Obtaining accurate and complete information on the company's performance with a productivity formula is essential.l for various aspects. Such as determining the starting situation, the position vis-à-vis the competition, the obstacles that hinder evolution and the failures committed in order to establish possible solutions and design the company's future strategy.
Therefore, at the business level there is a formula for calculating productivity that provides this overall picture on business efficiency.
When we talk about overall productivity, we are referring to how well an economy's resources are being used in the production of goods and services. In other words, what is the management efficiency and administration of these resources.
“We can define it as a relationship between resources used and outputs produced and denotes the efficiency with which human resources, capital, land, etc. are used to produce goods and services in the market”, according to the definition in Productivity: A Case Study in a Claims Department by Erica Felsinger and Pablo Manuel Runza.
In contrast to other partial indicators, which focus on a certain aspect of business activity (such as the worker productivity, (e.g., of machinery or of a process), the overall productivity index provides a comprehensive picture of the company's situation.
In this way, it avoids falling into misconceptions about the state of the business, which can undermine decision making because it does not have a formula for effectiveness.
For example, the workforce may be highly productive, but this does not mean that the company is highly productive, as the advantage provided by the workers may be destroyed by a serious inefficiency in the distribution channels.
As Julián Jiménez and Carlos Paredes point out, in their work Factors influencing the level of productivity of the Dypers company, the total productivity measure reflects the combined impact of all inputs in the production of products”.
How is this overall productivity index calculated? The productivity formula is ‘a priori’ simple and consists of dividing the productivity obtained and the consumption of all the factors used for it.
Global Productivity = Production obtained / Factors used
For example, a car factory has 5 workers (with a daily wage of 100 euros each) who manufacture 10 vehicles each day, whose selling price amounts to 30,000 euros. To do this, the company allocates a large amount of machinery, which costs 50,000 euros per day, plus another 25,000 euros in raw materials.
Thus, in the calculation of productivity, the formula for this assumption would be:
10 (cars) * 30.000 € / (5 workers * 100 €) + (50.000 € machinery) + (25.000 € material) = 3,9
This figure indicates that productivity is positive if it is above 1 (as is the case) or, conversely, that it is negative if it is below 1.
However, if we want to get as accurate a reflection as possible of the reality of the organisation, then overall productivity is not set up in such a simple algorithm.
Numerous factors must be taken into account which affect business activity and which are not always expressed in the same magnitude (currency, time, numerical valuations, etc.).
Thus, first of all, it would be necessary to convert the different units into a homogeneous quantity, usually a currency. But what about those intangible aspects such as reputation, brand image, organisational culture, the employee satisfaction index...
Its quantification can be more complex and subjective. Hence, it is very difficult to get an exact result on overall productivity when it is clear what the productivity formula should look like.
