20.2 Productivity and performance measurement

Productivity measurement and analysis form the foundation of sound productivity improvement consulting. The success of productivity measurement and analysis depends largely on a clear understanding by all stakeholders of the relationship between productivity and the effectiveness and efficiency of the organization. Productivity measurement can stimulate operational improvement: the announcement, installation and operation of a measurement system can improve labour productivity, sometimes by 5 to 10 per cent, with no other organizational change or investment. Productivity indices also help to establish realistic targets and checkpoints for diagnostic activities during an organizational development process, pointing to bottlenecks and barriers to performance. They can also indicate where to look for opportunities to improve and show how well improvements are progressing. There can be no real improvement in industrial relations or proper links between productivity and compensation policies without a sound measurement system.

Shifts in productivity measurement approaches

The traditional approach is to measure productivity as the ratio of output to input, or products to resources used. This is not always relevant. Many companies today are more interested in measuring total productivity than only labour or capital productivity. Total productivity measures reflect the