Faculty of Management Studies and Commerce

University of Sri Jayewardenepura

Master of Business Administration Degree Year II - Semester II
MMS 6404 Managing for Productivity and Quality
Handout 01

Introduction to the Concept of "Productivity"

INPUT PROCESS OUTPUT

ORGANISATION AS A TRANFORMATIONAL SYSTEM

ORGANISATION AS A VALUE CREATING SYSTEM

ORGANISATION AS A

MANUFACTURING SYSTEM SERVICE SYSTEM

(PRODUCTION OF GOODS) (PRODUCTION OF SERVICES)
Examples: Examples:
Biscuit factory Bank
Garment factory Hospital
Automobile factory Insurance company
Paltry farm Super market
Agricultural farm Legal company
Mining site Audit firm

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INPUTS - ALL THE TANGIBLE AND INTANGIBLE RESOURCES AN
ORGANISATION POSESSES & UTILISES TO ACHIEVE ITS END RESULTS

MEN HUMAN RESOURCES

MATERIALS
MONEY FINANCIAL RESOURCES
MACHINERY
METHODS PHYSICAL RESOURCES
MINUTES
TECHNOLOGICAL RESOURCES
DATA
INFORMATION CORPORATE RESOURCES
KNOWLEGDE
SKILLS
ATTITUDES

IDEAS
CONTACTS
RELATIONSHIPS

TRUST
CREATIVITY
COMMITMENT
RESPECT

MANAGERIAL CAPABILITIES &

LEADERSHIP

OUTPUT - ALL THE TANGIBLE AND INTANGIBLE END RESULTS AND OUTCOMES.

GOODS
SERVICES
BY PRODUCTS
DISPOSALS AND REFUSALS

FINACIAL OUTPUT

COSTS / EXPENDITURES
REVENUES / INCOMES
PROFITS
NET WORTH / VALUE OF THE BUSINESS

NON FINANCIAL OUTPUT

SHAREHOLDER SATISFACTION
EMPLOYEE SATISFACTION AND MOTIVATION
CUSTOMER SATISFACTION AND LOYALTY
SOCIETAL ACCEPTANCE AND RECOGNITION

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 Anatomy of the Concept of "Productivity"

Efficiency Effectiveness

Suppliers Input Process Output Customers

Productivity

ANY ORGANIZATIONAL SYSTEM CAN BE CONSIDERED AS A VALUE

CREATING TRANFORMATIONAL SYSTEM

Is Productivity = Input?

Material Consumption Vs. Productivity

Material consumption is an input of a particular system for a given

period of time. (Absolute Concept).

Productivity is the output of a particular system in relation to its inputs

for a given period of time. (Relative Concept)

Is Productivity = Output?

Production Vs. Productivity

Production is the output of a particular system for a given period of time.

(Absolute Concept).

Productivity is the output of a particular system in relation to its inputs

for a given period of time. (Relative Concept)

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Is Productivity = Efficiency?

Output
Productivity is not just = -----------
Input

Productivity is not just the efficiency in production as Oxford Dictionary

defines.

Then, what Is Productivity?

Output Good/Quality/Expected Output

Productivity = ----------- but it has to be -----------------------------------------
Input Inputs

Hence, Productivity is the Expected Output obtained per unit of Input for
a particular transformational system for a given period of time.
eg. Number of good shirts produced by one worker per day.
Amount of good rice per one kilo of paddy
Number of scripts marked accurately by an examiner per hour
Number of standard doors painted perfectly by one liter of paint

Therefore, Productivity is the combined effect of both efficiency and

effectiveness of a particular transformation system for given period of time.

Productivity = Efficiency + Effectiveness

WHAT IS EFFICIENCY ?

The system's ability to obtain a higher output with lesser inputs.

Extent to which the inputs are utilised economically to obtain the output.

According to Peter Drucker "Doing the things right"

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Input Efficiency - Getting the same output from lesser amount of inputs

Expected Input Resource Consumption (units)

Formula to compute = ---------------------------------------------------------------- X 100
Actual Input Resource Consumption (units)

Process Efficiency - Getting a higher output from the same inputs

Expected In-process Resource Consumption (units)

Formula to compute = ---------------------------------------------------------------------- X 100
Actual In-process Resource Consumption (units)

Efficiency deals with 1. Wastage of resources in any form

2. Misuse of resources in any form
3. Misappropriation of resources in any form
4. Economizing the resources in any form

Muri - Over Burden

Mura - Unnecessary Variations
Muda - Waste

Seven type of Manufacturing Waste – TIMWOOD

Transportation
Inventory
Movement
Waiting
Over production
Over processing
Defects

What is Effectiveness?
The system's ability to attain the pre-set output targets, standards, objectives
or expectations set by the management.

Extent to which the output of the system satisfy the needs of the key
stakeholders.

According to Peter Drucker "Doing the right thing"

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 Actual Output produced
Output Effectiveness = -------------------------------------- X 100
Targeted/Expected output

Actual cost of production

Cost Effectiveness = ----------------------------------------------------- X 100
Targeted/Expected cost of production

Actual Quality Level achieved

Quality Effectiveness = ----------------------------------------------- X 100
Targeted/Expected Quality Level

Effectiveness related concepts: Quality, Flexibility, Adaptability, Safety, On

Time Delivery, Affordability etc.

Anatomy of Productivity

Efficiency Effectiveness

Supplier Input Process Output Customer

Productivity

Source: Adapted from the proceedings of the 7th Asia Pacific Industrial Engineering
and Management Systems Conference (APIEMS, 2002), Taipei.

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WHAT IS OPERATIONAL PRODUCTIVITY ?
OPERATIONAL PRODUCTIVITY REPRESENTS THE COMBINED EFFECT OF BOTH
OPERATIONAL EFFEICIENCY AND OPERATIONAL EFFECTIVENESS OF THE
OPERATIONS SYSTEM OF THE ORGANISATION.

Anatomy of Operational Productivity

Operational Efficiency Operational Effectiveness

Supplier Input Process Output Customer

Operational Productivity

Source: Adapted from the proceedings of the 7th Asia Pacific Industrial Engineering
and Management Systems Conference (APIEMS, 2002), Taipei.

QUALITY OPERATIONAL OUTPUT (MEASURABLE)

OPERATIONAL PRODUCTIVITY = -------------------------------------------------------------------------
OPERATIONAL INPUTS (MEASURABLE)

Thus:

Operational Productivity = [Operational Efficiency + Operational Effectiveness]

TYPES OF OPERATIONAL PRODUCTIVITY

1. MATERIAL PRODUCTITY

2. LABOUR PRODUCTIVITY

3. ENERGY PRODUCTIVITY

4. CAPITAL PRODUCTIVITY

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WHAT IS FINANCIAL PRODUCTIVITY ?

FINANCIAL PRODUCTIVITY REPRESENTS THE COMBINED EFFECT OF BOTH

FINACIAL EFFEICIENCY AND FINANCIAL EFFECTIVENESS OF THE
ORGANISATIONAL SYSTEM WHICH IS FINACIALLY MEASURABLE.

Anatomy of Financial Productivity

Financial Efficiency Financial Effectiveness

Supplier Input Process Output Customer

Financial
Productivity

Source: Adapted from the proceedings of the 7th Asia Pacific Industrial Engineering
and Management Systems Conference (APIEMS, 2002), Taipei.

TOTAL FINACIAL OUTPUT (MEASURABLE)

FINANCIAL PRODUCTIVITY = ----------------------------------------------------------------------
TOTAL FINANCIAL INPUTS (MEASURABLE)

WHAT IS TOTAL PRODUCTIVITY ?

TOTAL PRODUCTIVITY REPRESENTS THE COMBINED EFFECT OF BOTH
ORGANISATIONAL EFFICIENCY AND ORGANISATIONAL EFFECTIVENESS OF THE
ENTIRE ORGANISATIONAL SYSTEM WHICH IS FINANCIALLY MEASURABLE AS
WELL AS NON-MEASURABLE.

THIS IS THE BROADEST DEFINITION OF PRODUCTIVITY WHICH REPRESENTS

ALMOST EVERYTHING THAT CAN BE CONSIDERED FOR A SYSTEM PERFORMANCE.

TOTAL QUALITY OUTPUT (TANGIBLE & INTANGIBLE)

TOTAL PRODUCTIVITY = ---------------------------------------------------------------------------------
TOTAL QUALITY INPUT (TANGIBLE & INTANGIBLE)

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TOTAL PRODUCTIVITY = FINANCIAL + NON FINANACIAL
PERFORMANCE PERFORMANCE

TOTAL PRODUCTIVITY IS THE COMBINED EFFECT OF TOTAL ORGANIZATIONAL

EFFICIENCY AND ORGANIZATIONAL EFFECTIVENESS.

Anatomy of Total Productivity

Organizational Efficiency Organizational Effectiveness

Supplier Input Process Output Customer

Total
Productivity

Source: Adapted from the proceedings of the 7th Asia Pacific Industrial Engineering
and Management Systems Conference (APIEMS, 2002), Taipei.

Thus:

Organizational Productivity = [Organ. Efficiency + Organ. Effectiveness]

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 Anatomy of the Concept of Total Productivity
Effectiveness

Flexibility, Adaptability, Safety

Innovations, Social Acceptance
Total productivity Employee Motivation
Customer Loyalty
Financial Productivity
Profitability, Asset utilization
Output Liquidity, Solvency,
Operational Productivity Investor confidence
Input

Efficiency
Source: Adapted from the proceedings of the 7th Asia Pacific Industrial Engineering
and Management Systems Conference (APIEMS, 2002), Taipei.

Link between Operational Productivity and Financial Productivity

Changes in Change in Change in

Output Quantity Revenue Output Price
and Quality

Change in Change in Change in

Operational Profit Price Recovery
Productivity

Change in Change in Change in

Input Quantity Cost Input Cost
and Quality

Source: Adapted from the proceedings of the 7th Asia Pacific Industrial Engineering
and Management Systems Conference (APIEMS, 2002), Taipei.

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THE RELATIONSHIP BETWEEN MANAGEMENT AND PRODUCTIVITY

ORGANISATIONAL MANAGEMENT IS THE PROCESS PLANNING, ORGANISING,

LEADING AND CONTROLLING THE LIMITED ORGANISATIONAL RESOUCES
EFFICIENTLY AND EFFECTIVELY TOWARDS THE ACHIEVEMENT OF TOTAL
PRODUCTIVITY OF AN ORGANISATION.

HENCE, PRODUCTIVITY IS THE OVERALL YARD STICK OF MEASURING THE

SUCCESS OF MANAGEMENT IN ANY ORGANISATIONAL SYSTEM OR RELATED SUB
SYSTEMS.

SCARECITY -------  Need for improvement productivity

PRODUCTIVITY ------  Need for better management of resources

MANAGEMENT -------  Need for dynamic leadership and strategy

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EVOLUTION OF THE CONCEPT OF "PRODUCTIVITY"

Began to consider when people felt the "Scarcity"

Francious Quesney (1694 - 1774) - Agricultural productivity

Adam Smith - Industrial productivity - Division of Labour and Specialisation (1723 -

1790)

John Stewart Mill - Labour Productivity

David Ricardo - Theory of comparative advantage

Factor endowment theory

Vifredo Pareto - Economic efficiency & Pareto Analysis

Alfred Marshall - Marginal Productivity of Labour theory

Martin Luther King and John Calvin - Protestant Ethics

F.W. Tailor - Operational Productivity and Principles of Scientific Management

Gilbreth - Principles of time and motion studies, work study

Henry Fayol, Max webber, Charles Babbage, Robert Owens - Organisational

Productivity

Elton Mayo - Hawthorne Studies – Hawthorn Effect and the impact of Human
factors on productivity

Michigan Studies - Leadership Style Impact on Productivity

Peter and Waterman - Productivity through people

Burns and Stalker - Systems approach to productivity

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The contributions by the three Quality Gurus from 1990's onwards

Phil Crosby

Joseph Juran

Edward Demming

Asian Productivity Organization (APO)

National Productivity Secretariat in Sri Lanka (NPS)

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