2. The productivity of a company’s workforce plays a key role in its
profitability and competitiveness. It makes sense: Increase productivity
levels and you can expect to generate higher profits without adding
headcount. That boosts the likelihood of long-term success in competitive
markets.
So, it’s important that business leaders understand how to measure
productivity, then use that data to identify and overcome obstacles to
making their workforces more productive.
3. What Is Productivity?
Productivity is a measure of economic or business performance that indicates how efficiently people, companies, industries
and whole economies convert inputs, such as labor and capital, into outputs, such as goods or services. Productivity can be
measured at any of these five levels:
1. Personal productivity:
The term “personal productivity” is often used to describe how much individuals can accomplish every day in their personal
lives, not just in the workplace.
2. Workforce productivity:
Workforce productivity, the focus of this article, is the aggregate productivity of all individuals in a company’s workforce.
4. Team or department productivity:
The collective output of one or more individuals united under a common goal.
5. National or global productivity:
The aggregate productivity of all industries in an economy is an expression of the economy’s productivity.
4. Key Takeaways
Productivity is key to a company’s profitability and ability to thrive.
Workforce productivity is a measure of how efficiently a company converts inputs, such as labor
or capital, into outputs, such as goods and services.
Obstacles to increasing productivity include too much email, too many meetings, too many
manual processes and industry-lagging technology. Simple fixes can help address these
problems.
Identifying and tracking productivity metrics can help companies manage and improve workforce
productivity.
Performance management software can make it easier to measure and manage productivity.
5. Productivity for Businesses Explained
Productivity is calculated by dividing output by inputs. The basic formula is:
Productivity = Output / Input
Output is typically measured as the dollar value or the units of products and services that a company
produces. Inputs are any resource used to create products and services. The two most common types of
input are capital — which includes investments in assets used for production, such as manufacturing
equipment and computers — and labor. Other inputs may include energy, technology, materials and
purchased services.
Labor productivity measures the output per hour of labor.
Capital productivity is the productivity attributable to the money invested in assets used to produce
your company’s output.
6. How Does Productivity Work?
Productivity goes up when output increases at a faster rate than inputs or when a
company can generate the same output with lower inputs. Here’s an example that shows how
this works, exploring the effect of different inputs.
Suppose you own an apple orchard, and you’re looking at ways to increase the
productivity of your annual apple-picking operation. Currently, your company’s 50 workers can
pick a total of 10,000 large apples per hour by hand, on average. Your hourly labor productivity
is therefore 10,000 apples/50 people = 200 apples per hour per picker. Not bad, but you see
four options to do better, beyond just pushing people to work harder:
7. 1. Technological improvements: You can add inputs in the form of technological improvements that expand
output by more than their cost. If you provide each apple-picker with Acme’s Super-Duper Apple-Picking Machine,
labor productivity jumps twofold: They can each pick 400 apples per hour.
2. Technical efficiency: Companies can improve technical efficiency by using their existing technology or skills
more efficiently. Perhaps your workers can do better than 200 apples per hour if they become more skilled at
picking apples by hand.
3. Organizational improvements: You may be able to improve hourly output by reorganizing apple-picking teams
so they more efficiently cover the entire orchard.
4. Increasing scale: You may be able to increase productivity by expanding your operation. Doubling your apple
output may require you to double the size of your orchard, the number of pickers you employ and the number of
machines they use. But it won’t require you to build a second headquarters building, hire twice as many
administrative workers or double your marketing and advertising budget. Your output will double, but your inputs will
not.
8. Why Is Productivity Important?
Because it’s a measure of efficiency, productivity is key to winning in a competitive
marketplace. Increase your productivity and you can generate higher profits — or charge
lower prices and take customers away from your competitors. On the other hand, if your
productivity declines or increases more slowly than competitors, you may be unable to
operate profitably or suffer from sluggish growth
9. Benefits of Increased Productivity for Businesses
The basic advantages of higher productivity — greater competitiveness and profitability — can generate a broad
range of additional business benefits. They include:
Higher customer satisfaction: Customers will be happy if your company’s increased efficiency enables you
to reduce prices or deliver goods and services faster.
Better terms from suppliers: If greater productivity enables the company to increase production, it can buy
raw materials and components in larger quantities, which usually means it can obtain them at lower prices.
More attractive wages: Higher productivity can make it possible to pay higher wages, which can help attract
employees.
Increased access to capital: When improved productivity translates into higher profits, that can pave a
smoother path to obtaining funding, either by issuing equity or borrowing.
10. Common Business Productivity Challenges and
Pitfalls
Most companies don’t operate at maximum productivity. We’ve all heard the stats about disengaged
employees who “work” only a few hours per day — and that’s only one of many challenges to
achieving greater productivity. Some are easier to overcome than others.
11. SIX COMMON PITFALLS
1. Achieving “busyness” rather than productivity. People often tell themselves that
they are being productive because they’re working long hours. But they may actually be working
harder instead of “smarter, faster, better,” as bestselling writer and productivity guru Charles
Duhigg describes it. Companies that reward people for merely looking busy may not achieve high
productivity. The answer is to measure outputs and focus on improving them.
2. Inefficient meetings. Inefficient and unnecessary meetings can eat into productivity for
everyone involved. Companies can increase efficiency by starting and ending meetings promptly,
requiring a clear agenda, ensuring all attendees come prepared and assigning a to-do list of tasks at
the end.
12. 3. Email. In 2019, the average office worker spent over three hours a day on work emails — many of those messages not
directed primarily to them. That’s often time that could be spent more productively. Companies that discourage unnecessary
cc’s and bcc’s can reduce this problem.
4. Poor time management. Time spent on emails and meetings often masks a larger time-management problem. If
your company’s employees don’t have daily to-do lists and organize their time accordingly, many will default to being reactive
— responding to a badly managed calendar, incoming email and whoever demands their attention during the day. Some
people are good at managing their time, while others need assistance and closer supervision.
5. Putting off technology improvements. Companies sometimes delay technology upgrades that can radically
improve productivity. For instance, investing in collaboration tools can help employees work productively from anywhere.
Enterprise resource planning (ERP) systems can tie together many business processes, automating the flow of data and
reducing manual effort. And any technology that helps companies stay abreast of KPIs that measure productivity, such as
Order Picking Accuracy in a warehouse, will pay off.
6. Manual processes. The amount of time a worker spends importing, exporting, entering, reconciling and
manipulating data between one or more information systems can slow down productivity. Additionally, the amount of time
needed to assemble reports or analyses for decision makers can lead to less productivity.
13. How to Measure Productivity in the Workplace
Speaking of KPIs, a company must be able to measure productivity
if it hopes to gauge the effectiveness of its efforts to improve
productivity. There is an enormous range of productivity metrics in
common use, depending on the industry and the type of business
function you’re measuring. Here are some of the most common:
14. 1. Employee turnover rate. This is the percentage of employees who leave an organization
during a certain period of time. High turnover is often associated with low productivity due to the
time required to find and train replacements. Fortunately, companies can take steps to minimize
employee turnover.
2. Labor utilization rate. This ratio assesses the proportion of workers’ time that is spent on
productive tasks. It’s calculated as the time spent on productive or billable hours divided by the
total number of employees’ available hours and, like revenue, is important for services firms to
track.
3. Gross profit margin. This profitability metric reflects the efficiency of a company’s core
business operations. It’s calculated as net sales revenue minus cost of goods sold or services
delivered. A business whose gross profit margin is consistently below others in its industry risks
15. 4. Revenue per employee. This is a core productivity measure for many companies. It is typically
calculated as the most recent 12 months of revenue divided by the current count of full-time
equivalent employees. Revenue per employee may be a particularly relevant KPI for consulting
services firms.
5. Number of parts produced. This fundamental measure of manufacturing productivity is usually
measured in parts per worker per hour.
6. Customer satisfaction score (CSAT). This is the average customer rating, generally gathered
from surveys and measured on a scale that may range from 1-5 or 1-10. Low scores may be a
warning that customers will defect. CSAT is a core element of a customer experience (CX) focused
strategy.
7. Downtime. This is the percentage of time that an important business system is unavailable.
16. Factors That Affect Productivity
1. Work Environment
As you can imagine, no one enjoys working in a negative or toxic environment. Make sure to
create a workplace atmosphere that is based on your company's values, where your employees
feel supported, valued, and safe.
Put honesty and co-operation first, remember to reward your employees when they deserve it.
Give your employees access to the right environment where they can cooperate, compete, and
emphasize with their co-workers. This type of environment helps your employees develop
healthy work habits, which contributes to creating a productive workforce.
17. 2. Training & Career Development Opportunities
Every employee wants to grow in their career, so it's essential that they feel like their employer is invested in
their professional development and provides them with the relevant training opportunities throughout their
journey in the company.
If you don't have a training program yet, it might be time for you to develop one. An untrained employee would
not know what they need to do or how to do it more efficiently, which can negatively affect productivity.
One good way of facilitating training programs is through microlearning. This human resources tool gives your
new employees the information they need and the knowledge they need to thrive in the office.
Plus, make sure each team member has a chance to grow within the company hierarchy, and won't end up
feeling stuck in the same position for too long.
18. 3.Processes
From recruiting to onboarding, compensation, performance management, task delegation and more: establishing processes
for your company will allow you to provide
your employees with positive experiences from the get-go.
Developing these processes can be time-consuming and it is very much a matter of trial and error. However, once you have
them, you'll be a lot more organized and
efficient -and so will the rest of the team.
Companies with high productivity levels build processes for most of their recurring tasks and projects.
For example, many organizations often overlook employee surveys. This can lead to workers feeling neglected and unseen,
which can negatively affect employee
productivity. However, implementing a project management tool can help your HR managers facilitate job satisfaction
surveys easily.
Another example is employee offboarding. When a worker leaves, many managers often forget to revoke the worker's
platform access, which can lead to data privacy
issues. With an employee and project management tool, your HR personnel can easily remove the outgoing employee's
ability to access confidential information and
company tools with a few clicks. This makes it easier for your HR department to offboard an employee, as well as increase
employee's productivity as it allows them to
19. 4.PayStructure
Your employees have bills to pay, children to take care of, and goals to accomplish, and the
monetary benefits are obviously one of the
reasons why they took a job in your company.
Use this as a motivational tool, by explaining clearly and transparently how your pay structure
works and what you consider when deciding if
an employee deserves a promotion and raise
20. 5.EmployeeWellness
Employee wellness has become a popular topic over the past few years, and it refers to the
physical and mental health of your team members.
As an employer, you want to provide your employees with all the tools and resources they
might need whenever they don't feel their best, as doing so will show them
that you care and also prevent small problems from developing into something more serious.
Creating a wellness program, offering healthy food options at the office cafeteria, and
encouraging your workers to put their welfare first help create a healthy and
happy employee and could greatly boost employee productivity.
Another way your company can have a positive impact on employees productivity levels is by
encouraging workers to lead a healthier lifestyle. This can be done by
giving them access to physical activities that encourage them to get off their seats and move.
You can also propose them to have a "walk to work" day or give them
more storage spaces to store their office equipment
21. 6.Diversity
Multi-culture is now more important than ever and it has certainly become an
important factor when it comes to employee engagement.
Having diversity in your workplace is one key factor in increasing employee
productivity and benefitting your company's success. Recruiting representatives
with distinctive qualities,
religions, cultures and customs gives your employees a sense of belonging in their
working environment.
Another advantage of having workplace diversity is that it gives employees an
opportunity to learn and understand others' perspectives. This plays a vital role in
ensuring strong team
dynamics.
