Companies measure productivity and output to assess the efficiency of their operations. However, these two standards are not synonymous. While a company may have high output, it doesn’t mean it is productive. Likewise, business constraints may result in even the most productive company churning out a low output.
Output is the amount of goods and services produced in a system, given all of its constraints. Output is usually a quantitative value, which means it is expressed by a numeric value. For instance, a clothing factory may have an output of 12,000 shirts a week. Constraints that limit output include factors such as the quality of machinery, availability of workers and demand from consumers. Consumer demand is a strong factor of output. If a bakery is capable of producing 1,000 cupcakes a week but consumers only demand 200, the business only wastes resources to operate at full capacity.
Productivity is the rate of efficiency by which a company produces goods and services. Alexander Field explains in “The Concise Encyclopedia of Economics” that productivity is measured by the output per unit of input. Thus, output is only one part of the equation used to measure efficiency. If the company spends more on its input than it receives in output, it is not efficient. Even a highly efficient worker may not be productive. For example, a superlative medical transcriptionist may be capable of producing five more transcripts per hour than the average transcriptionist. If, however, she produces only two above the average amount, she may have high output but is nonetheless not productive.
Businesses strive to increase output by increasing productivity. Technologically advanced countries achieve this task with greater ease than nations with limited means. For instance, a farmer with his crop in the hills of Peru uses significantly more resources, including labor and time, to produce one bushel of corn than an American farmer who has tractors and other equipment. Though technological devices may replace human labor, Field states that advancements often free up workers to deliver other services, citing the example of information technology with medical records allowing workers to perform other tasks.
Measuring productivity entails evaluating all aspects of a business operation. For instance, a company may hire three workers to increase output by an estimated 30 units per hour. However, if the company evaluated the quality of its machinery as well, the better decision may have been upgrading its equipment to instead increase output by 50 units per hour. Productivity and output must be tempered with quality as well. William Pride, author of “Business” explains that achieving ISO 9000 certification is one way to show other businesses that a company’s operations are productive, efficient and its output is high-quality.
Since 2008 Catherine Capozzi has been writing business, finance and economics-related articles from her home in the sunny state of Arizona. She is pursuing a Bachelor of Science in economics from the W.P. Carey School of Business at Arizona State University, which has given her a love of spreadsheets and corporate life.