Introduction to Productivity Prepared by: Bhakti Joshi Date: November 22, 2012

Why Study Productivity? To understand processes of a business To continuously improve processes To control the business processes To assess performance of a business To determine its ability to sustain in the long-run

Example: Starting a Business Product / Service Idea Objective Target Audience Knowledge and Skills Sponsors Strategy to Generate Sales WHAT IS THE RESULT?

Britannia Industries Industry – Food Processing: Dairy, Fruits & Others Year of Incorporation – 1918 Registered Office – Kolkata, West Bengal Ownership – Joint ownership between Wadia group (major stake) and Groupe Danone Product – Bourbon biscuits Price – Rs 12 for 70 grams and Rs 22 for 167 grams

Basic Requirements Raw Materials Flour Cocoa Cream Sugar/Salt Water Machinery Oven Moulder Mixers Human Resources Workers Managers Top Management Finance Self-financed Banks Public Private Investors INPUTS (including water, energy, electricity, infrastructure)

Operational requirement Organization Product mix (Bourbon biscuits packed in different sizes and price ranges) Management Level of technology Utilization of machines Plant Utilization

Output Units produced for consumption or use (Bourbon biscuits) Valued on the market price Value of inventories also included

Definition Productivity is commonly defined as a ratio of a volume measure of output to a volume measure of input use OR Productivity = Output Input Generated from production or service Provided to create this output The concept of productivity can be applicable to any economy, business (small, medium and large), government and individuals

Numerical Example 1 Britannia Industries produces units of biscuits in October and the number of workers employed during this months was 30. These workers normally work 8 hours a day. Calculate the productivity for the month of October /30 = 1000 units per labour OUTPUT INPUT Total Hours worked by workers = 30 workers * 8 hours = 240 Total working days = 20 days. 4 weeks in a month * 5 working days. 240*20 = /4800 = 6.25 units per worker

Criticism of Productivity Measurement Assumes use of skilled workers Assumes productivity and profitability to be synonymous Confusion with efficiency (how well are the resources utilized) and effectiveness (how well the targets are set or the results are accomplished) Aimless goals setting

Flipkart Industry – Online Shopping Year of Incorporation – 2007 Registered Office – Bangalore Karnataka Ownership – Private-Partnership between Sachin Bansal and Binny Bansal Service – Online Books Price – Varies across products purchased

Basic Requirements Raw Materials Service-based Resources Human Resources Finance Self-financed Banks Private Investors INPUTS (including water, energy, electricity) Virtual Resource Software Licenses Copyrights IT Professionals Top Management Computers Servers Network Warehouses

Operational Requirement Organization Service range (Books, Movies, CDs, etc) Management Level of technology Utilization of machines and human resources Warehousing Office Utilization

Output Service Volume Delivery processes Customer perceived quality

Productivity Measurement - Types Partial Factor Productivity Total Factor Productivity Multi-Factor Productivity Labour Capital LabourCapital LabourEnergyMaterials

Partial Factor Productivity Traces labour requirement per unit or Reflects change in input coefficient of labour PURPOSE Ease in measurement and readable Mostly easy to obtain relevant data ADVANTAGES Partial productivity measure Misinterpreted as technical change or efficiency/effectiveness of individuals in the labour force DISADVANTAGES

Total Factor Productivity Traces growth in an economy or a business Includes labour and especially capital that is representative of mostly infrastructure PURPOSE Ease in obtaining data and to understand ADVANTAGES Other inputs ignored Net output does not reflect the efficiency of production system in a proper way Not representative to technological change DISADVANTAGES

Multi-Factor Productivity Overall changes in a firm/industry Captures technical change, efficiency, economies of scale, etc PURPOSE Role of intermediate inputs are also included Measures technical change in an industry ADVANTAGES Difficult to obtain data on all inputs Inter-industry linkages and aggregation is difficult to communicate DISADVANTAGES

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