Why is productivity so important?

Managers know all too well that productivity is the only way forward if they are serious about sustainable results. It is managers who are responsible to clarify the goals of the business, to devise processes for achieving the goals and to control those processes. Whether a business organization has been sent up to produce a product or to render a service it will always have to see how to increase its competitiveness with a view to have a better product or to render a superior service (compared to its competitors) so as to have its market share.

When the business organization has a market share, it will try to increase it so as to increase sales volume and in so doing, increase its profit. It is not a secret that all businesses will be trying to reach optimum level of operational efficiency by improving quality (right first time, all the time); by reducing costs and by eliminating wastage. The central focus is to increase organizational productivity. The other results will follow automatically: higher profits, higher salaries, improved work environment, improved morale, better working conditions, improved manager-employee relationship, etc.

In his book “The Competitive Advantage of Nations”, (1990) Michael Porter identified four building blocks of competitive advantage, namely superior efficiency, superior quality, superior customer responsiveness and superior innovation. The four of them are nowadays crucial for the survival of businesses everywhere. Modern business organizations need to have this capacity to innovate: there is no one best way of doing things, there is always a better way. They need to have loyal customers who offer them repeated businesses and for that they should be offering goods and services that meet or exceed the requirements of their customers. Quality is no longer a choice, it’s a must.

Also businesses need to have this capability to respond to their customers’ requirements and exigencies. Modern business organizations have to deal with customers who know that they have a choice. They choose their provider of goods and/or services and they have explicit and implicit requirements. And business leaders know that their capability to respond quicker to customers will constitute a competitive edge. And most important of all, superior efficiency as the major building block of competitive advantage. Efficiency is about producing a good without wasting any resources (time, effort, money, etc.) The dictionary defines efficiency as the state or quality of being efficient, or able to accomplish something with the least waste of time and effort, having skills, knowledge and competency in performance.

Productivity then is regarded as a measure of efficiency; more precisely output per unit of input. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, physical, material, and human) consumed in that given period. Everyone should be concerned about ‘how to improve productivity’. Because this is about how everyone in the organization combine resources to produce goods and services. It is a magic formula: creating more from available resources. The higher the productivity of an organization, the more it can invest in achieving even higher productivity.

Business productivity is the capability of a business organization to utilize its available resources to produce profitable goods and/or services as desired by its customers. Productivity is the only way forward. Increased productivity leads to increased capacity and capability. This in turn leads to a firm’s capacity to innovate, to reduce cost of production, to better satisfy customers and to better satisfy all its stakeholders; including its employees. Productivity is much more important than revenues and profits. This is simply because profits vary (as a results of external factors, such as exchange rate, dividends on investments, bank rates, etc.) and because profits reflect the end result. Whereas productivity reflects the increased efficiency and effectiveness of the whole organization (including its policies, structures, management systems, etc.). The only way ahead : productivity.