Dre. Hitesh J. Shukla
MBA Deaprtment
Saurashtra University
E-mail :

Productivity is one of those subjects about whom much has been said and written in recent year. Productivity is now emerged as a new national priority, where the efforts of all be it government, business, trade unions, and workers is converge to accelerate the process of economic growth and rise in the standard of living. It is only through the productive utilisation of the resources, to produce quantity and quality of goods and services required, can be meet the rising expectations of people. Business units have to improve their performance to ensure their survival in this competitive world. This improvement will come about by focusing on production of quality goods, in a cost effective manner, and by generating enough profits to plough back into business, to further improve productivity and must occur continuously to create an advantage in the market place. This is what productivity is all about.

In general productivity is a ratio of output to input, this ratio shows the actual performance of a unit. It is concerned with efficiency and effectiveness. Peter Drucker has defined productivity as, "that balance between all factors of production that will give the greatest output or the smallest effort."(1) "Productivity is the ratio of output produced per unit of resources consumed by the process."(2) OEEC has defined productivity, as it is the quotient obtained by dividing outputs by one of the factors of production. (3)

Productivity measurement approaches:

Productivity analysis is a management tool for goal setting, cost reduction, operation control and organisational improvement. It is also useful in inter-firm comparisons. There are some well-known approaches / methods adopted for analyses of productivity. These are stated below:

( I ) Kendrick – Creamer Model :(4)

Kendrick and Creamer (1955) introduced productivity indexes at the company level in their book, "Measuring Company Productivity". Their indices are basically of two types: total productivity and partial productivity. It can be calculated as below:

*Associate Professor,
MBA Department, Saurashtra University, Rajkot-360 005

Total Productivity Index for given period = (Measured period output in base period price) / (Measured period input in base period price) and partial productivity i.e. labour, capital or material productivity index can be calculated as: Partial productivity = (Output in base period price) / (Any one Input in base period price)

( II ) Craig –Harris Model :

The next most important study using the index approach at the company level is of Craig and Harris (1972-75) (5). They define total productivity measure: 

  pt   =    ---------------

Where; pt = total productivity, L = labour input, C = capital input, R = raw material input and Q = total output, Ot=out put.

( III ) American Productivity Centre Model :(6)

American Productivity Center has measure that productivity relates profitability and price factor. They way this measure is as below:

Profitability = Sales / Cost
                = (Output quantity) (Price) / (input quantity) (unit cost)
                = (Productivity) (Price recovery factor)
Where; productivity = output / inputs
Price recovery factors = a factor which captures the effect of inflation.

( IV ) Productivity Accounting Model :

H. S. Davis introduces this model (7). This model is one of the best models. It fulfills almost all the requirements of accounting for productivity. This model is based on accounting data. It takes into account all possible outputs and inputs used, keep out external factors such as price risk etc. In this model, output means monetary value of production and input means monetary value of all the inputs i.e. material, labour and overhead expenses. Here, productivity means total productivity and partial productivity. This can be calculated as below:

                                                   Monetary value of production
Total productivity  =     ----------------------------------------------------------------
                                       Monetary value of all input required for production

                                                   Monetary value of production
Partial productivity  =  ----------------------------------------------------------------
                                       Monetary value of any one input required for production

All the models considered fit for total productivity but not for partial productivity as total productivity is considered as the result of all the partial productivity. In other word total of all the partial productivity must be equal to total productivity, as total productivity is considered the combination of best utilization of all the required resources, i.e. total productivity = material productivity + labour productivity + overhead productivity, which is not possible in all the above models. Let us understand it e.g. material required is of Rs. 5, labour of Rs. 2 and overhead of Rs. 3, and the value of output is Rs. 15.

In this case total productivity = (Output Rs. 15) / (all inputs i.e. material Rs.5 + labour 2 + overhead Rs 3) = 1.5 total productivity. If we calculate partial productivity; Material productivity = Output 15 / Material input 5 = 3, Labour productivity = Output 15 / Labour input 2 = 7.5 and Overhead productivity = output 15 / overhead inputs 3 = 5.

In this calculation total of partial productivity is Rs. 15.5 (3 + 7.5 +5) that is not equal to total productivity Rs. 1.5. The basic reason is that the output Rs. 15 is not only the result of efficient utilization of any one inputs, (M / L /O) but also it shows the efficiency of all the inputs required for the out put. In this case when we calculate any partial (material) productivity we should nullify the effect of all the other inputs over output and it is possible only by using the co–efficient factor of partial productivity. Which is calculated below:

                                           Calculated total productivity
Co-efficient factor =    -----------------------------------------------
Of partial productivity          Total of calculated partial production
                                              (i.e. M P + LP + OP)

In the above example, the co–efficient factor for partial productivity= 0.0967741  [ (TP1.5) / (MP3 +LP7.5+OP5)]. This is considered as the effect of all the other input over output to one of the input. Now this co-efficient factor is multiply with the individual productivity to overcome the effect of all the other inputs. For material factorial productivity = 0.2903 (3 * 0.0967741), labour = 0.7258 (75 * 0.0967741) and overhead = 0.4839 (5 * 0.096774). Now we can come to conclusion that total of partial productivity, i.e. material 0.2903 + labour 0.7258+overhead 0.4839=1.5 total productivity. In conclusion we can say that all the models suggest the calculation of partial productivity, is not free from the effect of all other inputs. The impact of all the other inputs can be overcome by the calculation of co-efficient of factorial productivity. With this it proves that total of all the partial productivity must be always equal to total productivity by the help of co-efficient factor of partial productivity.


    (1) Prokopenko Joseph : Productivity Management, Oxford & IBA publication – 1990 pg.4

    (2) Garden K.C. Chen and Revert E. Grace , "Productivity Management"  Chicago, the Drudge press,1982, pg.3

    (3)  Productivity Engineering and Management, by David J.Sumanth

    (4)  Measuring Productivity by Kendrik, 1972 P-29

    (5) Total Productivity measurement ar the firm level by C.E.Crage and C.R. Harris, sloan Management Review, Vol-14 pg.13.2.

    (6) Your key to planning profit, productivity brief 6, oct.1981, by American Productivity Center Houston. Tx-77024

Hirim S.Devid, Productivity Accounting Philadelphia, University of Pennsylvania

Dre. Hitesh J. Shukla
MBA Deaprtment
Saurashtra University
E-mail :

Source : E-mail April 30, 2004




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