Definition: Productivity implies the quantitative relationship between what is produced (output) and how many resources are used during production (input). In other words, it is the ratio between the output of goods and the input of resources consumed. Hence, an increase in productivity indicates an increase in output, which is proportionately higher than the increase in input.
Symbolically, it can be expressed as:
Input refers to the use of all the resources for the creation of goods and services. As against, the output is the quantity of goods and services produced. It can be expressed in terms of production in relation to time units. Therefore, it increases production and decreases cost.
Productivity is a measure of the efficiency of the production system. Therefore, the efficiency in utilizing resources is productive efficiency. So, we can say that higher productivity is a result of more production from a given amount of input. Or it can be the production of a given amount with less input.
- At the micro-level, productivity is an output-input ratio
- At the macro level, productivity is a performance measure of a country’s economy.
Productivity is a measure of economic performance. Also, it shows how efficiently the inputs are transformed into output. It is also called man-hour output per man-hour. An increase in productivity is the outcome of the contribution of all resources:
Productivity is important for both firms and consumers. For businesses, it helps in remaining competitive. Whereas consumers can avail affordable products.
What makes productivity different from production?
It differs from the term ‘production’ in the sense that production is the process of converting raw materials into finished goods. It determines the volume of output produced, which is an absolute concept. But, productivity indicates surplus generation. That is to say, it is all about higher output over the given input. It is a relative concept. So, what we have understood is:
Production = Addition of value to the raw material
Productivity = Efficiency in production
Suppose Factory A produces 1,00,000 bread per day with a total budget of ₹ 10,000. However, Factory B produces 1,20,000 bread per day with the same budget. This shows that factory B is 20% more productive than factory A.
Benefits of Productivity
- Reduces per unit cost of production by way of more economical and efficient use of resources.
- Cost reduction improves business profits by increasing the customer base. In addition, the company can compete successfully in the market.
- The firm can share profits arising out of increased productivity with workers. This can be in the form of better wages or salaries and improved working conditions.
- When good quality products are available at affordable rates. In conclusion, it improves the standard of living of the people.
- Improved productivity paves way for exporting goods and getting foreign exchange for the country.
- It helps in controlling inflation, by utilizing the resources in an effective manner.
Factors Influencing Productivity
There are a number of determinants that influence productivity. So, we are going to talk about these factors hereunder:
The nature and conduct of a person is an important factor that affects productivity. It may be divided into two categories:
- Ability to work: Productivity rests on the potential or calibre of an individual to work, be it labour or a manager. It is often regulated by the education, training, experience, attitude, aptitude, and health of a person.
- Willingness to work: Here, motivation and morale play an important role in deciding a person’s will to work. Therefore, factors that affect the will of employees include:
- Wage incentive schemes
- Worker’s participation in management
- Promotion rules
- Relationship of union with management
- Working conditions like sanitation, lighting, ventilation, canteen, transport, etc also influence their will.
These factors also have a great impact on productivity. This includes:
- Product design
- Plant layout
- Size and capacity of the plant
- Location of plant
- Timely supply of raw material
- Repairs and maintenance
- Material handling system
- Research and development
- Inventory control
Managers are the main lead of an organization. No matter how many skilled and efficient workers the company has hired, or state-of-the-art technology is used. If the attitude and competence of managers are not up to the mark, productivity will remain low. Inefficient and indifferent management does more harm to the company than good.
But, if the managers are competent and dedicated to their work, the company would be able to reap extraordinary results. This is because only managers can make effective use organization’s resources.
It is quite obvious that there are some factors that are not under the control of anyone. These are natural factors. The physical, geographical, geological, and climatic conditions fall in this category. These factors highly influence industries that carry out extraction activity.
We live in a society and we have to follow its culture, traditions, customs, rules, and norms. Also, it poses a significant influence on productivity. However, the social factors, differ from place to place. This means what is considered wrong in India, might not be considered wrong in other countries like Japan or USA and vice versa.
To increase productivity, law and order, peace, and stability of the government are a must. Industrial policy, tariff policy, and taxation also have an influence on the firm’s productivity.
There are certain factors that also have an impact on productivity such as:
- Market size
- Banking and credit facilities
- Transport and communication system
Ways to Improve Productivity
To determine the firm’s potential for the improvement of productivity, an examination of current operations and management practices is important. For this purpose, there are a number of techniques that the firm can use. These are:
- Research and Development
- Incentives Scheme
- Management By Objective (MBO)
- Participative Management
- Job Enrichment
- Quality of Work Life
A word from Business Jargons
Productivity means how much output we produce from the given quantity of input. Resource are not present in abundance, they are scarce. So, higher productivity is pertinent for improving the standard of living. And also for the prosperity of the nation. Above all, the firm should lay emphasis on unnecessary use and wastage of resources
Increased productivity results in economic growth, which in turn leads to the progress of society. Employees will get better pay, employment opportunities, and a better working environment.
It will also help in reducing unemployment, illiteracy, and poverty.
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