Exploring Management Buzzwords: Productivity

This is the nineteenth in a series of essays that addresses management topics. The first ten explored "hot button" issues; the next ten explore management "buzzwords." I base these essays on countless provocative lectures and irreverent discussions as a nutty professor of Business Administration.

In an earlier essay I teased by relating the word "productivity" to buzzwords like efficiency, but I postponed explaining it. Here I will catch up on that.

I noted that productivity can be expressed as a formula, Productivity = Output / Input. The outputs and inputs are, respectively, the products and services that are an organization's purpose, and the costs of the resources consumed. In other words the organization can be seen from the systems point of view, where on the whole, resources are transformed into valued products and services.

To say that productivity = outputs / inputs, then, is simplistic. By simplistic I mean simple to the point of losing its day-to-day, practical meaning. In your everyday work life, when you hear discussions about the organization's productivity, do you get an image of a system transformation consuming resources and producing valued outputs? If so, good! If not, that's okay. There are many ways of expressing it in common language and the connection to theory may not be obvious.

When your boss talks to you about it, it usually means that s/he's concerned about production levels, and may not have the denominator anywhere in his/her conscious mind. But I would posit that even then, the supervisor or manager is implicitly holding the denominator constant, as if to say "look folks, considering we only have so much money in our budget this year, we need to squeeze every ounce of service out of that budget that we can." That is exactly the same thing as saying "let's improve our output-to-input ratio, holding inputs constant."

So, you or you colleagues or your department may be assessed by measuring widgets produced per month, or tons of earth moved per labor-hour, or packages delivered overnight per your accounting line item for doing that. So many measures all boil down to measuring and becoming more productive.

Now, previously I mentioned that efficiency has the same definition, efficiency = output / inputs, but not the same meaning. I meant that the terms' everyday, practical meanings are different. When we use the word productivity, we usually are concerned about improving/increasing the outputs with little or no increase in the inputs, or resources consumed.

When we speak about becoming more efficient, we generally mean that we need to become less wasteful by controlling the inputs better. Improvements/increases in the numerator are surely one way to improve the ratio, but commonly, the everyday meaning is to reduce the resources consumed, assuming a target level of output as a given. Altogether, we would love to see a system or organization so efficient, that 100% is attained, but rare is the system that can even approach 100% efficiency, no matter how you may choose to measure.

So, there are a number of ways to measure both productivity and efficiency, and a lot depends on your point of view. If you already work in Finance, you already may know about "ratio analysis" where all sorts of quotients are crunched for all sorts of reasons, from day-to-day operations to reports to annual stockholders. If you work in an operational unit, which means if you work in a department that really does the work that the organization exists to do in the first place, that's where measures really count.

If you work in a unit like Research and Development, far from the "line" that serves your customers, it is arguable whether or not such measurements should even be made. In the first place it is very difficult to construct a ratio that counts the "right" units of production. The whole point is that managers should get the information they need to make good decisions for both the short-term and the long-term. Lots of "back office" units are viewed as "overhead" that are always having resources cut to the bone, without much thought to productivity. But the idea is always there, implicitly.

Now, as I suggested earlier, productivity can be measured on many levels, from your own personal productivity to the productivity of the American worker to the productivity of the economy as a whole. As abstract as these numbers may seem to you, they are actually very meaningful to the quality of your life.

What's both interesting and important is that the very meaning of the word in your everyday life has exactly the same meaning on macro-levels of economic analysis. That is, when we speak of national productivity, which is often couched in conversations about things like the Gross Domestic Product, we are still talking about productivity as, output / input.

For economic reasons that go far beyond the scope of this little essay on a management buzzword, just trust me when I say that as national productivity grows, so goes the economic standard of living we enjoy. That is, we must see improvements to productivity just to keep pace with progress, because other nations are improving all the time. Worrying about national productivity is worrying about where capital flows on a global scale. In capitalism, which is close but not exactly the same thing as saying free market, investment money is going to flow where productivity and improvements to productivity provide the highest returns to the investment.

Back in the romanticized sailing ship era, sailors had little use for hard currency at sea, and in fact officers wanted to prevent them from gambling it away. So sailors were paid in salt, a critical dietary addition in those conditions. "Earn your salt" was a harsh admonition for not only getting your personal productivity up, but also served as a reminder of how important resource productivity was to the entire voyage, and all hands. So the next time you go to work, "earn your salt" for the whole crew.