Productivity Measurement: Types & Application - Research Paper Example

Productivity Measurement: Types & Application Abstract This paper examines the concept of productivity. It begins by evaluating productivity and how it relates to businesses and organizations. It goes on to examine how productivity can be construed and viewed. The paper also discusses the measurement of productivity. It identifies that the main process of measuring productivity include the definition of the scope of measure, definition of variables, matching inputs with outputs and applying the results to various forms of comparison. The second part of the paper applies the concept of productivity and productivity measurement to the service sector. It examines the unique features of the service sector in comparison with the production sector. Based on the unique features of the service sector, the paper goes on to identify the key factors in the definition of productivity in the service sector. This emphasis then moves on the the components of a good service provider which include efficient workers, sufficient capital and effective technology. The measure of output in this sector include customer satisfaction, profitability and market share. The paper ends up with an evaluation of how productivity manifests itself in a given service industry and on the national level. The paper recommends how service sector productivity can be improved. Introduction “Productivity is a key indicator in the assessment of economic performance” (OECD, 2009 p7). In simple terms, productivity is about an attempt to measure the inputs of a given venture against its output (Ball and Norton, 2004 p2). This is mainly done to assess and evaluate how efficient or effective a given method, technology or input has been in terms of certain laid down targets and objectives. Usually, productivity is measured in economic or financial terms (Pritchard, 1995 p1). This is because economic and financial valuations of outputs provide the most certain and consistent yardsticks for understanding the worth of a given input-output relationship. This paper examines the concept of productivity. It will focus on the measurement of productivity in service organizations. The paper will examine which operations or key processes that are used in the service sector to measure productivity. It will describe the relevant elements of productivity in gauging service efficiency and effectiveness. This will be done through the types of approaches and methods used to attain this end. The paper will also identify the limitations of the measurement of productivity in the service sector and how it can be overcome by managers. Productivity The definition of productivity is quite complicated (Bernolak, 2009 p3). This is because there is a high degree of uncertainty and subjectivity that relates to the concept. This is connected to the fact that most productivity measures relate to particular interests and ends that the people measuring it seek to attain. This therefore lends the concept of 'productivity' to several possible definitions. In spite of this challenge, several scholars and authorities have made the brave attempt to define the various components of productivity. Prokopenko states that productivity “... is the relationship between the the output generated by a production or service system and the input provided to create the output” (2009 p3). This school of thought seem to equate productivity with efficiency. In other words, productivity is a factor of inputs compared with outputs. It is a ratio of the inputs that were put into a given production system against the output that was gained. Productivity therefore relates to how much factors of production yield in a specific case. Bernolak (2009) identifies that productivity relates to two main things: production and performance. This is very logical because productivity attempts to evaluate the performance or outcome of a given production process or activity. In a normal business, productivity is about how much a given activity or revenue center generates. The most common example is about how much profits a given center or unit of an organization generations. In other words, when the costs of putting the factors of production together is compared with the worth of the rewards that was attained, the results gives an idea of the productivity or efficiency that was involved in the situation at hand. Bernolak (2009) identifies that the main variables that causes variations in productivity in modern business are technology, scale of work and labor. Technology refers to the method or system of production. If a superior technology is employed, the results are likely to be higher than other less sophisticated technologies. A typical example is the case of the typewriter which had significant limitations. In an office where a typewriter is used, there will be slow and inefficient administrative processes. This is opposed to an office where a modern computer with a modern Word processor software is employed. The scale of work also counts. The volume of production and the scale of control that a business has determines how well inputs will yield outputs. If a business produces high volumes of products, it is likely to make better use of its inputs because costs and other inputs will be cut down and resources will be used in a more effective manner. Additionally, the quality of labor is relevant. This is because the training and quality of the people handling a given production or service support in the level of output that can be attained from the process. As identified, earlier, productivity is difficult to define. There are certain facades that productivity can take (McGhee, 2009). These facades determine the kind of yardsticks that really defines productivity. Although financial measures are the most common yardsticks for measuring productivity, there are other yardsticks which vary according to what is at stake. One facade of productivity relates to getting specific things done in an organization. These things might vary in priority. As such, their importance to the strategic objectives of the organization determines the way they would be conceived. Another view of productivity is about doing what is planned or sticking to a given target. This brings to mind the idea of the comparability of productivity. In other words, when an organization is comparing one set of results to another, the benchmarks become the main yardstick for construing productivity. On the other hand, productivity can be seen as attaining strategic or a set of collective objectives. This makes productivity of an activity to be dependent on another set of results that is yet to be attained. Measurement of Productivity. According to Schmidt (2008), the main element of the measurement of productivity is to define the two main variables: inputs and outputs. Thus, every attempt to measure productivity will involve the definition of the relevant input that goes into the process. This will naturally include all the resources that are invested in the attainment of the end. After that, the one measuring productivity will have to identify the outputs or results of the processing of the inputs. This can be done by an evaluation of the results. The commonest elements of the input and output variables are costs, revenue, profits and goals (Schmidt, 2008). These factors provide an explanation of how successful a given project or investment was. Brodal identifies four main elements in the measurement of productivity (2011). They are: 1. Hypothesis 2. Syntactic projection 3. Correlation and 4. Extensibility In any conscious effort to measure productivity in any situation, it is important to identify the core elements and and aspects that must be examined. This can be done by defining a hypothesis or a scope of work. This will create the framework and context within which the whole measurement can be carried out. After that, the person measuring productivity, there would be the need to define the relationship between the input variable and output variable. This will involve the use of a cut-off system to determine which things will be relevant and which one would not be. This will set the motion for the collection of data and information for the study. After syntactic correlation, the researcher will need to examine the relationship between the input and output. This will provide information about how efficient the process was. This will give an insight into the situation at hand. When the actual worth of productivity is defined, the research can proceed to the extensibility stage. The most common form this phase takes is the comparison of productivity figures derived with other productivity results. This could be between the entity in question and other entities or between periods in the same organization. The main factors a person measuring productivity needs to be careful about include probability (Brodal, 2011). In other words, there should be a conscious evaluation of the probability of the incidents being measured. This will determine what is relevant and what is not relevant in the definition of variables. Also, the reliability of data used in the measures are important. There is the need to ensure that any measure of productivity is correct and as accurate as possible. Research Methodology This research is conducted to identify the dominant factors and systems relevant in the measure of productivity in the service sector. This is done in a fairly general framework. The research involves the collection of information about how productivity is measured on the entity level, industry level and national level for the service sector. It will examine the relevant factors and situations in each of these drives. The research will be conducted by examining secondary sources. This is done through the review of books and other documents that provide an insight into the concept of productivity in the service sector. Productivity in the Service Sector The service sector is different from the production sector. This is because the service sector is involved in the 'production' of intangible goods to consumers (Gyambrah, 2007). In other words, the service sector generate revenue by the rendering of services that cannot be seen, felt or touched. The value that bring economic revenue to service providers cannot be stored in most cases and there is often no difference between production and consumption (Gyambrah, 2007). As such, the measurement of productivity in this sector is quite different and unique. Productivity in the Business Level of the Service Sector In measuring productivity of a given business entity operating in the service sector, there are some important factors and inputs that determine the kind of efficiency levels that the entity level will attain. The first input is the quality of the workers (Heizer and Render, 2005). If the workforce of a service provider is of a high quality, then it is very likely that the output of the service will be of a high quality. On the other hand if the quality and training of the staff members is low, it is likely to have grave consequences and output will be generally low. This will often lead to low productivity. The second factor in relation to productivity in service providers is the level of capital and resources committed to the production process. If adequate capital is made available to the process, then it is likely that high levels of returns would be attained. Another important and relevant factor that influences productivity in the service sector is the technology available (Heizer and Render, 2005). If a service organization has a high technology which produces efficient results, that entity is likely to remain productive. On the other hand, if it is low, then results are bound to be low. Outputs in the measurement of productivity in the service sector include the quality of the service rendered. This is often measured in terms of customer satisfaction and complaints made by the customers. Also, other compliance issues form a significant part of the measurement of output. Longer term results like market share and profitability also provide a strong indication of the level of productivity in an organization. Productivity in a given Service Industry. In the service sector of a given market, there are several factors that determine the quality and level of productivity that would exist in a given industry. First of all, the performance of individual businesses will come together to determine the level of productivity in that industry or sector. This is likely to be affected by the level of competition, development of laws and other relevant factors that boosts performance in the service sector. There are also other factors like the level of efficiency of support service providers and the kind of regulation that exist (Triplett and Bosworth, 2004). This will determine a lot in terms of results and other levels of output. Productivity in the Service Sector of a Nation Productivity in a given nation's sector is aggregated and forms a significant part of the gross domestic product (Broadberry and O'Rourke, 2010). This is because the kind of earning that all the service sectors make becomes the worth of how much the service industry produced in the period under review. This is often compared with the results for other nations and communities around the world. How to Improve Productivity in the Service Sector The best way of improving productivity in the service sector is to improve the quality of the workforce. This can be done by hiring highly qualified persons who have a high degree of expertise to work in an organization. Also, the use of proper management systems can ensure that the results of a given service venture increases and is always kept in check since inputs are used wisely. Another way of improving productivity is to employ a better technology in the service delivery organization. This can be done by the installation of a more relevant and productive system to aid production. Recommendation Productivity is an important measure of performance and the combination of factors of production. As such, the service sector would have to ensure that the needs of customers and customer satisfaction is made a priority. This is because the nature of service provision makes it imperative for the customer's interest to be put first. Once this is attained, other indicators like profitability and market share can be attained. Productivity measurement would need to include important elements and factors that ensure that an appropriate measurement standard is put in place. This will guarantee that the measurement of productivity is relevant and the factors that matter are always included in the measurement process. Also, it is apparent from this research that any service provision organization that seeks to improve and attain its objective need to measure its productivity on a regular basis. This will provide clues on what they have done right and what they have failed to do right. This can support management in putting in place good and productive methods and systems to ensure future improvement. Conclusion Productivity measures the relationship between inputs and outputs. It seeks to evaluate the results of the production systems and structures of an organization. Productivity lends itself to numerous methods and ideas of interpretation. This therefore means that every attempt to measure productivity would need to be in relation to relevant facts and concepts that are in significant. The service sector has unique systems and approaches. It is mainly influenced by the type of workers that are in an organization. It is also influenced by technology and capital. The worth of outputs are determined by consumer satisfaction, profitability and market share of the service provider. References Ball, E. V. and Norton, G. W. (2004) Agricultural Productivity: Measurement and Sources of Growth London: Springer Publishing. Bernolak, I. (2009) Succeed With Productivity and Quality: How to Do Better with Less Boston, MA: ASQ Quality Press. Broadberry, S. N & O'Rourke, K. (2010) The Cambridge Economic History of Modern Europe: 1870 to Present. Cambridge: Cambridge University Press. Brodal, J. (2011) Productivity: Evidence From Cases and Argument in Structure London: John Benjamins Publishing Company Gyambrah, M. (2007) Organizational Behavior Munich: FHAM Verlag Hansen, D. R, Mowen, M. M & Guan, J. (2009) Cost Management Accounting & Control Mason, OH: Cengage Heizer, J. H. & Render, B. (2005) Operations Management. New York: Prentice Hall McGhee, S. (2009) Productivity & Improving Systems & Methods Indianapolis, IN: O'Reilly Media Inc. Organisation for Economic Corporation and Development (2009) Productivity Measurement and Analysis Paris: OECD Pritchard, R. D. (1995) Productivity Measurement and Improvement: Organizational Case Studies New York: Greenwood Publishing Group. Prokopenko, M. (2009) Productivity Management: A Practical Handbook New York: International Labor Organization. Schmidt, S. S. (2008) The Measurement of Productive Efficiency & Productivity Growth Oxford: Oxford University Press. Triplett, J. E & Bosworth, B (2004) Productivity in US Service Sector: New Sources of Economic Growth Washington, DC: Brookings Institution Press. Read More