In our previous article we discussed Employee productivity and the various factors that influence it. In this article we focus on how employee productivity can be measured.
Peter Drucker noted that “Without productivity objectives, a business does not have direction; without productivity measurement, a business does not have control”.
Measuring employee productivity therefore plays an important role in that it helps to determine if your organisation is progressing well, as well as providing information on how effectively and efficiently the organisation manages its resources.
Productivity is the relationship between the quantity of output and the quantity of input used to generate output and measures the effectiveness and efficiency of an organisation in generating output with the available resources.
Productivity is measured as a ratio of output to input:
Productivity = OUTPUT
Output can be in the form of goods produced and services rendered as well as financial performance of an organisation.
It is often expressed in physical quantity and reflect the physical effectiveness and efficiency of an organisations processes.
Input on the other hand refers to the resources used to produce output, with the most common factors being labour and capital.
Productivity indicators measure the effectiveness and efficiency of a given input in the production cycle.
They are indices that measure a business’s performance in different areas and are used to analyse the performance of processes, teams, business areas and the organisation.
Productivity can be analysed bot quantitatively as well as qualitatively. In general terms, productivity indicators assess the ability of an organisation to get from point A to point B.
Labour productivity is defined as a value added per employee and reflects the efficiency and effectiveness of employees in the production and sale of products and services.
Capital productivity measures the effectiveness and efficiency of capital in generating output. Capital productivity is a function of improvements in the machinery, systems and equipment used, as well as the labour using the capital.
It is important to note that before measuring productivity there needs to be predetermined goals and targets which can be short-, medium- and long-term goals.
Productivity can therefore be measured based on an employee’s output results and overall contribution to the organisations performance.
Value added is commonly used as a measure of output, which represents the wealth created through the organisation’s production process or provision of services.
It measures the difference between sales and the cost of materials and services incurred to generate the sales.
The resulting wealth is generated by the combined efforts of employees working in the organisation and the employers and investors who provide capital.
Profitability is one of the preferred measures for employee productivity. If the organisation’s revenue is increasing, that simply means employees are more productive.
As business consultant Roger Bryan puts it simply “watch the money, and everything will fall in line”.
Two popular financial ratios of measuring employee productivity are revenue per staff and PBT per staff.
Revenue per staff ratio is a measure of the total Revenue for a specific period (monthly, quarterly, half year and annual) divided by the current number of full-time employees. Profit per employee is a measure of Net income for a specific period divided by the number of full-time employees.
This ratio is often used to compare companies within the same industries.
An integrated approach to productivity measurement, links the various dimensions of an organisation’s operations to show how each of them affects overall performance.
The integrated approach provides a comprehensive picture of the organisation’s performance, Highlights the relationships among different ratios and units, and allows the organisation to analyse the factors contributing to its productivity performance.
In addition, it helps to diagnose problem areas and suggests appropriate corrective actions.
More importantly it enables the organisation to monitor its performance over time and against the performance of other organisations.
Chiedza Kadare is an OD Practitioner. You can get in touch with her on WhatsApp/call +263 77 283 0986 or Email email@example.com
Paul Nyausaru is an OD Practitioner and leadership coach. For all your OD interventions and leadership development training you can get in touch with him on WhatsApp/call +263774062756 or Email firstname.lastname@example.org