How to measure productivity

July 19, 2022

Productivity is simply a measure of efficiency or amount of work completed. Not all ways to measure productivity are created equally, however.

The U.S. Bureau of Labor Statistics measures productivity in a number of different ways for different industries. Most broadly, are labor and total factor productivity.

The first kind of productivity is labor. This is when productivity is measured by comparing the growth in output to the growth in hours worked. This is a simpler version of measurement than Total Factor Productivity. Total Factor Productivity measures growth in output to the growth in a combination of inputs (including labor, capital, energy, materials, and purchased services). This is also known as Multifactor productivity.

The U.S. Bureau of Labor Statistics uses these measures to determine how efficiently the U.S. is working to convert inputs into outputs, but on a more granular level these measures can be used by your business in a way that fits. Consider dividing input by output as a formula. The units of input and output will vary based on your business, but it's a good place to start.

Harvard Business Review states managers shouldn't focus on dollars per hour, but instead, on labor dollars per product (so labor content, rather than labor cost). The two don't necessarily match up. According to HBR, "The central mission of a productivity index is to illuminate how a business can get more units of output per labor hour, per machine, or per pound of materials than its competitors."

So how much does it take, in number of employees, hours of work, amount they get paid, resources they need to perform the job, materials, etc. in order to produce what your business is producing? And how can you either continue that balance, or work to reduce the amount of input? It can take some creativity and out-of-the-box thinking. It may not be an immediate change, either.

Although there is a formula present, it's all about contextualizing that information. Consider that product A is more costly to construct, but you're making great sales on it. That should make up for the higher costing product, right? But there may be other factors at play that a business owner or manager should keep in mind. Why are the sales high? Is it just because product B is selling so well that it's out of stock and customers are stuck with product A? Is it just a smash hit, but one that is a trend that will quickly fade (meaning you don't want to continue with the same level of input)?

There is always nuance when it comes to measuring the work of people, and there's more human qualities in the workplace to consider than simply productivity. However, it's important to be aware and active in measuring productivity. It can help you determine what resources are needed or wasted, how to produce a proper schedule, and ultimately, how to find success as a growing company.