Productivity (Meaning and Explanation)

We explain what productivity is, the types that exist and factors that affect it. Also, why it is so important and examples.

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What is productivity?

When talking about productivity, we refer to the economic measure determined by the comparison between the goods or services produced, and the expectation or the minimum indispensable production quota. Or put in simpler terms: it is the relationship between what is produced and what needs to be produced taking into account the factors and inputs necessary to start the process.

Thus, certain systems, processes or even workers can be more or less productive based on their performance (the amount of products obtained in a given period of time) and their efficiency (the amount of resources invested in obtaining the product). In any case, greater productivity results in greater profitability, that is, greater profits, so that every form of organization or company always seeks to increase its productivity margins by evaluating its production schemes.

Thus, in many cases the productivity increases when significant changes are made in the production chain which means that it can be a consequence of strategic decisions.

Types of productivity

Three types of productivity are usually recognized:

Work productivity Also known as productivity per hour worked, it has to do with the increase or decrease in performance in order to obtain the final product.
Total factor productivity (TFP) Increase or decrease in performance due to the variation of one or more of the factors involved in production, such as labor, capital or knowledge. It is also associated with technology and technical efficiency in relation to year-on-year variations or the company's growth rate.
Marginal productivity Also called “marginal product” of the input, it is the variation experienced in the production of a good, when only one of the factors involved in its production increases, while the rest remains constant.

Factors that affect productivity

Factors attributable to non-working designs and inputs That is, those that have to do with the material elements, but not with the process itself but with the design and maintenance of the elements, such as the design of products and services, the stability of the designs, the quality of the materials. raw materials, the quality and maintenance of the machinery, the quality expectation of the final product and the size of the company.
Factors attributable to the organization of work Those that concern the structure and functioning of the organization, such as the layout and use of the work space, the specific work method, the planning of inputs, the environment, or work times.
Factors attributable to workers Those that have to do with the workforce or human capital, such as the educational training of workers, their physical condition during working hours, their motivation towards work and their punctuality.
Factors attributable to external conditions Those that do not have to do with the interior of the company per se, but with foreign elements. Such as marketing and the needs of the consumer market, the variables of the economic environment, or the internationalization of the final product.

Importance of productivity

Productivity is a key element in the survival of companies and organizations . First of all because of its direct impact on profitability, given that the increase in productivity margins usually translates into an increase in final profit; and secondly because it also has to do with the management of the organization's resources, such as material inputs, energy, human capital and work, and may also have ecological consequences (the greater productivity, the greater consumption of water and energy, or greater underproduction of pollutants, for example), social (a drop in productivity can cause massive layoffs, for example) or of another nature, in a given society.

Productivity example

A perfect example of productivity is that of factory workers let's say, canned. Said factory has a certain structure based on its productive factors: there is a certain number of workers in the factory working during a certain daily schedule (or a number of hours per week), producing a certain daily quantity of canned goods.

If the number of workers increases, it would be possible to increase productivity as well assuming that the number of machines they use to work also increases, which would result in a greater number of canned goods produced per day. This, logically, would affect a faster consumption of the raw material (the metal in the cans, energy, water, etc.), so the new production rate could only be maintained with a proportional increase in said inputs. Therefore, there are various routes to increasing company productivity.

On the other hand, if the number of workers decreases or they begin to work fewer hours, or there begin to be blackouts, or if raw materials become scarce, productivity will begin to decrease and with it, the profitability of our canning factory.