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By Michael Ncube
ONE of the major concerns for all managers is that their organisations must be seen to be performing well against set standards. Closely linked to performance is productivity. I remember very well when I was a middle manager some years ago at a manufacturing concern whereby we had our monthly Management Meetings that reviewed company performance. The first department to present their report was always marketing then followed by others ending with the Finance one which I headed.
It was interesting that the Marketing people would go to town telling us of their numerous activities during the month but it was not always easy to measure those activities against actual sales generated. Whilst it is true that perhaps we would realise lower sales if the marketing team was idle, but we from Finance wanted to link the activity versus real sales.
Probably the most interesting one was the debate that always arose from the Production and the Engineering departments. The Engineering staff would present some metrics they called Capacity Utilisation, Machine Availability and downtime. No small debate arose over the real meaning of these ratios! For example we would be told something like the following-Machine Availability 80%, Capacity Utilisation 60% and downtime 10%. The Production guys would report the volumes produced .Assuming that installed capacity can produce 20 tonnes per month, then logically with a capacity utilisation level of 60% (mentioned above) we would expect achieved volume to be around 12 tonnes.
But this never happened and I do not remember a resolution ever being reached on what exactly those ratios meant. For Engineering, it always befuddled everyone that we would be told that down time was 10 % yet at the same time they recorded a huge overtime that was very costly in terms of the hours to be paid. Yet if these metrics were to be calculated with precision, they would provide vital information to management that would be essential to an organisation’s success.
Having described the above scenario I once went through, it therefore becomes incumbent upon us to define what really Performance and Productivity are.
There is a vast difference between performance and productivity. Performance is the process of carrying out or accomplishing an action, task, or function. It’s your ability to accomplish the expectations of your company. Usually we measure how successfully you perform against pre-agreed criteria: KPI, goals, objectives, etc.
The common practice is that performance measurement is connected to company goals and a set of metrics used to quantify or qualify the efficiency and effectiveness of actions taken. But unfortunately, this leaves you vulnerable to the misconception that you are more productive when you improve your performance.
Performance doesn’t mean that you produced anything. It means you did something to a particular standard. What’s alarming is that performance can improve at the expense of productivity.
Productivity is a commonly used but often poorly defined term. The understanding of productivity is found in its root word, produce. Productivity concentrates on the output, i.e., what is produced. Whereas performance is often activity based, quantitative or qualitative.
While you’re doing something, it doesn’t mean that you’re producing anything in exchange for your time. Workforce productivity is expressed as the ratio of output — what you produce — to inputs — the hours that are worked. In short, it is nothing but attaining the highest possible outcome, while consuming minimum factors of input.
It is a crucial factor in the performance of firms. But it is fundamentally different. If you’re only measuring performance or allowing the misuse of the term productivity, a generalised hypothesis would be that your productivity is declining.
Over the past decade, many organisations have been experiencing a decline in productivity. Meaning, it takes more people to produce less.
Have you fallen victim to growing your input (hours worked) at a faster rate than the growth of your output (what you produce)? Productivity growth is essential if you want to grow your profitability.
Before you jump to the conclusion that productivity means shrinking your workforce, it doesn’t. Your focus should begin with making sure that every hour that is worked is aligned with what you produce. Effectively, you buy time with a premium for knowledge, experience and skill.
But at the end of the day you buy time. So, instead of thinking about how many employees you have or need, shift your focus to thinking about time — hours. How many hours do you need for what’s being produced?
We regularly find that because there is confusion about what productivity means, minimal attention is focused on the hours worked. Therefore it is likely that your employees have idle time in their day, which is being consumed by social media and water cooler interactions or on double time — which is when work is being repeated — and wasted time, when employees are working on things that don’t make a difference.
Make sure that every hour is used for the right thing, the right way. Or better yet, the best thing in the best way.
Don’t confuse productivity and performance, and don’t use the two interchangeably. Productivity is the measure of output per hour worked.
In order to increase efficiency, and ultimately workplace productivity, employees can do a number of things. In today’s technological world, getting rid of distractions is one of the first necessary steps to achieving efficiency and productivity. This often means silencing personal cell phones, blocking social media from work computers, and even turning off music with lyrics.
Advantages of Productivity in the Workplace
While some aspects of productivity are based on the industry or specific business, there are various benefits that align with the majority of companies. The obvious benefit is productivity itself – that work is actually being completed. However, the advantages are far more than just getting the job done. By seeing the benefits in a business or numerical light, anyone would be convinced of the importance of productivity.
Profit is possibly one of the most important and most convincing of benefits to productivity and efficiency. When more work is getting completed in fewer hours, less is being spent on the work itself. This means that a company can expect a higher profit.
On the other side of the business, a company will likely see that the customers are much happier with the turnaround times and overall efficiency. While some internal aspects of a business are unclear to the outside customer, there are some parts that become clear when a customer is satisfied.
For example, customers might not know the ins and outs of how a product was developed, but they might see that the full process of receiving the requested product took less time than anticipated. This leads to a higher level of customer satisfaction, which in turn means more business from said customer and his or her frProductivity rates also make an impact on the image of a company. From customers to shareholders and employees, high productivity often gives off the image of having it allonHere are some useful metrics an emerging company could utilise to measure its productivity apart from the usual accounting ones like Gross Margin, Net Profit ,Stock turnover;
1.Projects Completed.
How many jobs did the company complete in a given period of time
2.Revenue per employee
Another basic KPI that offers a broad indication of how expensive a company is to revenue per employee.This metric is often used to compare companies in the same industry.
3.Turnover rate-employees
This is the percentage of employees who leave the company over a certain period of time.
4.Total Cost of Workforce (TCOW)
This is the sum of a company’s personnel-related costs: salaries, benefits, bonuses, personnel related taxes and insurance ,events ,vacation pay, overtime, training, recruiting etc.It is calculated as a percentage of the company’s total operating costs.
5. Recruitment conversion rate
This metric tracks your company’s job offer acceptance rate. If you are having trouble filling positions compared with other companies in your industry, it is an indication that something is not right. For instance your salaries and benefits may not be competitive with the market.
With better work and better turnaround times, employees are creating such returns and profits that the company is better able to accommodate salary increases and benefits. Overall, this benefit translates into all aspects of the business, as employees are the centre of it all. Without well trained, quality, long-term employees, it can be difficult for a business to thrive. However, by placing emphasis on the importance of these people, they will treat the company as if it is their own hence in the process, bringing success to everyone else.
Michael Ncube PhD is a Business Consultant and Thought Leader .A seasoned accountant with a flair in Strategy Implementation, accounting systems, Taxation and business operational efficiency. .He writes in his own capacity. The views given herein are personal. He can be contacted on ncubemm@gmail.com and on Whatsapp 0779375484.
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