improving

communication with workers which can affect their level of motivation.

• When workers become disgruntled and take industrial action, the firm loses
productive times and in most cases suffer a reduction on productivity
 LABOUR-MANAGEMENT RELATIONS

• Trade unions over the years have contributed to diminished productivity

growth through the resistance to production and productivity improving
technology
• Machinery and equipment helps to improve productivity
• This can lead to job losses
• Therefore, unions seek to resist such change

• Management has found ways for unions to buy into the use of technology
which offers benefits to both the firm and to workers.
 REQUIRED INVESTOR RETURN
• Main purpose of business is profit making. Therefore, if firms are not making profits investors
will seek better alternatives.

• As investors inject funds into businesses they expect to get a sufficient return on their
investments.

• A required return is the min. return that the investor requires in order to purchase an asset
or make an investment.

• The greater the productivity of the firm, the greater the likelihood of the investor acquiring
the required return on investment.

• Without investment in new and improved technology, the firm may suffer from
inefficiency and poor productivity.
 TECHNOLOGY
• Technology is always changing and improvements are made at regular
intervals.

• Technology benefits the firm by enabling them to increase output even if it is

using the same amount of resources.

• Improvement in technology can also help the firm to minimise wastage of

resources

• New and improved technology can also increase the level of output per unit
of input – that is, productivity.
 TRAINING

• Workers must be given the necessary training to carry out their job. This is
necessary to improve productivity. Training must be an ongoing process. If
workers are multi-skilled they will be more motivated.

• A motivated worker is more reliable and punctual for work and has fewer
accidents on the job. In addition, he or she can provide cover for any worker
who is absent.
 PRICING
• Changes in prices of inputs can affect the productivity of firms.

• An increase in prices of inputs (land, labour or capital) will lead to a

reduction in productivity.

• Eg. Increases in labour costs will not lead to an increase in production. The
number of units of production will remain the same. Therefore, productivity
falls.

• Inflation leads to a rise in prices. Firms may be content that they can reap
higher prices without seeking improved quality of their inputs.
 REGULATIONS AND LAWS
• When laws and regulations result in an increase of factor inputs productivity
will fall.

• Barriers to enter an industry (such as monopoly) provide an incentive for firms

to be unproductive.

• If it were the case that there was competition in the industry, the firm would
be forced to improve productivity to maintain competitiveness.

• Laws and regulations that encourage firms to improve working conditions

can increase the firm’s productivity. As workers’ level of motivation increase,
they tend to improve their work ethics and productivity.
 MARKET DEMAND

• High market demand usually generates high levels of productivity

• In trying to meet market demand the firm will seek to improve or increase its
productive capability

• This can be done by improvements in technologies used for the production

of the good or encouraging workers to produce more with the given
resources.

• Efforts will be made to increase the output per man and, hence, productivity
 COMPETITION
• The level of competition in the market would force a firm to be more
productive and to use the same resources to produce more output.

• To survive in the market, prices must be low or lower than the existing market
price for a similar product

• The greater the competition in the market, the greater is the need for firm to
become more productive in order to survive.

• Competition can also cause some firms to lower their prices in order to
compete in the market, produce less and lower their productivity.
 QUALITY OF LABOUR SUPPLY
• The labour force should be well-trained for the given tasks

• Workers should be motivated. Money motivates, according to Taylor, so a

fair wage is essential; for other workers, a change to self-actualisation
(Maslow)

• Flexibility- willing to adapt to the changing internal and external environment

• Management must give workers the opportunity to express creativity

• Workers must be healthy

• Workers must have positive work ethics

MEASURING PRODUCTIVITY
 PRODUCTIVITY

Formula
𝑂𝑢𝑡𝑝𝑢𝑡
× 100
𝐼𝑛𝑝𝑢𝑡
 EXAMPLE

Each Christmas, 25 students are able to package 5,000 gifts for a children’s
home, working for two hours each day for 20 days. What is the production and
what is the level of productivity.

Production = 5,000 gifts

5,000
Productivity =
25 ×2×20

=5 gifts per labour hour

 ACTIVITY
A Harp Company Ltd is a manufacturer of netbooks. It produced 9 000
netbooks by employing 30 people at 8 hours per day for 30 days.

a)Determine the:
• Production

• Productivity

b) If the company increased its production to 12,000 netbooks by employing

15 more workers at 8 hours per day for 30 days, how does this affect
production and productivity?
 LABOUR PRODUCTIVITY
• This measure output in terms of time taken to complete output
• It measures the output of labour over an agreed time period. It is measured
by the formula
𝑂𝑢𝑡𝑝𝑢𝑡 (𝑝𝑒𝑟 𝑦𝑒𝑎𝑟)
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠
• Increases in labour productivity may be due to:
• Workers working harder
• Better tools and equipment
• training
 CAPITAL PRODUCTIVITY
This measured by the formula:

𝑂𝑢𝑡𝑝𝑢𝑡 (𝑝𝑒𝑟 𝑦𝑒𝑎𝑟)

𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑
 CONSUMER FEEDBACK
• This is a vital source of information on how well the organization is doing in providing

its goods and services. Therefore, this can be used as a measure of productivity.

• Bad reviews are indicative of failure to meet consumer expectations.

• This feedback can be gathered through market research.

• The information can be used to improve quality, profitability and correct defects in

the product.

• This feedback gives information pertaining to cost, accuracy and timelines of supply.
 QUALITY ASSURANCE FEEDBACK
• This ensures that pre-set standards and quality procedures are carefully
followed. It builds quality into the product from the suppliers to customers.

• There will be periodical feedback on the effectiveness of the firm

• Feedback can provide management with information on the amount of

finished products that meet these pre-set standards.

• The more productive the workforce, the more likely it is that the products
being produced will adhere to the quality standards of the firm.

• Quality assurance also incorporates consumers and their view of the

product.
METHODS OF IMPROVING PRODUCTIVITY
• Increasing output as costs remains constant , i.e. increasing output without

employing any additional resources

• Reducing costs while maintaining the same level of output. This can be

achieved by employing cheaper labour or materials.

 GOOD WORKING ENVIRONMENT
• Workers are more motivated to work in an environment that is safe and
convenient.

• Management should strive to maintain good working relations with employees so

as to lessen the risks of industrial action which can slow productivity.

• Work areas should be arranged to improve efficiency while reducing accidents.

• Ergonomics- process of organising the work environment to improve efficiency

and reduce work hazards.

• This leads to reduction in time wasting and workers work comfortably and
productively
 PROFIT –SHARING PLANS

• These are used as incentives for hard work done

• This encourages workers to put in extra effort in carrying out their

responsibilities.

• Workers are promised a share of the companies profits if the firm does well

• This therefore encourages and motivates workers to improve their

productivity and their work attitude.
 TECHNOLOGICAL IMPROVEMENTS
• This method is not very popular with trade unions and workers.

• The use of modern machines and equipment, the firm can help to reduce waste,
improve speed and quality in production and increase the amount of output that is
produced from the inputs.

• Changing production methods. For eg: moving to mass production.

• These firms have to keep up with the latest technology so that they can meet the
demand for their products.

• Technology has helped to minimise the human mistakes while adhering to quality
standards. Which therefore, helps to improve efficiency and productivity.
 TRAINING

• This helps to improve speed, quality and productivity

• As workers acquire new skills or better ways of carrying out their tasks, it is

likely that there will be a reduction in waste and improvement in work habits.

• Greater education of the workforce can lead to greater productivity

 STAFF PARTICIPATION
• Involvement in decision making is referred to as empowerment.
• Empowerment is a practice that gives employees more power to make decisions,
solve problems and use their initiative.

Empowerment can help lead to greater productivity

• This leads to greater motivation of workers and workers will work with alacrity
(cheerful readiness)

• This allows workers to feel as though their opinions are valued by management.
When workers feel as though they are not important they may work slowly as they
have no drive to improve productivity and work habits.