How to increase productivity and the benefits thereof

This article is a continuation of earlier post titled - Understanding Productivity Improvement & Measurement

How do you increase Productivity?

Increases in productivity can be achieved by producing more outputs (i.e. more goods/services) with the same inputs; or by producing the same level of outputs with fewer inputs; or by producing more outputs with fewer inputs.

The Singapore government has wisely widened out the definition of productivity to include effectiveness and economy as well as efficiency. They advocate increasing productivity by paying attention to each of the 3 E’s (Economy, Efficiency and Effectiveness). We have seen that Efficiency is how well a company transforms inputs into outputs and measures of efficiency are therefore focused on the Transformation Process (see Figure below). Efficiency means producing the required level and standard of outputs with the minimum level of inputs. So, to increase productivity by increased efficiency, a company needs to explore ways of increasing its output of goods / services without increasing inputs or by producing the same level of outputs with fewer inputs.

Some practical ways of achieving an increase in efficiency / productivity are by investing in new machinery; automating (or further automating) all or part of the production or transformation process; training and up-skilling staff; making changes to systems or processes; etc. This involves staff from more than just operations.

The focus of the 3 E’s in the Transformation Model

Effectiveness is the extent to which an organisation achieves its goals, particularly producing the outputs or goods and services that customers want - satisfied customers should always be a company’s goal. Measures of effectiveness are focused on outcomes related to customer requirements. As such, they are difficult to establish but could be related to customer satisfaction surveys or to market share. Increasing productivity by focusing on effectiveness involves finding more and innovative ways of satisfying customers needs whether this is by providing a better level of service, wider choice of goods, higher quality of goods, etc. A new marketing campaign could also stimulate extra demand for goods or services. These all have implications for a company’s marketing department.

Measures of Economy focus on how cheaply the inputs can be purchased while maintaining the required standard or quality of those inputs. So increasing productivity by focusing on economy could involve renegotiating prices with suppliers, buying in bulk to achieve economies of scale, reviewing supply chain processes, etc. Again these will have implications for the purchasing, logistics and finance departments.

So increasing productivity in a company is not just the business of the operations department and we have seen that marketing, HR, finance, purchasing and logistics are involved too. Productivity is everybody’s business.

The first step to increasing productivity is to conduct a productivity audit to establish current productivity levels. The productivity audit then examines the whole transformation process from inputs to outputs to identify productivity levers – these could be any or all of the factors mentioned above that could be improved upon.

Improving productivity involves spending some money but the government provides huge financial incentives to help. As well as government grants and tax incentives to offset the expenditure involved, companies will increase their profitability. So spending to increase productivity not only pays for itself, but adds wealth to the company.

Many managers and owners of SMEs are not very conversant or comfortable with productivity improvement concepts. Unfortunately, these are the core people who need to develop competency and confidence in this area. Managers in this position should go on a training course to develop these skills – or if this is too time consuming, engaging a consultant, or a mentor or a coach to help develop the necessary skills on the job. Further, owners and senior managers should ensure that senior staff, especially team leaders, middle managers and supervisors, are trained in productivity improvement. However, to fully embrace productivity and to develop a culture of continuous productivity improvement, training should be provided for all staff at all levels of the company. Then productivity can become the responsibility of all workers.

What are the benefits of increasing Productivity?

Increasing productivity increases a company’s profitability by producing more goods and services with the same level of inputs or producing the same level of goods and services with fewer inputs. This increased profitability also results in higher wages for workers through increased salaries and performance related bonuses.

Each company that increases productivity adds to the productivity of Singapore. The higher output of goods and services, together with reducing levels of inputs, increases the wealth of the country and drives economic growth. Thus the increased (and increasing) standard of living in Singapore will be more sustainable as a result.

Furthermore, the increased productivity of Singapore as a whole will make the country more competitive both regionally and globally. This not only protects current jobs, but will attract more foreign companies and MNCs which will create additional jobs and greater opportunities for workers at all levels.

Productivity affects everybody in the economy and increasing productivity is everyone’s responsibility.