Productivity Measurement at National, International and Firm Level
Productivity Measurement at International, National and organization level. PRODUCTIVITY MEASUREMENT Productivity measurement is the quantification of both the output and input resources of a productive system. The goal of productivity measurement is productivity improvement, which involves a combination of increased effectiveness and a better use of available resources.
While productivity can be given the sort of short hand definition as the ratio between output and input USE OF PRODUCTIVITY MEASURES Productivity is a required tool in evaluating and monitoring the performance of an organization, especially a business organization.
When directed at specific issues and problems, productivity measures can be very powerful. In essence, productivity measures are the yardsticks of effective resource use. Managers are concerned with productivity as it relates to making improvements in their firm. Proper use of productivity measures can give the manager an indication of how to improve productivity: either increase the numerator of the measure, decrease the denominator, or both. Managers are also concerned with how productivity measures relate to competitiveness.
If two firms have the same level of output, but one requires less input this is due to a higher level of productivity, that firm will be able to charge a lower price and increase its market share or charge the same price as the competitor and enjoy a larger profit margin. Within a time period, productivity measures can be used to compare the firm’s performance against industry-wide data, compare its performance with similar firms and competitors, compare performance among different departments within the firm, or compare the performance of the firm or individual departments within the firm with the measures obtained at an earlier time.
Productivity measures can also be used to evaluate the performance of an entire industry or the productivity of a country as a whole. These are aggregate measures determined by combining productivity measures of various companies, industries, or segments of the economy. NATIONAL LEVEL MEASUREMENT Since productivity is one of the basic variables governing economic production activity some mention of national productivity concerns would be appropriate. As a matter of fact, productivity may be the most important variable governing economic production activity.
It is the fundamental controllable factor in wealth production. Since other economic variables depend on it, increasing productivity tends to have a beneficial multiplying effect on other economic variables. Improving productivity is of national importance because, for a society to increase its standard of living, it must first increase productivity. Overall productivity for individual countries is calculated by dividing output, as measured by GDP or GNP, by the country’s total population.
Thus, productivity is measured as the dollar value per capita outputs. An increase in this measure of productivity means that each person in the country, on average, produced more goods and services. Also if productivity increases, then profits increase. The resulting profits can then be used to pay for wage increases (inherent in inflation) without having to raise prices. In this way, productivity gains actually help curb inflation. It has been estimated that technology was responsible for at least half of the growth in productivity.
It would appear, then, that if the country wants to continue to increase productivity, technology may be the key. ORGANIZATION LEVEL PRODUCTIVITY MEASUREMENT For an individual firm or industry, measures of gross output, combined with labour, capital and intermediate inputs, correspond directly to a specific model of a production function with “neutral” or “output-augmenting” technical change. When multifactor productivity[MFP] measures are based on such a gross-output concept, MFP growth approximates the rate of neutral, disembodied technical change.
Alternatively, MFP measures could be based on a value-added concept where value added is considered a firm’s output and only primary inputs are taken as a firm’s input. Value- added based productivity measures reflect an industry’s capacity to contribute to economy- wide income and final demand. In this sense, they are valid complements to gross-output based measures. At the aggregate level of the economy, gross-output and value-added based measures converge when gross-output measures are defined as sectoral output.
Sectoral output is a measure of production corrected for deliveries within a given sector. From this perspective also, gross-output and value-added based measures are complements. A useful strategy in the development of productivity measures is to start with aggregate value-added based productivity measures: the necessary data tends to be relatively easily available and the choice between gross output and value added makes less difference than at the detailed industry level.
INTERNATIONAL LEVEL PRODUCTIVITY MEASUREMENT NEED Interlinked monetary systems Technology/ service transfer Domestic and regional competitions Valuable tool for evaluation Problems of Productivity Measurements at International Level In exchange rate measurements (often prices of similar goods not compared). All industrial level data not available. Social, Political, cultural factors not included. Data for developing countries is lacking.