Introduction to productivity definition, measurement and explanation

1. Smart manufacturing workshop.
Introduction to productivity definition,
measurement and explanation
Christopher Moir WMG

2. Productivity: definition
Output/input
Output: value added; or turnover( £,$,€)
Input: total cost of labour, total cost of
capital, cost of bought in goods and
services ( £,$,€)
Applies to a firm, a sector, an economy

3. Productivity: measurement (1)
Labour productivity;
Average value added/worker.
Average value added per worker hour.

4. Productivity: measurement (2)
Total Factor Productivity (TFP)
Amount by which the value of output
exceeds the value of inputs.

5. Productivity measurement (3)
International comparisons: Levels or
growth rates.
Levels in national currency converted
into a common currency e.g US$
Growth rates in national currency
alone

6. Relative labour productivity 2014.
whole economy. (GDP/worker hour.)UK =100
United States 133
France 129
Germany 128
Italy 101
Japan 85
EU 27 100
The Conference Board Total Economy Database™, May 2015,
http://www.conference-board.org/data/economydatabase/

7. Growth in labour Productivity (Value
added/worker hour). Whole economy
1999-2006 2007-2012 2014 2015 proj.
UK 2.4 0.1 0.1 0.3
US 2.4 1.3 0.5 0.4
Germany 1.6 0.7 0.1 1.0
France 1.9 0.3 0.2 -0.1
Italy 0.5 -0.1 -0.6 0.2
Eurozone 1.5 0.6 0.2 0.5
Source: The Conference Board Total Economy Database™, May 2015,
http://www.conference-board.org/data/economydatabase/

8. Growth in Total Factor Productivity
whole economy
1999-2006 2007-2012 2013 2014
US 1.0 0.2 0.6 0.1
UK 0.7 -0.8 -0.4 -0.1
Germany 1.0 0.1 -0.5 -0.3
France 0.6 -0.5 -0.4 -0.6
Italy -0.3 -0.7 -0.4 -0.6
Source; Conference Board. http://www.conference-
board.org/data/economydatabase/

9. Productivity Growth:Explanations
Growth of output is a function of
Increased investment in:
• capital equipment.
• Skills and management competence
• Software, R and D , new knowledge

10. Contributions to economic growth
UK Germany US
2006 2014 2006 2014 2006 2014
GDP growth 3.0 2.8 3.6 1.6 2.6 2.4
labour 0.4 1.9 1.1 1.0 1.1 1.1
skills 0.1 0.1 0.1 0.1 0.1 0.1
Cap invest IT 0.3 0.3 0.4 0.6 0.5 0.6
Cap invest non IT 0.7 0.6 0.2 0.2 0.8 0.6
TFP 1.4 -0.1 1.8 -0.3 0.2 0.1
https://www.conference-board.org/data/economydatabase/index.cfm?id=27762

11. Productivity in Manufacturing
Levels
Growth rates

12. Manufacturing productivity levels
UK =100
Value added/worker
hour
Capital
intensity(cap/worker hr.)
Capital share
in VA %
UK 100 100 20
Germany 132 222 34
France 110 162 30
US 108 226 42
Source: http://www.euklems.net/ note. Latest data are for 2007

13. Growth in labour productivity:
manufacturing. (Value added/worker hour)
1999-2006 2007-2012 2013 2014
UK 5.0 1.5 -1.0 2.1
US 6.3 2.3 0.7 1.4
Germany 4.1 1.0 -0.3 0.6
France 4.6 2.0 0.6 1.8
Italy 1.5 1.1 1.0 -1.5
Japan 3.8 3.3 3.2 1.9
Source: Conference Board

14. So what?
Productivity growth matters
Main source of increasing living
standards. Wages for workers, profits
for businesses.
Recent growth rates well below long
run trends.

15. Productivity of individual firms
Aim; good profits, contented and
efficient workforce, little shouting
How? Superior product, avoid the
competition, specific firm attribute
not easily copied.
Decision making and culture

16. Decision making
Efficiency of knowledge acquisition,
exploitation and sharing within the business.
Speed and process of decision making
Resources needed for successful
implementation.
Relationships with suppliers and customers

17. Culture
Firm values and beliefs
Inward or Outward looking
Promotes learning or stifles it
Harmonious in firm interaction or conflict
removes barriers to knowledge sharing or
creates them.

18. Two examples
Toyota/ GM JV at Nummi plant
Caterpillar investment in Laser
welding

19. Concluding observations
Increasing firm productivity is a big
challenge
It almost certainly requires investment in
all its forms
A lot can be learnt from others the trick
as Dickens said was to look about you.