Every company needs to measure productivity to ensure they’re not wasting time or resources on tasks. Companies that are not efficient incur too many costs and lose time and money. All the profitable firms focus on reducing costs and improving efficiency to increase their profits. This is why it is crucial to understand the different types of productivity so that you can maximize each one.
What Is Productivity?
Essentially, productivity is the measure of how much output has been generated per unit of input. Corporate companies measure productivity by tracking the efficiency with which the production process is being run. It’s either calculated by how many units a company produces for every labor hour or by the amount of net sales for every labor hour.
Factors Affecting Productivity
Productivity in companies is affected in several ways. Firms need to keep track of these factors to ensure they do not bring down productivity levels.
It’s important that companies hire the right employees. Productivity can be greatly affected if employees do not perform their functions effectively. Conversely, the right employees for the right job improve productivity levels. It is also important for companies to impart skills to employees through training programs. A skilled workforce can help improve the productivity levels of any organization.
Equipment and Machinery
Companies also need to have the right equipment and machinery to increase their productivity, irrespective of the industry they are in. If the machinery is not up to date, companies will not be able to match up to their competitors and will lose customers. Having the right equipment also ensures increased employee performance and productivity.
If the space covered by multiple departments is not designed intelligently and creatively, it can cause problems in productivity levels. Some companies plan their floor space with utmost precision and sensibly so that departments that operate more closely together are not too far apart. But when companies have a large work area with the random positioning of the departments, productivity levels can go down drastically.
Types of Productivity
Although productivity is a term used for the overall efficiency levels of a company, there are different types they can focus on.
Labor productivity is the measure of how much financial yield a company has been able to generate for every work hour. It is also the efficiency with which labor has transformed the input into a product that has a much higher perceived value. For instance, in software companies, it would be a measure of how efficiently a firm is using its resources to write the necessary code and implement it.
When companies endeavor to improve labor productivity, they can do so with innovation in how things are done, investment in physical capital and improving human capital. When a company measures its labor productivity, it is also trying to figure if the measures implemented for these three areas have been effective.
Capital productivity is used to determine the efficiency of fixed assets. It is a measure of the amount of output to the amount of physical capital used as input.
Capital productivity is measured using parity valuation of the fixed assets used, either by the output generated through the year or the final output at the end of the year. Profitability is inversely related to the ratio of capital and output.
Material productivity is a measure of the output generated to the amount of input materials used. Of course, when it comes to software companies. In such cases, it would be measured for the number of resources taken to develop a software or complete a project.
All companies need to know if their utilization levels are on par with industry levels, at the very least. If they can improve their utilization level well above the base minimum of the industry levels, then they have truly stepped up to the competition.
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Measuring productivity is necessary as it determines the efficiency levels of a company in converting inputs to output. For instance, cloth and textile makers take the help of raw materials, people as well as machines in order to create fabric. While calculating the productivity levels of a textile maker, the amount of fabric generated would be divided by the raw material used, the cost of machines being used, or the effort required. It will be the project manager’s job to ensure the productivity levels are high, employing skills such as operational and leadership skills needed to deliver large, complex, transformational projects.
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