Productivity Definition | Formula | Types &

Example
Productivity is an economic measure that calculates how many goods and services
have been produced by each factor used (worker, capital, time, costs, etc.) in their
obtaining in a given period of time.

The objective of productivity is to measure the efficiency of production for each factor
or resource used, meaning efficiency to obtain the best or maximum yield using a
minimum of resources. That is, the fewer resources needed to produce the same
quantity, the greater the productivity and therefore the greater the efficiency.

Productivity Formula

Productivity is a ratio of output produce and input used in a given period of

time.

Productivity = Output / INput

For a company, an industry or a country, productivity is a determinant factor in

economic growth, since it involves:

Saving costs: by allowing you to get rid of what is unnecessary for the achievement of
the objectives.

Saving time: because it allows performing a greater number of tasks in a shorter time
and dedicating that “saved” time to continue to grow through other tasks.

Types of Productivity

Depending on the factors we take into account, productivity can be classified into the
following types:

Labor productivity: It relates the production obtained and the amount of work
employed.

Total Productivity of Factors: The production obtained is related to the sum of all
factors involved in production (labor, capital, land)

Marginal Productivity: It is the additional production that is achieved with the one
additional unit of a production factor, keeping the rest constant. Here comes the law of
diminishing returns, which states that in any productive process, adding more units
of a productive factor, keeping the rest constant, will progressively give smaller
increases in production per unit.

Productivity Example
If a company can manufacture 30 pairs of shoes in one hour (productivity = 30 shoes /
hour) and another company manufactures 40 pairs in an hour (40 shoes / hour), we will
say that productivity is higher in the second company, since Quantity of goods
produced in the same period of time is greater.

That the second company is more productive than the first will depend on factors such
as the following:

 Training and experience of workers

 Business organization
 Technology used in the production process.

It will not be the same as an apprentice shoemaker, a person who has been doing the
same activity for many years. Just as it will not produce the same amount a company
that uses the best technological innovations, another that has a much more Basic
production system.

Techniques to Improve a Company’s Productivity

In most companies, workers when they first enter work require a period of
apprenticeship to acquire the knowledge and skills necessary to perform the job.
However, do companies know how to teach their workers to be more productive?  Are
companies prepared to increase the productivity of their company? Productivity is one
of the main challenges and aspirations of companies.  The entrepreneurs want to
achieve better results in the shortest possible time and using fewer resources. That is,
do more with less.

Improving a company’s productivity is not always a big financial expense. To do this,

you must analyze and measure what is actually done in the company and what the
employees need. The 5 techniques to Improve Productivity

1. Invest time in Training Employees in new Technologies

Permanently updated workers will give the company a competitive advantage. In

addition, they will motivate them in their work and prevent the best ones from leaving
the company. Often companies assume that employees know how to handle the
technologies, and in turn, employees may not want to ask about their use for fear of
showing low knowledge. Although employees have basic knowledge, it is important to
educate them to make the most of technology.
 2. Internal Communication

Both among employees and by managers to their employees. This strategy can improve
flexibility and encourage family and work-life balance of members of the company. For
this purpose it would be convenient to hold meetings of no more than fifteen minutes
to coordinate the team and meet their needs.

3. Organization of Work

In all companies, hours of work are lost because of the lack of organization or
coordination between departments. Thus, it would be desirable to establish workflows
between the different departments or work teams in order to improve coordination. So
you could make a list of tasks with the deadlines determined for its implementation and
define the common objectives of the company.

4. Motivation

Motivating workers is an indispensable task for companies and that favors the work
environment in the company. For this, the entrepreneurs must work for the emotional
and mental integration of their team, listening to their ideas and proposals so that they
feel involved with the company. The recognition, the possibility of career plan in the
company and the working conditions are some other factors that influence the
motivation of the employee.

5. Do not stay Outdated

Both in the way of work and in the material. It is important not to let computers and
programs become obsolete, harming the productivity and patience of employees. In
addition, companies could improve the productivity of the company with cloud services,
which allows users to work from anywhere via the Internet, either from home with the
computer or anywhere else with a Smartphone.

So the cloud favors remote work and job flexibility, as corporate applications or
documents would be in the cloud and would also allow multiple people to be working on
the same file at the same time. Some examples of such technologies would be the
applications offered by Google, such as Google Drive, which has its storage service and
tools to create documents, spreadsheets or presentations. Another similar application
that also has corporate version is Dropbox. These are some key notions to increase
productivity in the company, so if companies bet on new technologies and their workers
can increase productivity.
Definition
The management guru, Peter Drucker has defined Productivity as a balance
between different elements of production, and through this; the maximum
output will be obtained with the minimum effort.
According to the International Labor Organization (I.L.O), Productivity is a
ratio between an output’s volume that is measured by the production index
and the subsequent volume of labor input that is measured by the
employment index.
In this, the output indicates total production in terms of revenue or units
produced. Wherein, input includes land, capital, labor, equipment, etc. The
efficiency of the whole production management system is determined through
productivity.

Higher and Lower Productivity

In the operational efficiency of a manufacturing unit, productivity is viewed as
a good indicator. The productivity of an organization is defined as higher
productivity if its production is more than the given inputs. In other words,
higher productivity is obtained if the

available resources of an organization are utilized properly.

On the other hand, lower productivity replicates the excessive use or wastage
of both time and available resources.
Types of Productivity

Productivity is mainly of two types i.e. Partial factor productivity and

Multifactor (Total productivity).

A) Partial Factor Productivity

This is considered a ratio of outcome (output) to partial or single input which
is consumed in the production. Each unit’s productivity is measured by partial
productivity as the significance of each input factor is determined in the
production of output. Partial factor productivity measurement is as mentioned
below:
Partial input is categorized as Capital, Labor, Material, Machinery, etc.

This productivity is mostly used by production managers due to easy

availability and access to data. Moreover, one can easily relate the equations of
partial factor productivity to particular processes as generally, it deals with a
single input.

Types of Partial Factor Productivity

Partial factor productivity is further categorized into below categories:

a) Labor Productivity
In simple terms, per person output ratio or actual financial yield based on per
hour of work is termed as labor productivity. It is used to measure a worker’s
efficiency in producing a higher value product.

In other words, one can measure labor productivity by determining the total
number of products produced (total output) per hour.
There are two methods to measure the time which is required to do any task
i.e. Work measurement and Motion study methods.

Work measurement method: This includes utilizing the correct observation and

recording of work in order to examine the time that a qualified worker will
take to finish a particular job at a certain performance level.
 Motion study method: This includes analyzing a particular job in order to find
the most appropriate and effective method as per effort and time.
Ways to Enhance Labor Productivity
There are three main steps through which labor productivity can be increased
i.e.:
-Creating a Balance in Assembly Line Operations
Moving products through different operations until the finishing stage without
any blockage or hold back results in productivity enhancement. The major
concern is to balance different operations and to address this; machines are
designed and allocated at different workstations. To facilitate the workflow, a
strategy of deploying extra manpower is considered where obstructions are
identified or anticipated. Apart from this, other methods are used to increase
labor productivity i.e. adoption of new methods, redesigning, etc.  Still,
reallocation of labor is required as per the need of job requirements to transfer
the skills for handling their jobs efficiently. Job rotation is there to provide
more workers exposure to many jobs. Ultimately, the main focus remains at
maintaining a balance in the time devoted at all stages of the manufacturing
process in order to ensure the flow of products without much delay.

-Reallocating Workers
Workers should be allocated at the starting of operations and the allocation
should be considered based on the skill set of workers, their job description,
and needs according to machining centers. To remove bottlenecks, it is
required to equalize the production rate at different work stations. This can be
achieved through the allocation of additional labor or worker and by the
addition of another machine. A skilled worker can be a substitute for a worker
having fewer skills. Moreover, the skilled worker may be reallocated at a more
suitable work station.

-Laying Productivity Norms and Evaluating Production

Operations
Different methods of motion studies and time are used for productivity norms.

A complex task is better performed by time and motion study methods

because these methods help in determining the best possible way to do such a
complex task by dividing the task into small subtasks. It also measures the
time invested in doing each subtask. By doing this, performance standards can
be defined and these standards are useful in planning and controlling
production activities, estimating delivery time and cost, and planning
incentive schemes.

Lots of research and documentation is done for setting above performance

standards. Different norms are defined for different jobs as per their
requirement of time and basic motions. The efficiency of the system is also
considered at the time of determining productivity norms. Time and quantity
requirements are considered as a base to measure or evaluate production
operations. Estimation of both is required to ensure delivery.

b) Capital Productivity
This is the relation between total output in terms of goods or services and the
input in terms of physical capital.  Different assets of an organization such as
machines, building, land, tools, manpower, etc. are essential in a production
set-up, and to meet these, capital is required. So, capital productivity can be
calculated through the below formula:

The effective use of the above assets determines capital productivity.  If an
organization improves physical capital, then usually, it increases output. 
Capital productivity is useful for both the national economy and organizations
as it is utilized in plans related to capital consumptions and financial
examination.

c) Material Productivity
This consists of the ratio between total output and total material input.  The
material under input includes both direct and indirect raw material which is
used to produce the final product. The technique of material productivity is
utilized in measuring the productivity in form of material cost.

In other words, material productivity refers to the output produced (in

numbers or amount) based on the per-unit cost of materials used as input.

Material Productivity= Total output/ Material input

OR
Material Productivity= Total units produced/ Total Material cost
Material productivity has an important role to play in the cost of production. 
It depends on the effective and efficient use of raw materials to convert them
into finished goods.
d) Machine Productivity
This is the relation between total output and total machine hours that are
used. Using this technique, the productivity of machines in manufacturing
units can be measured. In other words, machine productivity measures the
proficiency of a machine in transforming raw material into finished goods or
services.

 
How to calculate machine productivity
To calculate machine productivity in a manufacturing unit, some sort of data
is required on a mandatory basis. The below data needs to be considered at the
time of machine productivity calculation:

 To count total machines placed in the production line

 To count line output (finished products) at the end of the day
 To note down shift timings (in hours) and total working hours in the
manufacturing unit

e) Personnel Productivity
The term personnel is used for employees who don’t work directly on
machines and support in operations by performing other tasks related to
operations and production.

This includes people who are responsible for coordinating different operations
and identifying different jobs that need to be executed, facilitating the
operations, inspecting the allocating machines, checking the setups, etc.

These employees have different skills to manage and solve various day-to-day
issues. It’s a challenging task to measure their performance as it is not possible
to measure their productivity in a direct way. Recognition and evaluation of
the tasks or functions of these employees are required for imparting any
training needs to them. There is the dependability on their performance for
communication, information, and implementation of activities related to the
production enhancement. These workforce or personnel are the ones who are
responsible for motivating the workers during various activities such as
methods improvement, change programs, etc. As mentioned above, their
productivity can’t be judge directly; so, indirect measures are considered
through the productivity aligned to the workforce and the productivity in their
functions.

B) Multifactor or Total Productivity

As discussed above that partial factor productivity includes one single input
i.e. labor or capital or material or machine, wherein, the multifactor
productivity includes the relation of total output with total inputs such as
labor, capital, material, etc.

In other words, Multifactor productivity is defined as the ratio among total

output and total input used to produce the total output units.

The total productivity indicates the combined effect of all the inputs in
generating output.

Productivity and Training

An organization’s productivity is directly related to workforce training as a
well-trained workforce is more productive. Training is the process through
which any shortfall of a worker’s technical skill, knowledge level, and
interpersonal skills can be eliminated.  The main aim of the training is to
improve the overall performance in order to achieve the desired productivity
level.

In training, the need for training is assessed, any training gaps are
determined, and the suitable actions are drafted and executed.  Moreover, new
techniques, methods, and equipment to enhance productivity demand
training. Through training programs, motivation is increased and this is
considered as an important element of a productive worker.