Labour Productivity: Watchword for Progress and Business Excellence


Prof. Dileep Kumar M.


The general term productivity has become the watchword for progress in the post second world war period.  The words of Drucker 'the enterprise must control the wealth producing resources to discharge its purpose of crating a customer. This is the administrative function of business in its economic aspect it is called productivity. Productivity is the amount of product created by one unit of a given factor of production over a stated period of time. Productivity expresses the marginal relationship of inputs to outputs and measures the economic efficiency of production. In vegetation, productivity is the ability to produce life: to create carbon compounds from atmospheric carbon dioxide through photosynthesis. In factories and corporations, productivity is a measure of the ability to create goods and services from a given amount of labor, capital, materials, land, resources, knowledge, time, or any combination of those. Productivity indicators ordinarily relate output to a single factor of production, creating measures like labor productivity, capital productivity, and land productivity. 

When productivity is maximum and minimum?

Before we get into deeper understanding, it is necessary to know what it the maximum and minimum productivity. Productivity is higher if the expected output is obtained with lesser input of resources or higher output is taken with the same input of factors of production. Conversely it is said to be lower when with the minimum employment of men, material, machine and maximum output is possible. It is minimum when the output is smallest with the maximum of these resources, as Drucker said, that the administrative function of business is 'to utilize the wealth producing resources, so productively that a consumer is created. This can be done only if maximum goods are produced with the minimum of these resources so that the cost is least per unit of production.  Greater productivity is the result of more effective and economical utilization of resources.

Components of productivity

Most definitions of productivity include profitability, efficiency, effectiveness, value quality, innovation and quality of work life. Useful definitions combine unique human and organisational effectiveness variables.

Profitability: The profitability includes capital, sales operating cost, information processing, human resources and others, depending on the type of organisation.   Productivity = Sales/operating cost.

Efficiency : Efficiency related to the competent performance.

Effectiveness: The ultimate measure of productivity is effectiveness. It is related to standards like quality or usefulness. It is evaluated based on individual or organisational effectiveness.

Value: Value is a fair or proper equivalent in money or commodities for something sold or exchange. It is the estimated worth, appraised worth, market price, purchasing power, and replacement costs.

Quality: Conformance to requirements, specifications, or standards, characterize quality. It indicates the relative worth of products and services and the efficiency and effectiveness of processes used to produce products and provided services.

Innovation: Creative process, adapting products, services processes, structures etc, to meet internal and external pressures, demands, changes and needs.

Quality of life: It is how well people in the organisation are able to satisfy important personal need through their experiences of working and living in the organisation.

Why productivity is important?

For many years productivity has been a key issue for national development strategies because of its impact on economic and social development. Productivity-oriented policies are closely linked to the promotion of a better quality of working life, participation, market economic principles, individual initiative and creativity, and human-oriented management styles and practices. Productivity objectives, accepted by all organization concerned, become the important instrument of just distribution of wealth, sound industrial relations and democratic workers' participation. Thus, productivity is a good tool to balance economic, social, technical and environmental objectives. High productivity leads to a reduction in the per unit cost of production

1. High productivity enables sales at lower prices and hence helps in expansion of markets.

2. It help in a more rapid building up of productive equipments

3. More capital available for investments

4. It develop creation of demands for additional services and requirements

5. High productivity ensures industrial progress

6. It rises the standard of living of employees

7. In high productivity, the wages may be raised

8. The amount spent on corporate social responsibility projects can be increased.

9. Effective utilization of manpower for optimum profit and business surplus.

10. Additional jobs and expansion of employment is possible

Factors that affect productivity

Though many factors affect the productivity, a few of the factors can be discussed here.

  • General Environment

The general environment factors are partly economic and partly sociological. The availability of capital, raw materials power, machineries, market, and the degree of competition are important economic factors. Influencing productivity.  The sociological factors include social institutions and organisational forms as well as beliefs attitudes, and mode of behaviour.

  • Technical factors

The technical factors include degree of mechanization and automation and related aspects in addition to those factors governing technical condition of production. Under these group of technical factors fall the method and techniques of production the degree of mechanization or capital; intensity and the scale of operation. Here the psychological, impact of rationalization process on employees also to be looked into./

  • Human Aspects

The importance of human factor doesn't diminish with technological advance, rather it increases. The major contributive factor in productivity is the skill and knowledge level of employees. Education, training, logical thinking, research aptitude etc influence the production and productivity. Human motivation, teamwork, attitude of employees etc are determinant factors, which affect the productivity.

  • Organisational factors

Better accountability of labourers on management practices is a crucial factor in the productivity. A congenial labour-management relation is a determinant factor, which influence the morale and motivation of employees at work. If the organisation has activities of trade union organisations, this once again vital to productivity achievements and economic development.  Many organisational factors adversity affect productivity. Job stress, job dissatisfaction, absenteeism, labour turnover, which have direct impact on employee's contribution on work.

  • Environmental factors

Environmental factors include the physical environment (e.g. building services, heating, lighting, noise), technology (e.g. telecomm, hardware and software compatibility, fax, photocopier), facilities (e.g. access to meeting rooms, layout, occupational density) and ergonomics (e.g. workstation design).

How to improve productivity

1. Improvement in capacity and manpower utilization through production incentive schemes

2. Improvement in the motivation through wages and wage incentive schemes

3. Improvement in the industrial relations through employee oriented schemes and sound promotional activities

4. Effective training and development for performance excellence and contribution

5. Better performance appraisal strategies that give better feedback and positive reinforcement to employees

6. Adoption of better technology for better output

7. Sound maintenance of plant and equipments

8. Encourage innovation and suggestions of employees for continuous improvement and to get better output.

9. Strong leadership which encourage continuous improvement and committed to learning

10. Inducing high quality consciousness among employees and initiate work process in accordance with the changes

Organisations Role in better productivity

Organizations must keep in mind that their people are motivated with the desire to perform in order to enrich the productivity. With the help of some tools like creativity, invention along with the innovation for fostering productivity in the culture of organization itself as a whole. It is up to the organization and the leadership to provide an overall objective, which is shared by all employees. In organizations that excel at motivating their staff, a high degree of teamwork exists and all employees are treated with respect and dignity; which results higher chances of increasing productivity even on the individual basis and the organizational ground. Some possible application examples are: clear task specifications, standard operating procedures, policies, continuous enforcement of standards, performance feedback, easy job flow, shared values, information, performance appraisals, skills development, trusting climate, coaching by manager, career tracking, sufficient work conditions, correct resources and inputs are the prime tasks of HR.


The determinate productivity includes both physical facilities of production and human aspects. Productivity is the result of complex interaction of all these factors on material and psychological planes. Limited industrial development, the prevalence of pre-capitalistic social environment, the backwardness of technology, lack of adequate wage and non wages incentives and the inadequacy of management are some of the crucial bottle necks to productivity.  HR department have keen role in productivity improvement and organisational development.


1. Bonn.Cameron, G., Proudman, J. and Redding, S. (1997), Productivity Convergence and International Openness , Bank of England, London.

2. Bräuninger, M. and Pannenberg, M. (2000), Unemployment and Productivity Growth: An Empirical Analysis within the Augmented Solow Model, IZA Discussion Paper No. 136.

3. Das, D., Ross, S. and Campbell, R. (1993), "Australia's Productivity performance", EPAC June 1993, pp. 26-23. 50

4. Griffith, R., Redding, S. & Van Rennan, J. (2000), Mapping the Two Faces of R&D:

5. Nordhaus, W. D. (2000),
Productivity Growth and the New Economy, NBER Working Paper No.

6. OECD (1996), Industry Productivity: International Comparison and Measurement Issues, OECD, Paris.

7. OECD (2001), The New Economy: Beyond the Hype , OECD, Paris.

8. Schreyer, Paul (2003), "Capital Stocks, Capital Services and Multi-Factor Productivity Measures", OECD Economic Studies, No. 37, 2003/2, pp. 164-184.w

Prof. Dileep Kumar M.

Source: E-mail April 19, 2006


Back to Articles 1-99 / Back to Articles 100-199 / 200 onwards / Faculty Column Main Page


Important Note :
Site Best Viewed in Internet
Explorer in 1024x768 pixels
Browser text size: Medium