The word productivity is translated differently in different languages and given different meanings — raising output, improving production efficiency, and so on. But in reality productivity does not have to mean producing more. If production cost can be brought down, that is productivity. Lowering cost, reducing loss, and getting more use out of the factors of production all count as productivity. It is a tool for running a business, and for daily life.
Scientifically, productivity is the ratio of the value of the goods and services produced to the value of the resources consumed — output divided by input.
Where the idea came from
The idea of productivity begins with the application of scientific principles to management, starting with Frederick W. Taylor in 1911. His emphasis was that scientific management required a change of attitude in both workers and management, who had to see the need for it. Driving productivity takes the cooperation of every group — employers, employees and the public alike — because productivity benefits all of them. That everyone takes part in driving it, and that the benefit is then distributed equally, is the founding principle of productivity.
The scientific view
Output means goods and services: cars, refrigerators, televisions, furniture, food, transport, banking and the rest. Input means the resources consumed in producing them: labour, materials, energy, machinery, capital and the rest.
On this view productivity has to be measured, and it can be measured either physically — in pieces, weight, time or headcount — or by value, in money. There are therefore four cases to consider:
- Output rises, input stays the same
- Output rises, input falls
- Output stays the same, input falls
- Output rises and input rises, but input rises at a lower rate than output
Productivity is not the same as volume
Raising productivity therefore need not mean raising volume, which concerns only one side of the ratio. If the extra volume is produced while the market does not want it, it does the business active harm.
The economic and social view
In economic and social terms, productivity indicates how far the basic goals have been met — the wellbeing of the population, and the quality of their lives and their work. It is a good measure of economic and social progress. National productivity shows a country’s capacity to develop itself, or to make its economy stable and progressive, by using limited resources efficiently for the greatest benefit.
On this view productivity is a state of mind: the human capacity, or drive, to keep looking for ways of improving what already exists, resting on the belief that we can do things better today than we did yesterday, and that tomorrow must be better than today.
Productivity is the adjustment of economic and social conditions to circumstances that are changing: a continuous effort to apply new techniques and methods for the benefit of the organisation, of society and of the country, together with an awareness of conserving resources, energy and money, for the sake of the country’s economic and social stability.
Productivity in both senses, then — the scientific and the socio-economic, the narrow and the broad — covers many ideas and many activities. It therefore requires a common effort, improving and accelerating productivity together at every level, for the economic progress of the nation as a whole.
Why productivity is necessary
Resources are limited and grow scarcer by the day. Productivity is the principal means by which we get the greatest benefit from the resources we have, with the least loss, so as to serve the largest number of people.
It also assists planning and forecasting — setting output in proportion to demand so that no resource is wasted on a surplus. Technological change is another major factor in achieving high productivity, bringing unit cost down and making it possible to compete both at home and abroad.
What productivity returns, and to whom
Improving productivity reaches every group of people, at every level and in every field.
| For | Productivity brings |
|---|---|
| Employees and workers | A fair share of the return on their work · higher pay · better working conditions · security of employment · development of skill and ability |
| Consumers | Cheaper goods and services, because productivity lowers production cost · higher quality and more choice, because raising productivity makes output the result of competition in both quality and quantity |
| Producers | Room to widen the pattern of investment, and so more goods and services offered to the market · the creation of work · a higher level of technological capability, and with it better product quality · an improved competitive position |
| Government | More and better social services · development programmes carried out more effectively |
| The nation | Reduced effect of inflation · a higher standard of living · wider and more evenly spread employment · the removal of social conflict, because goods and services are available to the public at prices ordinary people can afford |
What influences productivity at national level
At national level three factors bear on productivity: policy, resources, and social and cultural values.
State policy covers the government’s goals for accelerating economic growth, and with it stability, equity, employment and an improved quality of life for the population. Meeting those goals requires supportive policy applied continuously to overall planning and public utilities, price stability, the tax base, the promotion of small industry, changing patterns of domestic demand, import substitution, competition, equity alongside economic growth, and growth alongside the environment.
The resources put to economic use include people and money. All of them — technology and the form of organisation and administration among them — bear on productivity: natural resources, human resources, financial resources, technological capability, and organisation and administration. Human resources means the capability of the society’s workforce, which is set by the size of the population, literacy, education and skill, the industrial and agricultural labour force and its attitudes, population growth, unemployment, and public health.
Culture and social values include the work ethic and the attitudes of the population, which follow from the culture and values of each country’s society — individual values, and the attitudes fixed deep in the minds of the people.
What influences productivity at company or plant level
Management’s ability to motivate people, to direct them, and to control every factor of production; the competence and attitudes of the workforce; the company’s ability to draw on resources outside itself; and its willingness to adopt new technology suited to those resources, or to whatever other external factors bear on productivity. In summary:
- Management
- The workforce
- Relations between them
- Capital
- Technology
- Other external factors
Improving productivity inside an organisation
A unit, organisation or company that wants to promote or improve productivity, and to manage the work of doing so, may set up a working group to take charge of it. What decides whether that work succeeds is:
- Support from senior management — financially, in morale, and by taking part in the activities themselves
- A working atmosphere that encourages it, so that everyone makes the effort — an atmosphere in which staff hold a good attitude to their work, with training and development provided
- Everyone in the organisation treats it as a shared undertaking and takes part in it
- Productivity improvement is treated as a continuous, long-term programme
- Relations between staff and management are good, which is what produces the cooperation needed to push it forward
- Productivity is measured and assessed
- The gains are shared fairly between all parties
Accelerating productivity, factor by factor
This takes several parties together. At plant level it means combining the factors of production, creative thinking, and management applied with reason and principle, in order to raise the productivity of the resources or factors used. It can be done across the board, or factor by factor.
| Factor | Improved by |
|---|---|
| Labour productivity | Motivating workers · training in skill and developing the workforce · improving working conditions · raising wages and salaries · improving living conditions · having tools, materials and equipment ready |
| Capital productivity | Raising the level of the technology in use · good and regular maintenance · developing the workers’ skill with the machinery · having spares and equipment ready · keeping machines and tools in balance · always having the material the process needs · having sufficient demand for the output |
| Land productivity | On agricultural land, through irrigation, fertiliser, planting several varieties, new agricultural methods and techniques, and the use of agricultural tools and equipment · on land carrying residential, commercial or industrial buildings, by zoning it into industrial estates or export processing zones, by building upward in several storeys to save ground, and by better management of transport and communications |
| Material productivity | Eliminating loss in every form · selecting for quality and preparing the material well · making sure the greatest value has been had from the resource consumed, and that value has been added to the product |
Thailand’s own productivity development
Thailand has developed its economy step by step, and over the period past that can be counted a fair success. We moved gradually from a middle-income developing country towards a developed one on higher income, with economic expansion at a rate matching many industrial countries, and an export economy that grew fast over the last three or four years. Yet export-led development has not raised the income or the standard of living of most of the population. That is because natural and human resources have been used unsuitably — low-wage labour, for instance — and because exporting still depends heavily on other countries. This runs against the principle of productivity, which is the determination and the effort to improve economic and social conditions and human wellbeing.
Thailand is developing towards a newly industrialised country, and must face severe competition in world markets and international political pressure. Productivity is therefore unavoidable and has to be taken seriously. It is welcome, then, that the Ministry of Industry and the National Productivity Committee have now declared a direction for the country’s productivity, for the public, for industrialists and for officials to follow, so that everyone’s effort runs the same way and reaches the goal of productivity: sound economic and social development, and the wellbeing of the nation’s people.
The direction set for productivity
Productivity is the human effort to keep finding ways of making things better, for one’s own wellbeing and that of the nation’s people, and to reach the economic and social prosperity of the country — the principal goal of national productivity.
- Everyone must hold productivity in mind
- Use people, time and natural resources for their worth, to the benefit of the organisation
- Raise the quality of human resources, both in skill and in the disposition to improve
- Develop goods and services to build competitive advantage in both domestic and foreign markets
- Build good relations and cooperation between management and staff, the firm foundation of productivity in any organisation
- Distribute the benefit of productivity fairly to all parties
Measuring productivity in an organisation
Productivity is something to be worked at continuously, because it is what lets an organisation get the greatest benefit from limited resources with the least loss, producing what is wanted and wasting nothing — which means lower cost and a greater capacity to make a profit.
Productivity improvement is a management activity, to be planned and carried out in order: measurement, analysis, planning, improvement. Those steps are the productivity cycle, P-I-M-A.
| The productivity cycle | What happens in the step |
|---|---|
| Measurement | Establish where you actually stand. Without measurement, improvement cannot be managed. |
| Analysis | Find where the loss is and what causes it. |
| Planning | Set the target and the order of work. |
| Improvement | Act, then measure again and start the cycle over. |
How to apply it on the floor
- Choose productivity measures tied to factors the line can actually control
- Measure both physically — pieces per hour — and in value, such as cost per unit
- Run measure–analyse–plan–improve as a repeating cycle, not a one-off
- Share the gain visibly, so the next cycle gets cooperation
The mistakes we see most
- Assuming productivity means producing more, when reducing cost or waste counts just as much
- Producing more when the market does not want it, which harms the business
- Measuring only labour productivity while ignoring capital and materials
Common questions
How is productivity different from just working faster?
Working faster loads people and machines harder. Productivity means getting more from the same resources through a better method — which usually reduces the load.