Shifts in productivity concepts, factors and conditions

Problems with productivity often start with a poor understanding by management of its real meaning. In a survey by the American Management Association in the United States, 95 per cent of respondents agreed with the statements that productivity related to quality of outputs as well as quantity (but what about costs?) and 90 percent thought that productivity referred to output per person per hour (only?).

Conventionally, productivity has been considered as the ratio of physical output to input. This implies that productivity is simply production-oriented and concerns manufacturing activities only. In practice, however, an organization has multiple objectives and requires resources to meet them. Furthermore, objectives are seldom met as a result of one particular resource: multiple resources produce the final result through their interaction

Since the modern business cycle includes processes of management, supply, marketing and sales, client service and client relationships, and many others, the concept of productivity needs to be expanded to cover all of them, not only production. Therefore, for example, the concept of labour productivity – the ratio of output to the labour input – may be misleading because the productivity of labour can be increased by using different components and parts, or by installing new capital equipment. The concept of capital productivity is equally unsatisfactory because increasing capital productivity is dependent on many factors other than capital, such as knowledge, skills, systems and technology.