Module 6: Productivity

Chapter 1: Productivity

Chapter 2: Single-Factor Productivity

Chapter 3: Total Factor Productivity

Chapter 4: Quantitative and Qualitative factors

Quiz 6 & Next Module

Lesson 1 of 5

Chapter 1: Productivity

By completing this chapter, you will understand the concept of

‘Productivity’.
Learning Objectives for Chapter 1

Understand what productivity means.

Calculate the input-output ratio.

Learn about the benefits to society, the economy and the

environment.

Understand the productivity process in terms of effectiveness,

efficiency, and utilisation.

Distinguish between different types of productivity.

1
What is Productivity?
Productivity is ultimately the study of Operations Management. Operations
management is the management of a business’s physical resources necessary to
produce goods and/or provide services. It deals with a business’s output.

Have you ever wondered why some business organisations are very successful? Some
are only moderately successful or marginally successful, while others fail altogether.
The answer lies in the concept of the “survival of the fittest.” Businesses survive only
so long as they are productive. They must produce goods and supply services that
generate revenues exceeding the costs incurred in producing them, providing a
surplus (i.e. profit).

Productivity is an organisation’s central issue. All objectives and purposes aim to

increase productivity. Productivity is about utilising whatever inputs are available to
the fullest.

An organisation’s productivity is defined as the ratio of outputs produced by the

organisation to resources consumed in the process.

Productivity is thus a measure of how well resources have been used (inputs
transformed into outputs). The more efficiently a company uses its resources, the
more productive it is.

Simply put, productivity is the ratio of what is produced to what is required to produce
it. It looks at the amount and quality of work related to the time, effort, money, and
energy needed to produce it.

2
 Inputs and outputs

For production to occur, inputs must be transformed into something else—outputs. The output
consists of goods that differ physically from material inputs. Let’s take the example of baking a

cake. The inputs will be sugar, flour, eggs, etc. These ingredients are transformed into an
output—the cake. We will look at different types of inputs in more detail later in this guide.

How Do we Calculate Productivity?

Productivity is the ratio of outputs (goods and services) to inputs (such as labour and
materials).
The ratio can measure any productivity ratio, such as the productivity of one employee, many

employees, a machine, a whole department or even a company.

When examining a process's productivity, measuring the existing process's productivity is

crucial.

This measure of productivity can be used to measure the productivity of one worker or many, as
well as the productivity of a machine, a department, the whole firm, or even a nation.

Total productivity measures all inputs combined, such as labour, machines, and capital.

For example, a company produces the equivalent of R10,000 weekly output as finished

goods. The weekly value of all the inputs combined—including labour, materials, and
other costs—is R 5,000.

Total productivity for the week for the company is

Total Productivity = output/input = R10,000/R5,000 = 2.0

Although total productivity is valuable in giving a company a sense of how it is doing
on the whole, it is often much more helpful to measure the productivity of one
variable at a time. This allows us to evaluate how efficiently various resources are
being used. Partial or single-factor productivity is when we compute the ratio of
output relative to a single input. For example, we can compute machine productivity
or labour productivity. For machine productivity, we can see how many units a
machine is processing over a certain period; similarly, for labour productivity, we can
compute how many units a worker can process over a certain period, such as a day,
hour, or month. This guide will look at single-factor and total-factor productivity in
more detail.

Core values and productivity

What are core values

Core values are attributes shared by key stakeholders in the organisation. They define
the brand identity and describe the organisation’s standards. A company’s core values
are the guiding principles that help determine how the corporation behaves. They are

usually expressed in the corporation’s mission statement.

How can core values increase productivity and efficiency?

Core values increase productivity by aligning personalities and standards in a

workplace. This increases efficiency by focusing on the most productive work or

eliminating the work that is not.
When recruiting new staff, look for someone who complements your existing team. If
you acknowledge what traits your staff share that makes them work together
effectively and look for those traits in a new hire, you know you’ll build a stronger

team.

This can be taken further by keeping those traits identifiable to all stakeholders.
Likewise, not taking on a client or vendor who doesn’t share your core values helps
you avoid situations that won’t be a good fit.

If, for example, one of your company’s core values is creativity, a project without
room to propose new or innovative solutions will fail. Unhappy teammates create an
unhappy work environment, which could result in the product suffering. Clearly
stating our core values increases efficiency because it enables us to focus on what will
be more productive in the long run.

Examples of core values for a company include:

Client satisfaction.

Continuous learning and growth of staff members.

Waste elimination.

Quality products/services.

A commitment to sustainability and to acting in an

environmentally friendly way.

A commitment to innovation and excellence. Apple Computer is

perhaps best known for its commitment to innovation as a core
value, embodied by its “Think Different” motto.
 A commitment to doing good for the whole. Google, for example,
believes in making a great search engine and building a great
company.

How do Operational Policies and Procedures Affect Performance?

Company policies and procedures prescribe how to deal with, amongst others, the

following operational aspects:

How will performance and productivity be measured and

improved in the organisation?

How will top management monitor and control the overall

performance of the organisation?

How are physical resources required, and in what quantities?

How and where will the resources be used? What are the tasks
and responsibilities of each department?

Examples of company policies and procedures include:

 Financial policies and procedures.

Maintenance of equipment, machinery and vehicle policy.

Marketing and product policy.

Health and safety policies and procedures, etc.

Benefits of productivity to society, the economy and the

environment

Benefits to society
Increasing productivity in a country will lead to greater well-being and more well-
being options such as quality healthcare and education, good roads and
infrastructure, safer communities, and sustainability of the environment.

Many South Africans are poor, and this is a direct result of high unemployment. Low
skill levels mean that people have to work for a minimum wage.

More jobs will lead to more people improving their standard of living. Businesses will
then have to increase productivity to meet growing demands, and more people will be
employed. The money earned eventually returns to the economy, and the cycle
repeats.
Economic Benefits

Environmental benefits
When resources, specifically natural resources, are used effectively, they contribute to
the sustainable development of the environment.

In South Africa, natural resources such as aluminium, copper, iron, steel, phosphorus,
and paper provide essential inputs for production. Apart from production, the
extraction, processing and ultimate disposal of materials are an indispensable source
of income and jobs in many countries. These activities also impact the environment to
a greater or lesser extent. Natural resources are also part of the ecosystems that
support providing services such as climate regulation, flood control, natural habitats,
amenities and cultural services necessary to develop manufactured, human and social
capital.
Productivity will only contribute to sustainable development if businesses use
environmentally friendly practices. If these are destroyed, nothing will remain in the
future.

Effectiveness, Efficiency and Utilisation

In the long run, only those organisations survive that serve the needs of their
customers, societies, and the world in general, ‘effectively’ and ‘efficiently’, that is,
that provide the benefits demanded by their customers or clients at prices sufficient
to cover the costs incurred in producing them.
If a business wants to be successful, it has to consider the following factors:

Excellent customer service.

Low manufacturing cost.

Exceptional quality.

Reliability.

Dependability.

Good product design.

Innovative ideas.

Organisations, including businesses, can plan and implement changes in their

fundamental character and structure, although not all do so. Such changes can be of
two types, namely:

Those that affect the relationship between the organisation and

its environment.

Those that affect the internal structure and operating activities of

the organisation.
Typically, environmentally related changes affect the organisation’s effectiveness
more than internally oriented changes, which usually have a greater influence on its
efficiency.

Productivity, then, is a combination of effectiveness and efficiency.

Utilisation of resources
The kinds of physical resources that are used in a business affect how productive the
business is. The operations manager has to manage the selection of the physical

resources. The production process starts with the inputs, which are the physical
resources needed to create the services or products. If the incorrect resources are
used, the outputs will not meet the required performance standards. Resources that
affect productivity include:
 • Human resources

• Equipment, machinery and tools:

• Raw materials

• Procedures/methods

Human resources

Human resources play a fundamental role in businesses. Employees and staff need the skills,
knowledge, and experience to perform the required tasks. If untrained people are selected to do
a particular task, it will directly affect the production process.

Employees may need additional training to perform a task to the required standard.
Many companies try to improve efficiency by cutting down on the most expensive resource,
labour. However, workers are the key to improving productivity. Technology relies on people to
use it effectively and efficiently. Businesses, therefore, need to be committed to the following:

Providing training to create a skilled workforce that will add value.

Improving general work conditions and quality of work life.

Improving labour- and employer relations.

Equipment, machinery and tools

Equipment, machinery, and tools: These include the hardware used to produce the goods, such
as heavy machinery, tools and implements, computers, furniture, etc. New equipment and the
latest technology should always be investigated as they could improve productivity.
Raw materials

Raw materials are substances in human labour or industry processes to create products or
structures.

These materials often originate from natural sources and are either unprocessed or minimally
processed.

Examples include latex, iron ore, logs, and crude oil.

When selecting raw materials, it's crucial to consider factors such as availability, quality, and
quantity. For instance, consider the quality of paper used in printing a textbook. The paper
must be high-quality to ensure the textbook endures for several years.

Procedures/methods

Procedures/methods: The procedures used in the production process directly affect efficiency.
The correct methods and procedures should be used to reduce costs and eliminate wasteful
practices.

Different types of productivity

We know by now that productivity may be defined as an index that measures output
(goods and services) relative to the input (labour, materials, energy, etc., used to
produce the output).

Hence, two primary ways to increase productivity are to increase the numerator
(output) or decrease the denominator (input). Of course, a similar effect would be
seen if both input and output increased, but output increased faster than input, or if
input and output decreased, but input decreased faster than output.

However, there are different types of productivity, as there are different inputs, and
some processes, for example, use more than one input for one output.

We can differentiate between single-factor productivity, multi-factor productivity,

total factor productivity and value-added productivity.

Single and total factor productivity

The most basic measurement is single-factor productivity, or partial-factor
productivity, which calculates the productivity of one input as a ratio to output.
Single-factor productivity measures are easier to relate to specific processes. The
main single-factor variables are output/labour, output/machine, output/capital,
output/energy, and output/materials. Material and energy input and output fall under
intermediate productivity.

Single factor measures thus include:

Labour productivity (using labour hours).

Capital productivity (using machine hours or Rand invested).

Energy productivity (using kilowatt hours).

Materials productivity (using inventory Rand).

Calculating Bakery Oven Productivity: Example Analysis

By referring to our previous example of the bakery, let’s calculate the productivity of a bakery

oven. A bakery oven produces 30 cakes in 15 hours.

Machine productivity = number of cakes / oven time Productivity = 30/15 = 2

cakes per hour

Total productivity is calculated by measuring all the inputs (such as labour, machines,
capital, and materials) and the total outputs. That is the productivity of the total
company. Concentrating on the productivity of individual inputs into a process can
improve the productivity of one resource input and deteriorate another.

For example, an increase in labour productivity could result in a decline in machine

productivity.
Therefore, it is necessary to be able to check and compare a process's overall
productivity, taking into account all inputs. For this, we use total factor productivity.

We will again use the bakery as an example. The value of the bakery's outputs for the
week is R 80 400. The value of capital, labour and materials inputs is R60 400. The
productivity ratio for the bakery would be calculated as follows:

Total productivity = 80400 / 60400 = 1331

The equation below represents total output (Y) as a function of total-factor

productivity (A), capital input (K), labour input (L), and the two inputs' respective
shares of output (α and β are the capital input share of contribution for K and L
respectively). An increase in either A, K and L will lead to an increase in output.

While capital and labour input are tangible, total-factor productivity is more
intangible, ranging from technology to workers' knowledge (human capital).

The Cobb-Douglas equation is given by:

Y = A x Kα x Lβ

This is what each letter represents in the equation:

Y: Total product

A: Total factor productivity (TFP)

K: Available capital.

α: Elasticity of the capital.

L: Labor (human resources).

 β: Elasticity of human resources.

Technology Growth and Efficiency are regarded as two of the biggest sub-sections of
Total Factor Productivity. Total Factor Productivity is often seen as the real driver of
growth within an economy, and studies reveal that whilst labour and investment are
essential contributors, Total Factor Productivity may account for up to 60% of growth
within economies.

Solow assumed a very basic model of annual aggregate output over a year (t). He said
that the output quantity would be governed by the amount of capital (the
infrastructure), the amount of labour (the number of people in the workforce), and
the productivity of that labour. He thought that labour productivity was the factor

driving long-run GDP increases.

The Solow residual originated through the works of Robert M. Solow, an American
economist. It is a value that measures changes in productivity growth in a Solow
growth model, which describes an entire economy's production function. Productivity

growth refers to rising output occurring with constant labour and capital input.

The Solow residual describes productivity growth in an economy from year to year
and decade to decade. Robert Solow defined rising productivity as rising output with
constant capital and labour input. It is a "residual" because it is the part of growth

that cannot be explained through capital accumulation or increased labour. According

to the Solow Residual, the output quantity will be governed by:

The amount of capital,

The amount of labour,

The productivity of that labour

Adding value

(Business Management – A Value Chain Approach)

An organisation is an internal system with linked activities (functions) and external

links to other role-players. Therefore, businesses are viewed as a series of inputs from
the environment, internal processes, and eventual outputs, as seen in Figure 1.

Figure 1.

A business can survive only if it adds value to its processes. Resources are what a
business uses to pursue its ends. They are the inputs that the business converts to
create the outputs (products or services) it delivers to its customers. The fundamental

role of resources in an organisation is to add value to the processes. Value is added to

resources by working on the raw materials that enter a factory gate or service
business and turning them into a finished product.
Added value = market value of output – cost of inputs.

When calculating the value that is added to an organisation’s resources, it is vital to

consider three areas of costs:

Human resources

Raw materials

Operating costs (excluding raw materials)

Added value is an essential strategic concept. An organisation that adds no value to

the inputs it receives from its environment has no long-term reason to exist.

The operations function focuses on adding value during the transformation process.

In other words, by referring to our earlier example of the bakery, the value of the cake
must be greater than that of the different parts that make up the cake, such as the
flour, sugar and eggs. The greater the value, the more successful the business is
because the profit margin will be higher.

By continuously monitoring the degree of productivity an organisation manages, one

can maximise the returns of an organisation.

Column 1 Institution A Column 3 Institution C

Sales
10 000 28 000 5 000
(outputs)
 Column 1 Institution A Column 3 Institution C

Operating
1 000 3 000 1 000
costs

Wages and
3 000 9 000 2 500
salaries

Raw
5 000 17 000 2 000
materials

Value added: 1 000 (1 000) (500)

Institution A adds value to its inputs, and Institution B is losing value rather than
creating it. If this situation were to continue, B would be in trouble. Institution C also

has a negative value added to its operations as it is also making a loss. From the
definition of value-added (that is, outputs minus inputs), it follows that value can be
added in an organisation either:

By raising the value of outputs (sales) or

Lowering the costs of its inputs (wages and salaries, capital and
material costs) into the business.

Measuring Productivity in the Service Industry

Service businesses produce intangible products, such as information, making evaluating the
quality and quantity difficult. Services are the things that people are paid to do for us, such as

haircuts, medical consultations, bank transactions, etc. These businesses often rely on
customer feedback to measure how efficiently they deliver a service. Industries such as

restaurants use customer feedback forms to evaluate their quality of service and products.

Important terms used when dealing with productivity:

Goods

Tangible things such as a motor vehicle, clothes, books, etc. can be touched.
Work study

Work study is a management tool based on method studies, work measurement, and other
techniques. It is carried out to maximise labour productivity.

Method study

A method study is carried out to simplify the work and develop more efficient working methods
to achieve the maximum from the inputs.

Work measurement

It determines the time an average trained worker takes to complete a specific task in a
particular situation.

C h a p t e r 2 : S i n g l e - Fa c t o r P ro d u c t i v i t y
Lesson 2 of 5

Chapter 2: Single-Factor Productivity

By completing this chapter, you will be able to

measure single-factor productivity and assess the
causes of its levels.

Learning Objectives for Chapter 2

 Measure single-factor productivity.

Identify causes of levels of labour, capital and material

productivity.

Measure single-factor productivity

In Chapter 1, we saw that before attempting to improve productivity, we must first
measure the productivity of the existing process. Single-factor productivity measures
the productivity ratio of each input.

Single-factor productivity is obtained by dividing a process's output (in rand, units,

or value) by its input. The result is expressed as a productivity ratio.

Example
Resources can also be broken down in more detail:

Input:

Plastic feed: 12 labour hours

Mould operation: 12 labour hours

Pack: 6 labour hours

SFP ratio (feed): 50 cups per hour.

SFP ratio (mould): 50 cups per hour.

SFP ratio (packing): 15 cups per hour.

 2

Causes of productivity levels

Single-factor productivity variables include variables such as material, capital and
labour productivity.

Labour productivity is the rate of output per worker (or a group of workers) per unit of time
compared with an established standard expected output rate.

Also known as “worker productivity”, it is the value of goods and services produced in a period,
divided by the hours of labour used to produce them.

Causes of the level of productivity are, however, dependent on more factors than just the

output-input ratio, as can be seen from the following example.

 Example

Michael and Daniel are asked to paint a surface. Michael paints a surface twice as big as Daniel’s
in one hour. What could the reasons be for this?

There is more than one possibility :

Michael is physically more able than Daniel to work fast.

Michael is more motivated – he will get a bigger incentive.

Daniel has not been taught how to paint – Michael is more skilled
and has more experience.
 Michael has much better equipment than Daniel – he has all the
modern paintbrushes and tools.

Factors Affecting Labour Productivity

The factors affecting labour productivity or the performance of individual work roles
are broadly the same as those affecting the performance of manufacturing firms as a
whole. They include:

Physical, organic, location, and technological factors.

Cultural belief, value and individual attitudinal, motivational and behavioural

factors.

High unemployment and poverty.

High HIV/Aids rate.

Individual rewards and payment systems.

The effectiveness of personnel managers and others in recruiting, training,

communication and performance.

Motivating employees based on pay and other incentives.

Absenteeism.

Non-availability of material and equipment.

Education, training and development – skills shortages.

Leadership and supervision.

Manager-employee relations.

Organisational culture.
High unemployment and poverty

High unemployment and poverty mean that many people are poor and do not have money to
buy goods and services. However, they have buying power through increased employment
opportunities, and the money spent flows back into the economy to increase employment,
decrease poverty, and increase productivity.

A high HIV/Aids

A high HIV/Aids rate causes people to be too ill to work; this affects their household economies
as well as economic growth and productivity in the country.

Poor management

Poor management-employee relations also hurt productivity.

Material productivity
Material productivity indicates the output or value added generated per material unit
used. The more efficient the material input, the higher the material productivity.
Productivity increases if little material is wasted and less material is used to produce

the same amount of product.

Factors that can cause material productivity to be low include:

Quality of material.

Cost of material.

Material wastage.
 Continuous availability of material.

Optimal usage of material and competitive procurement.

Materials not immediately available.

Poorly managed flow of materials in the supply chain.

Unskilled workers.

Poor stock control.

Inefficient operations.

Quality of material

Poor quality material will lead to material waste, resulting in a lower output.

Cost of material

If raw materials have to be imported, the production process cost increases.

Materials not being available on time

This affects work schedules and the delivery of products and services on time.

Unskilled workers

Workers who must be adequately trained to use raw materials efficiently and effectively cause
time delays or products with defaults or poor quality.

Poor stock control

If the stock list is not controlled, it wastes space, time and money.

Capital productivity
Capital productivity measures the effectiveness and efficiency of capital investments
in generating operational outputs. It is defined as the ratio of output to capital input.

Economic growth depends on the outputs generated by capital output.

This type of productivity takes account of human-made goods or goods made to

produce other goods or services, such as machines and equipment.

The capital-output ratio is the ratio of capital used in a process to

a specific period.

Capital goods include machines, land, buildings, equipment and

money invested in business.

Capital productivity is measured as actual output per unit of

capital services.

Capital input measures the services derived from the stock of

physical assets and software used in production. The assets
included are fixed business equipment, structures, inventories,
and land.
 Factors affecting capital productivity include:

Project delivery performance.

Operational efficiency.

Machine breakage.

Machine idling.

Planned maintenance.

Purchasing, maintenance and position in the depreciation cycle.

Poor project delivery performance and control

Budget and schedule overruns will negatively affect capital productivity as project targets will
not be met.

Operational efficiency

It can be maximised through improved equipment availability and utilisation processes and
skills.

Machine breakage
If a business does not invest money to continually improve its capital stock by upgrading old
machinery or buying new machinery, productivity will decrease. Businesses must also ensure
that the right equipment and machines are used for producing goods.

Example

The percentage increase from 160 units to 200 units: (200 – 160) / 160 = 0.25 = 25%

If 160 units were produced in the base year and 200 in the following year, 25% more units were

produced.
The percentage decreased from 200 units to 160 units: (200 – 160) / 200 = 0.2 = 20%

If 200 units were produced in the base year and 160 in the following year, 20% fewer units were

produced.

The following table illustrates percentage changes in the total number of the same
units sold:

Year Total Units Sold Percentage Change

1 500

2 550 10% up from year 1

27% down from year

2
3 400
20% down from year
1

5% up from year 3

4 420 24% down from year2

16% down from year1

C h a p t e r 3 : To t a l Fa c t o r P ro d u c t i v i t y
Lesson 3 of 5

Chapter 3: Total Factor Productivity

After completing this chapter, you will be able to measure total

factor productivity and assess the causes of different levels of
total factor productivity.
Learning Objectives for Chapter 3

Measure total factor productivity.

Include all input/output items.

Specify Total factor Productivity for a section or department.

Total Factor Productivity

Inputs that are included in calculating total factor productivity are:

Inputs of capital (K) are human-made objects such as buildings and

machines, land, and all-natural resources.

Labour (L), which is physical labour

Intermediary inputs such as energy (E)

Intermediate goods, such as services (S)

Source: FET College Series Personal Assistance E du Toit, B Hutton, R

 Smorfitt

The following table illustrates different types of input and what is usually measured:

Measure TFP using the input-output ratio

Input What it includes What is measured

Technology,
equipment, Unit s of output per rands-
machinery, tools, and-cents input, or rands-
K: Capital
and their costs and and-cents value of output
contribution to per rands-and-cents input

productivity.

The costs and Units of output per labour

contribution of the
L: Labour hour and output per shift
workers to
productivity. value added per labour hour.

The type and costs of

energy used to
produce the outputs, Units of output per kilowatt-
hour or rands-and-cents
E: Energy for example, pie,
value of ouput per kilowatt-
electricity, solar hour
power (from the
sun), gas, etc.
 Input What it includes What is measured

Natural resources

M: Materials and raw materials Unit s of output per machine

productivity are used to produce hour.

the output.

Services in the
company that
support the product
on function include
the services manager
and team, research Units of output per labour
S: Services
and development hour.

team, or services that

are hired for a
limited period to
assist with

production.

Source: FET Training Colleges Personal Assistance Textbook

In this chapter, our focus is on understanding the concepts and theories rather than

performing detailed calculations. The formulas provided, such as those for total factor
productivity, are here to help you see how these concepts can be quantified and
applied in practical scenarios. You do not need to be able to use or calculate these
formulas yourself. These are included as additional information to enhance your
comprehension of the material and to provide a fuller picture of how these economic
principles operate in real-world contexts.

Feel free to focus on the theoretical aspects and the implications of these

calculations rather than the mathematical details.

Me a s u r i n g To t a l Fa c t o r P ro d u c t i v i t y

Total factor productivity (Y) is measured in a particular year (t). This is done by
working out the following:

The combined multi-factor productivity (A) – of two inputs used in a year (t).
Capital input (K) and labour input (L) are the two inputs.

How much has each input contributed on its own to total productivity?

Capital’s contribution on its own is shown as K(t)(α)

Labour’s contribution on its own is shown as L – α (this is labour’s contribution less

capital’s contribution)

The formula used to measure total-factor productivity is:

Y(t) = [K(t)^]α[A(t)]^(L-α)

Where:

Y(t) = total production in a particular year

K(t) = capital that was used in that year

K(t)(α) = capital’s contribution on its own to total-factor productivity

L(t) = labour that was used in that year

A(t) = the combination of labour and capital in that year

L – α = labour’s contribution on its own to total-factor productivity

In this formula, the productivity of the business is calculated using two factors: labour
and capital.

Index tables

Productivity can be measured by comparing it in different periods (t) or across various

businesses.

We can measure current productivity, compare it to the previous year or years, and
compare it to that of another business.

An index table shows a starting point or year—the base year is the year the table starts
with. Productivity in the following years is then compared to the base years.

Following is an example of an index for the labour productivity of steelworkers:

Output
Number of Tonnes per
Year p/a Index
Workers Worker
(Tons)

1 41 100 450 91.3 100.00

 2 44
Output
280 460 96.3 105.5
Number of Tonnes per
Year p/a Index
Workers Worker
(Tons)
3 42 340 455 93.1 102.0

4 45 000 470 95.7 104.8

5 50 212 470 106.8 117.0

Source: Personal Assistance FET College Series)

The index for the base year (year 1) is 100, and 91.3 outputs per labour unit were
achieved per worker. The productivity rates for all other years are then compared with
the base year. In year 2, 10 extra workers produced 96.3 tonnes each.

The percentage increase from 91.3 to 96.3 is 5.5%, calculated as follows:

(96.3 – 91.3) / 91.3 x 100 = 5.5%.

The productivity increased by 5.5% from year 1 to year 2. We see this in the index
figures, which are 0 in year 1 and 105.5 in year 2. From the indices, the increase from
year one to year 4 is 4.8%, and so on.

Productivity can also be measured in rands and cents or monetary value. For example,
if the total value of products produced in a particular year was R 10,000 and the
following year R 15,000, then the output has increased by 50%.

However, it is vital to consider the inflation rate for each year. Monetary values that
exclude inflation are regularly deflated values.
Example: If prices have risen by 5% from the base year, then the current price must be
divided by 1.05 to deflate the price to the base-year price.

Total factor productivity for sections, departments or organisations

Productivity in countries and economic sectors

Governments worldwide commonly use productivity figures to report on economic
growth and performance in different sectors of the economy. Labour statistics are
collected for use in day-to-day operations, and labour indices are drawn up regularly.
The GDP (Gross Domestic Product) indicates economic growth, and figures are
compared to previous years or other countries. GDP is the rands-and-cents value of a

country's goods and services during a year.

High GDP means more capital in a country and producing more outputs without using
more inputs such as labour and capital.

Productivity is also compared across different economic sectors. Economic sectors

are, for example:

Mining

Agricultural

Tourism

ICT and electronics

Manufacturing
 Financial

Chemicals

Governments use the information to establish how well the different sectors use
resources to produce goods and services and for decision-making and strategic
planning. Public and private sector productivity are also compared using productivity
figures.

South Africa's Labour Productivity Growth from Mar 2009 to Dec 2023

South Africa Labour Productivity Growth

2009 - 2023 | QUARTERLY | % | CEIC DATA

STLOUISFED
Total Factor Productivity at Constant National Prices for
South Africa | FRED | St. Louis Fed
Graph and download economic data for Total Factor Productivity at Constant
National Prices for South Africa from 1954 to 2019 about South Africa,
production, and price.

READ MORE STLOUISFED 

Measures for labour productivity performance in a country include

Rate of economic growth

Human-development factors

Employment rate

Human capital

Productivity in organisations
Productivity growth is vital for businesses because providing more goods and services
to consumers translates to higher profits. Organisations measure productivity to have
control and to determine if the organisation is doing well. It also explains how
effectively and efficiently an organisation manages its resources.

Businesses and organisations will mostly use value added as a measure of output.

Wealth is generated by the combined efforts of those who work in the organisation
(employees) and those who provide the capital (investors).

Why Use Value Added?

Value added is a better measure of output for the following reasons: It measures an
organisation’s actual output. Sales measure the rand value of the output generated.
Value added, on the other hand, shows the net wealth created. It is the difference
between sales (what the customer pays the organisation for the products or services)
and purchases (what the organisation pays suppliers for materials and services to
generate the sales).

Value added excludes supplies that do not result from the

organisation’s efforts.

It provides a customer-centric perspective and focuses on the

actual value created by the organisation.

Value added is measured in financial units, allowing aggregation

of different outputs. It is easy to calculate.

Value added can be easily derived from an organisation’s profit

and loss statement. There is no need to set up a separate data
collection system. It is an effective communication and
motivation tool.

Value added provides a common bond between employers and

employees to achieve the goal of increasing the economic pie
shared by both parties. The higher the value created by the
 collective effort, the greater the wealth distributed to those who
have contributed to it.

It applies to both the manufacturing and service industries. Value

added is calculated in the same way for both industries.

Unlike physical indicators, value-added can measure the output

of service industries, which is often intangible.

The following diagram illustrates the value-added process:

Teams or departments in a business or organisation
Productivity can also be measured in sections of a business. Output for different teams
or sections can then be compared to help managers make decisions to improve
production.

For example, a team leader in a claims department can compare the number of claims
processed by each team per month over a couple of months. If there are significant
differences in performance between the teams, then all the possible causes for the
level of productivity must be examined, and an action plan must be developed.

Example

Month Team A Team B

1 120 130

2 90 110

3 106 91

4 110 80

Total 426 411

Team A has completed more claims over four months. However, Team B processed the
most claims in one month, namely 130 in month 1. From there, their output declined

sharply and dropped to the lowest output of 80 in month 4. The team leader or
manager should now look into possible causes for decreased production and take
appropriate action.

Improving productivity
The following are ways to improve productivity in a business, section or organisation:
 Invest money and time to motivate and train employees to do
their work efficiently.

Identify what needs to change – Review technology and

machinery currently in use.

Plan the changes– what they are, when they will happen, and
how they will be implemented.

Each employee must have a job description. Plan the changes–

what they are, when they will happen, and how.

Each employee must have a job description.

Training programmes must be planned and implemented.

Processes must be analysed and changed where necessary.

Use appropriate resources.

Establish customer satisfaction levels.

Conclusion
As seen from the previous chapters, productivity is measured differently. The choice
between them depends on the purpose of productivity measurement and, in many

instances, on data availability. Broadly, productivity measures can be classified as

single-factor productivity measures (relating a measure of output to a single input
measure), multifactor productivity measures (relating a measure of output to a
bundle of inputs), and value-added.
Table 1 uses these criteria to enumerate the main productivity measures. The list is
incomplete insofar as single productivity measures can also be defined over
intermediate inputs, and labour, capital-, and multifactor productivity can be
evaluated based on gross output.

However, in the interest of simplicity, Table 1 was restricted to the most frequently
used productivity measures. These are measures of labour and capital productivity
and multifactor productivity measures (MFP), either in the form of capital-labour

MFP, based on a value-added concept of output or in the form of capital-labour-

energy-materials MFP (KLEMS), based on a concept of gross output. Among those
measures, value-added-based labour productivity is the most frequently computed
productivity statistic, followed by capital labour.

MFP and KLEMS MFP.

Table 1

Type of Input Measure

Capital,
Labour &
Type of Intermediate
Capital &
Output Labour Capital Inputs
Labour
Measure (Services,
Materials,
Energy)

Capital
Labour Capital
Labour
Productivity Productivity KLEMS
Gross MFP
(Based on (Based on Multifactor
Output (Based on
Gross Gross Productivity
Gross
Output) Output)
Output)
 Capital
Labour Capital
Labour
Productivity Productivity
Value MFP
(Based on (Based on
Added (Based on
Gross Gross
Gross
Output) Output)
Output)

Single Factor Productivity Multifactor Productivity

Measures Measures

These measures are not independent of each other. For example, various driving
forces behind labour productivity growth, one of which is the rate of MFP change, can
be identified.

(Source: [Link] website)

Note: Total- and multi-factor productivity is not necessarily the same

thing!

C h a p t e r 4 : Q u a n t i t a t i ve a n d Q u a l i t a t i ve f a c t o r s
Lesson 4 of 5

Chapter 4: Quantitative and Qualitative factors

Upon completing this chapter, you will be able to measure

qualitative and quantitative factors that influence productivity.
Learning Objectives for Chapter 4

Identify and measure quantitative and qualitative factors.

Identify causes of current levels in quantitative and qualitative

factors.

The influence and importance of factors.

Quantitative Factors
Quantitative factors

Quantitative factors are numerical outcomes from a decision that can be measured. These

factors are commonly included in various financial analyses, which are then used to evaluate a
situation. Managers are typically taught to rely on quantitative factors as a large part of their

decision-making processes.

Examples of quantitative factors are:

While quantitative factors should form a large part of any decision, other issues
should be considered. For example, the outcome of a decision to shut down a factory
will impact the local community, which has supported the business for many years.
The numbers may state that a single product within a product line should be
cancelled, but the company needs to present a complete product line to its customers

and, therefore, elects to retain the product.

The decision to use quantitative factors is considered more important when a large
amount of funding is deployed since there is a greater risk of losing or at least
underutilising the money. Quantitative factors are less important when there is less
money for the decision to impact.

2
 The influence of quantitative factors on productivity
Some quantitative factors that influence productivity are:

1. Wastage

Wastage happens when any resource does not add value to the product or service. Scrap and
rework are forms of waste in services and manufacturing.

Waste in people is idle time, excess motions, work-in-progress inventory, and over-
production. Idle time of equipment, excess inventory, excess capacity and unnecessary
movement of materials are also forms of waste.

2. Environmental factors

Environmental factors can influence the performance of a process. An example is the

unemployment rate, which can impact absenteeism, labour turnover, and the length of time it
takes to hire new employees.

3. Efficiency

The higher the efficiency of a process, the higher the productivity or performance of the
process.
For an economy to be economically efficient, it has to be on its production-possibilities
frontier. More could be produced with the given resources and technology if not on the
production-possibilities frontier.
Because greater production would increase value, any position below the production-
possibilities frontier is inefficient.
To be on the production-possibilities frontier, all resources must be used.

Unemployed resources indicate that more goods and services could be produced, which means
the economy was not initially on the frontier. In addition, resources must be used properly. If
society randomly assigns people to jobs or assigns jobs based on political reliability, it will not
produce as much as it could. It will require some people with little intellectual ability to perform
jobs requiring great intellectual ability, and it will require some people with little strength and
endurance to perform jobs requiring much strength and endurance. If switching people among
jobs can increase output, the original situation was not on the production-possibilities frontier
and thus not economically efficient.

4. Utilisation

Utilisation of resources, be they human, material, financial, capital, or other, is vital for
maximum productivity.

Resources should be utilised effectively and efficiently.

Manufacturing companies, for example, rely on efficient processes, which pay off for the
company and the environment. By utilising fewer resources more effectively, emissions and
waste could be reduced, together with higher yields.

5. Capital, labour, materials

These are the most significant quantitative factors that influence productivity.

Measure quantitative factors

Since quantitative factors are countable, they can easily be measured in terms of
money or quantitative units. We saw earlier that labour output could be measured in
labour hours, capital output in machine hours, energy in kilowatt-hours, and
materials in rand.
Human resource costs, such as employment costs, can be measured, for example, the
cost per hire of employees and the cost of training.

When determining cost per hire, various decisions must be made regarding source

cost, staff time, management time, processing cost, travel, and miscellaneous costs.

Training costs include elements such as the cost of literature/information, costs of

instruction in a formal training programme, and costs associated with on-the-job
training.

Output can be measured as products per hour (quantitative units) or rand, and
productivity can be quoted in percentages or ratios.

The productivity of a department in a factory is the number of products produced per

worker per labour hour. The number of products per hour is the output (e.g. 5 per

hour); the labour expended is the input. For instance, a typist's productivity could be
the number of letters typed per hour, while a supermarket checkout clerk's output
would be the number of items checked (or sales) in a day. The only limit to applying
productivity is obtaining a reliable output measurement.

These figures can be converted to Rand. The value added to the product by the factory
department’s operation may then, for example, be R10 each, or a total of R50. If a
worker is paid R10 an hour, then the productivity of the assembly operation would be
R50 divided by R10, or 5:1.

Ratios can also be converted to percentages. For instance, the 5:1 ratio can be

expressed as 500 percent. When present productivity is compared to previous

productivity, it is usually expressed as a percentage increase or decrease.

For example, if a department's productivity ratio was 3:1 last year and it improved to
3.5:1 this year, it would be correct to say that productivity had improved by:

(3.5 – 3) / 3 = 0.17 = 17%

It is difficult to establish exactly how productive a specific operation is, but you can
easily tell whether productivity is improving or declining.

There are four basic possibilities:

If output remains the same but costs go up, productivity is

declining.

If output remains the same but costs go down, productivity is

rising.

If output goes up and costs remain the same, productivity is

rising.

If output goes down and costs remain the same, productivity is

declining.

Refer back to Chapter 1, where we explain how to measure these

factors.

How some quantitative factors influence productivity

Labour turnover in SA
Staff turnover in SA is as high as ever. While “new blood” in a company can be
desirable for the new ideas and breath of fresh air it brings, constant and excessive
turnover could harm an organisation’s productivity. Excessive labour turnover
impacts a company’s finances, image, and staff morale, resulting in negative
productivity shifts.

Employers may argue that nobody is irreplaceable, but if a company is experiencing

rapid turnover that hurts its overall business output, it is time to slow things down.
Companies experiencing excessive labour turnover should look carefully at what is
causing this and take immediate steps to rectify the situation.

Unemployment in SA

The number of employed persons rose by 399,000 to 16.7 million in the third
quarter of 2023 compared to the previous quarter.

Concurrently, the number of unemployed persons decreased by 72,000 to 7.8

million during the same period.

Those not economically active for reasons other than discouragement decreased
by 160,000 to 13.1 million, with discouraged work-seekers also declining by
26,000.

Consequently, there was a net decrease of 186,000 in the not economically active
population.

These shifts led to a decline in the official unemployment rate by 0.7 percentage
points from 32.6% to 31.9%.

Under the expanded definition, the unemployment rate decreased by 0.9

percentage points to 41.2%.

Despite improvements, youth unemployment remained a concern, with the

number of unemployed youth (15–34 years) decreasing by 174,000 to 4.6 million
and an increase of 237,000 in employed youth to 6.0 million.
The government, labour, and businesses are making efforts to redress the
deteriorating unemployment situation in the country and create labour-intensive
jobs. Therefore, the government's main focus and top priority is to create sustainable

jobs for the unemployed, particularly jobs for the youth population. They primarily
consider how worsening unemployment could have a ripple effect and compound
other socioeconomic problems.

Source: Statistics South Africa on Quarterly Labour Force Survey

Quarter Three 2023

Quantifiable factors that influence labour productivity include:

Labour efficiency

Utilisation of labour

Absenteeism

Labour turn-over

Qualitative factors
These factors inform a business decision but cannot be expressed numerically.
‘Quality’ means how well a product, process or service meets its specifications.

Operational quality factors

Quality means conformance to specifications or requirements. Quality factors include
communication, leadership, supervision, employee relations, education, training and
development, organisational culture, management style, motivation, and job
satisfaction.

For example, if an organisation's training and development are of a high standard, it

will produce competent, skilled employees who will positively impact productivity.

Quality leadership, supervision, and management will help an organisation achieve its

goals and objectives effectively and efficiently. It will also result in motivated
employees and job satisfaction.

Products
From a customer’s perspective, the quality of products and services is essential.
Quality attributes that have been identified for products are:

Conformance

Performance

Features

Reliability

Durability
Serviceability

Aesthetics, Perception
Services
Quality attributes that have been identified for services are:

Reliability

Responsiveness

Assurance

Empathy

Tangibles

Other qualitative factors are:

employee morale

schedules and other internal elements

relationships with and commitments to suppliers

effect on present and future customers

long-term future impact on profitability

management

customer orientation

human resources

supply or value chain

green productivity

motivation

job satisfaction

Qualitative measures include information based on policy decisions, public

involvement, intergovernmental coordination and community support. In some
 decision-making situations, qualitative aspects are more important than immediate
financial benefits from a decision.

The Importance of Quality

Quality in all dimensions is paramount. Quality management will result in the right decision

being made, leading to efficient resource allocation. It will also result in better planning and

forecasting. Better management will, in turn, increase motivation. Quality services and
products will lead to customer satisfaction, positively impacting production.

Quality education, training, research and development and internship programmes

will provide the necessary skills to graduates from the university and prepare them
for the job market.
It has become necessary for a business to adapt to change quickly and be competitive
in local and global markets. Competitiveness is based on quality, speed, technical
knowledge, service, and offering customers various products or services.

A business must improve the quality of its:

Products

Working environment

Management/employer relationship

Technical knowledge of workers

The relationship between quantitative and qualitative

factors
Changes in any of the variables discussed above may cause a change in another
variable. Quantitative and qualitative factors are interrelated. Depending on the
factors involved, the organisation's overall production may increase, while that of a
specific department could decline.

Productivity is about improving the quality of outputs, which could mean increasing

the costs of inputs or using the inputs more effectively. Higher-quality products
attract more customers (demand increases), which improves profits, thereby
increasing quantity.
The production process should include discipline, motivation, creativity, and
innovation. Support and reward are also necessary, and significant investment in
human resources should be made to provide training opportunities.

Investing in and improving the technology used in the process of production allows
for greater quality and quantity improvements.

The influence of qualitative factors on productivity

Poor quality in any of the areas discussed above will negatively influence productivity.

Poor communication: Employees will not understand what is expected and cannot

produce effectively. This could lead to increased employee turnover, absenteeism,

dissatisfied customers from poor customer service, higher product defect rates, a lack
of focus on business objectives, and stifled innovation.

Defects in design: Increases production time and labour for materials used, which
decreases output.

Poor employee relations: little support from colleagues makes it difficult to complete
tasks.

Education and training: Employees do not have the necessary skills to complete the
tasks.

The benefits of training employees are:

 Increased job satisfaction and morale among employees, Increased capacity to
adopt new technologies and methods.

Increased innovation in strategies and products and reduced employee turnover.

Enhanced company image, e.g., conducting ethics training. Risk management,

e.g., training about sexual harassment and diversity training.

Leadership: Employees do not have direction and support.

Qualitative factors that influence material productivity are:

Inventories, Manufacturing reports and records, Delivery and purchasing

information

Finalised products, Customer surveys

Suppliers, Materials requirement planning data Suppliers, Materials

requirement planning data

Waste management records/reports

Q u i z 6 & Ne x t Mo d u l e
Lesson 5 of 5

Quiz 6 & Next Module

Congratulations!
You have completed Module 6

Quiz 6
Use the link to go to Quiz 6

QUIZ 6
Module 7: Recruiting and Selection
Use the link to go to Module 7.

MODULE 7