Productivity Meaning, Importance, Variables, Factors Influencing

Table of Contents:-

  • What is Productivity?
  • Productivity Meaning
  • Importance of Productivity
  • Factors Influencing Productivity
  • Productivity Variables

What is Productivity?

Productivity is one of the primary performance criteria for evaluating a production system. It is a function of the production, input, and output relationship. Productivity improvement occurs when a given output is achieved with less information. This improvement is equally beneficial for service industries. Recently, productivity has improved through the extensive use of computers and sophisticated machines. Both input and output can be expressed in energy units, where material energy represents raw materials and equipment, and mental energy represents brain work. Productivity improves when waste is decreased or eliminated, materially or mentally, allowing a more significant percentage of energy input to be obtained as output.

Productivity serves as a summary measure of the quantity and quality of work performance with optimal utilization of scarce resources. It identifies success or failure in producing goods in the correct amount, with good quality, and using resources efficiently. Productivity involves consistently performing a job in the best possible way. Productivity is depicted as a criterion for work achievement applicable to individuals, groups, and organizations. Managers should be capable of influencing the productivity of their subordinates and integrating these performance contributions to achieve high levels of productivity at the organizational level.

Researchers are rigorously studying operations management applications to improve productivity in the service industry. To maximize output and minimize input, controlling the entire production system is necessary, resulting in effective utilization of human and other resources. Japanese industrial organizations have followed this philosophy in their productivity improvement drives.

Productivity Meaning

Production is an organised activity of transforming raw materials into finished products which have a higher value. The production of any commodity or service is the output volume, irrespective of the quantity of resources employed to achieve the output level. Production in an industry can be increased by employing more labour, installing more machinery, and putting in more materials, regardless of the cost of production. However, the increase in production does not necessarily mean an increase in productivity. Higher productivity results when we put in the production system an element of efficiency with which the resources are employed.

The combined input of several factors such as land, materials, machines, capital, and labour gives an output in an industry. The ratio between output and one of these factors of input is usually known as the productivity of the factor considered.

Productivity is a common measure of how well a country, industry, or business unit is using its resources for factors of production. In its broadest sense, productivity is defined as:

Productivity = Output/Input

The ratio of outputs to inputs is made as large as practical to increase productivity.

Productivity Definition

According to International Labour Organization (ILO), “The ratio between the volumes of output is measured by production indices and the corresponding volume of labour input is measured by employments indices. The productivity is a measure of how much input is required to achieve a given outpuť”.

European Productivity Council states, “Productivity is an attitude of mind. It is a mentality of progress, of the constant improvement of that which exists. It is the certainty of beings able to do better than yesterday and continuously. Productivity is constant adaptation of the economic and social life to changing conditions. It is the continual effort to apply new techniques and method. It is the faith in human progress”.

According to Peter Drucker, “Productivity means a balance between all factors of production that will give the maximum output with the smallest effort.”

Importance of Productivity

The importance of the concept of productivity can be understood from the points given below:

1) Indicator of Progress

In economically backward countries, productivity movement is a basic aspect of progress. It implies the development of an attitude of mind and a constant urge to better, cheaper, quicker and safer ways of doing a job, manufacturing a product and providing a service. In an urge to improve productivity, new inventions take place. Thus productivity is an aspect of basic progress.

2) Key to National Prosperity

Higher productivity is an index of more production with the same inputs and lower cost. It enables industry to offer goods to the general public at cheaper rates and results in the expansion of markets. The working conditions and wages of workers will improve and industrialists too will get large profits. Thus, improved productivity is the key to nationwide prosperity. The secrets of Japan’s and Western countries’ prosperity lie in increased productivity.

3) To Beat the Competition

It is an age of cut-throat competition. There may be other commodities that can serve as substitutes for the term “product” and attract consumers purchasing power. The firm whose productivity is higher can only beat the competition and can exist in the market for a long.

4) Maximum Utilization of Scarce Resources

To provide the articles or commodities to the consumers at the lowest possible cost, productivity urges them to utilize the available resources to the maximum to the satisfaction of customers. The productivity processes and techniques are designed to facilitate more efficient work involving less fatigue to workers by improvements in the layout of the plans and work, better working environment and simplification of work.

5) Prosperity to Labour

Higher productivity is also a boon to labour. It brings improved working conditions, better wages and salaries, and better labour welfare activities to labourers. Thus, their living standards are improved.

6) Guide to Management

The productivity indices are very useful for management and can be used for different purposes. These indices can serve as a valuable guide to management for improving the performance of a business. The productivity measures can be used for the following purposes:

i) Strategic: With the help of productivity indices, the efficiency of different companies can be analyzed, measured and compared. The necessary steps can be taken to improve the productiveness of the first taking into view the productiveness of the other competitive firms.

ii) Tactical: Different units or sectors of the firm can also be compared as regards their production and the productivity of the less productive units or sectors can be improved.

iii) Planning: A firm uses different inputs in producing the goods. A comparison of relative benefits accruing from the use of different inputs can be had and the most beneficial input can be used in production. It helps an organization to plan better for the future.

iv) Administration: Productivity indices indicate the firm’s progress over the years. The productivity of different inputs, including labour, can be measured individually. The individual productivity indices help the management in bargaining with the labour leaders, trade unions and the Government in case of labour disputes regarding welfare activities.

Factors Influencing Productivity

The following factors influence productivity improvement:

Factors Influencing Productivity are as follows:

  1. Technological Development
  2. Individual Factors
  3. Organization Factors
  4. Work Environment
  5. Other Factors

1) Technological Development

Technical factors, including the degree of mechanization, raw materials, technical know-how, layout, and the methods and techniques of work, determine the level of technological development in any industry. The principal factors in technological development affecting productivity are as follows:

i) Size of the Plant: The size of the plant and the capacity utilisation have a direct bearing on productivity. Production below or above the optimum level will be uneconomical and will tend towards the lower level of productivity.

ii) Research and Development: Investment in research and development may yield better methods of work and better design and quality of products.

iii) Plant and Job Layout: The arrangement of machines and positions in the plant and the set-up of the workbench of an individual worker will determine how economically and efficiently production will be carried out.

iv) Machine and Equipment Design: Whether the design of machinery and equipment is modern and in keeping with the limitations and capacities of the workers will also determine the production efficiency and level of productivity.

v) Production Processes: Advanced production processes involving modern integrated and automatic machinery, as well as semi-processed materials, have been known to help raise productivity levels.

vi) Power, Raw Materials etc: Improved quality of raw materials and increased use of power have a favourable effect on productivity.

vii) Scientific Management Techniques: Scientific management techniques such as better planning of work, simplification of methods, time and motion study, and emphasis on reduced wastage and spoilage have positive effects on productivity.

2) Individual Factors

Individual factors such as knowledge, skill and attitude also affect the productivity of the industry. Knowledge is acquired through training, education and interest on the part of the learner. Skill is affected by aptitude (one’s capacity to learn a particular kind of work), personality (emotional maturity, balance of mind, etc.) as well as education, experience, training etc. Increased knowledge, skill and aptitude certainly increase productivity and a person deficient in these personal attributes is less productive than an average man.

3) Organization Factors

Organization factors include various steps taken by the organization towards maintaining better industrial relations such as decentralisation of authority, participative management, delegation of authority, workers participation in management, organizational efficiency, proper personnel policies relating to selection, placement, promotion, wage salary levels, incentives, merit rating, job evaluation, training and provision for two-way communication, supervision, etc. These factors also influence motivation.

4) Work Environment

The importance of proper work environment and physical conditions on the job has been emphasized by industrial psychologists and human engineers. A better work environment improves the quality of work life as it ensures the greatest ease at work through better ventilation and light arrangement, improved safety devices, reduction is noise, introduction of suitable rest-pause etc.

5) Other Factors

Several other factors affect productivity. These are:

i) Natural Factors: Physical, geographical and climatic conditions influence productivity at large. Abundance of natural resources affects productivity and similarly climate affects the efficiency of workers to a great extent.

ii) Managerial Factors: Industrial productivity is influenced very much by managerial ability and leadership. The managerial ability to utilize the available resources to the maximum, organising capacity, foresightedness, decision making ability and entrepreneurship are certain factors that contribute to productivity.

iii) Government Policy: Government policies towards industry also contribute to industrial productivity. Taxation policy, financial and administrative policy, tariff policy and protection policy affect productivity to a large extent.

Productivity Variables

Productivity variables consist of factors that are critical to ensure productivity. The three types of productivity variables are as follows:

1) Labour

Labour consists of a workforce whether skills, semi-skill or non-skills. Labour skills are varied but productivity still can be improved by improving on some key areas that affect labour. According to Henzer, labour productivity can be improved by improving on three areas which are basic education appropriate for an effective labour force, the diet of the labour force and social overhead that makes labour available. Social overhead is such as transportation and accommodation provided to foreign labourers in Malaysian factories. Labour productivity improvement is the most talked about topic by management because it is something hard to manage as labour quality, and skills are different, and parts of results in productivity can be qualitative instead of quantitative.

2) Capital

Capital is an essential asset to enhance productivity. Capital goods are ready durable goods purchased using the business capital that can be used for production functions such as machinery and factory building. Businesses are investing a lot of money to equip themselves with the latest capital technology or tools to improve their productivity. An example is investment in utilizing new machinery and information technology for production rather than using labour-intensive methods. Interest and taxes affect capital investment and make it expensive. A drop in capital investment can result in a drop in productivity.

3) Management

Management is one of the factors of production and economic resources. According to the survey, management is the most important key to improve significantly the productivity of the organization. This is because management can collect, disseminate and utilize their knowledge and skills to applicable levels in the organization to see the results in productivity. Management can use labour resources effectively and know how to use cost-effective capital goods to further enhance business productivity. To create strong and knowledgeable management, investment in training and education is necessary for the organization.

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