Improving employee productivity, if you ask an economist, is only about two factors. One commentator argues that this incorrect measurement of corporate productivity may be the real problem in understanding the larger economy.
Steven Hansen, writing for NASDAQ, offers the following in his weekly review:
Productivity [as measured by economists] is calculated by dividing real output by hours worked. If a component was outsourced, this would be considered a productivity improvement.
My view of productivity is one of an industrial engineer, while the Bureau of Labor Statistics (BLS) are bean counters using a simple hours vs output approach. Although one could argue that productivity improvement must be cost effective, it is not true that all cost improvements are productivity improvements.
Let’s unpack these two paragraphs. First: there’s the way that most economists and the government calculate individual employee productivity. They just look at what is produced versus how much time is put into that work. Here’s what you get based on that data:
Hansen notes one of the problems with this way of thinking. If you outsource work, you put fewer hours in for the same results so you “increase” productivity. But as any employee knows, having somebody else do the task in another country just moves the work to somewhere that labor is cheaper. And chances are good that the quality will suffer, meaning that rework will be required, which in turn will decrease productivity.
The writer makes a statement which every manager should memorize: it is not true that all cost improvements are productivity improvements.
In other words, you get what you pay for.
So, what is productivity? Simply this: productivity is setting objectives and then meeting those objectives. To measure productivity, we need to understand how well our objectives are defined and how well they were met—both in terms of speed and correctness.
From an economic view, productivity is about the relationship of effort to real value. We ask how much work are we doing and what someone should for whatever we created.
If you can decrease the effort required, you increase productivity. If you can increase the quality of output without changing the effort, you increase productivity.
Is your productivity improving at work?