Productivity, Efficiency And Effectiveness

According to Currie (1972), productivity is “the quantitative relationship between what we produce and the resources that we use.”

Smith and Beeching added: “The volume of output which is achieved in a given period in relationship to the sum of the direct and indirect effort expended in its production.”

Productivity

Productivity is different from production. Where productivity is concerned with the ratio of output to an input, production on the other hand points to the increase in output over a given period of time. As usual, this explanation of productivity in terms of this ratio was not elaborated on by writers.

Productivity ratios refer to units of one single output (for example: labor cost in dollars, number of worker days or total cost) to one single output (financial measures such as profit or added value or physical measures such as tonnes produced or standard minutes of work.)

All of these ratios and given definitions does not include efficiency, an important concept in productivity evaluation.

Efficiency

Efficiency as a concept assumes an ability to identify a change in the productivity ratio. Managers want to compare with their competitors and assess the possible scope on productivity improvement. Efficiency gathers this productivity factor into account and compares it to some known potential.

Good examples of efficiency measures are the traditional labor productivity measures of standard hours compared to productive hours. They give good index of labor productivity on how well labor is working or being utilized. They show whether organizations are “doing things right” while giving no indication of whether an organization is doing the “right things”.

Effectiveness

It could be summarized as the “maximization of efficiency as a value.” In reality, this does not mean the greatest benefit for the cost, but the greatest measurable benefit for the measurable cost.

Normally, productivity and efficiency consider the way people work. Things like initiative, flexibility, cooperation, and adaptability are not included in the measures of input.

Baldamus (1961) points out that “as the word efficiency has no scientific fundament, we are inclined to assume without question that to maximize efficiency is desirable if not indeed the chief purpose of industrial enterprise.”

Writers have related the preoccupation with efficiency to the development of a measurement cult that precludes many of the less quantifiable but essential ingredient of a successful enterprise.

Consider the value of a highly efficient production of un-salable goods or perhaps a person pursuing his own target and refusing to cooperate with colleagues who are falling behind. That is a concrete example of maximized individual efficiency, but not that of the organization.

The measurement of productivity brings a qualitative dimension when effectiveness is factored in. However, the problem is that some components of productivity are easier to measure than others.

Hours worked or materials consumed are easily quantifiable than the level of customer satisfaction, the product quality, or the extent of the staff’s caliber.

At this point, productivity should have a strategic dimension. However, in taking effectiveness into consideration, new technologies and developments in the market have to be taken into account as well.