Productivity model

In any business activity, be it a processing or service company, there are a number of inputs
that are summarized in five broad basic groups: materials, machinery, manpower, methods
and the environment. Many authors have agreed to refer to them as 5M. It is important to
recognize that each of these groups is very different from the others but there is a common
factor inherent in all of them: money. It is so obvious that all of the above implies a cost, that
many companies with liquidity problems try to reduce that cost by “cutting back” 5M:
laying off personnel, reducing the quality of materials, reducing the maintenance of
machinery, etc. However, it has been fully demonstrated that these cutbacks to 5M only have
an immediate impact on the profit and loss account but do not solve the problem in the
medium term. Remember that the main source of losses in the processes are the wastes and
these are not solved simply by laying off personnel; on the contrary, sometimes this generates
new waste and the corresponding costs.

If we follow the value stream, within the company these 5M (let us say “what enters the
business”) are combined and transformed into products or services through defined processes.
These processes should be standardized by means of specific parameters that clearly describe
how to obtain the desired performance of each process, thus allowing control of same. As a
result of the processes several outputs are created (i.e., “what leaves the business”): the
products that are produced, the quality of same, their cost, the time required to produce them,
the accidents or non-accidents that occur as a result of the processes, the motivation of the
people as well as the impact of the processes on the environment. The relationship between
these outputs and inputs is what we know as productivity.

Productivity improvement is the achievement of better results in a process. In a nutshell: “do

more with less”. According to this model, the importance of processes in productivity and,
therefore, in the implementation of Lean Manufacturing is evident. Productivity, as we saw,
is the relationship between results and inputs, and in the processes inputs are transformed into
results. It is here that the importance of mastering processes becomes evident, understanding
that achieving that mastery involves knowing, controlling and improving them.
Productivity improvement is not just doing things better: more importantly, it is doing the
right things better. This chapter aims to identify the major factors, or “right things”, which
should be the main concerns of productivity programme managers. Before discussing what to
tackle in a productivity improvement programme, it is necessary to review the factors
affecting productivity.

The production process is a complex, adaptive, on-going social system. The inter-
relationships between labour, capital and the socio-organisational environment are important
in the way they are balanced and co-ordinated into an integrated whole. Productivity
improvement depends upon how successfully we identify and use the main factors of the
socio-production system. It is important, in connection with this, to distinguish three main
productivity factor groups:

- job-related;
- resource-related;
- environment-related.
Since our main concern here is the economic analysis of managerial factors rather than
productivity factors as such, we suggest a classification which will help managers distinguish
those factors which they can control. In this way, the number of factors to be analysed and
influenced decreases dramatically.

There are two major categories of productivity factor:

· External (not controllable).

· Internal (controllable).
The external factors are those which are beyond the control of the individual enterprise and
the internal factors are those within its control.

To deal with all these factors we require different institutions, people, techniques and
methods. For example, any performance improvement drive which plans to deal with external
factors affecting the management of the enterprise must take such factors into consideration
during the planning phase of the programme, and try to influence them by joining forces with
other interested parties.
Thus it can be clearly seen that the first step towards improving productivity is to identify
problem areas within these factor groups. The next step is to distinguish those factors which
are controllable.

Factors which are external and not controllable for one institution are often internal to
another. Factors external to an enterprise, for example, could be internal to governments,
national or regional institutions, associations and pressure groups. Governments can improve
tax policy, develop better labour legislation, provide better access to natural resources,
improve social infrastructure, price policy, and so on, but individual organisations cannot.

Factors external to an enterprise are of interest to that enterprise because an understanding of

them can motivate certain actions which might change an enterprise's behaviour and its
productivity in the long run. We suggest the following integrated scheme of factors
constituting a major source of productivity improvement.

Hard factors
Product

Product factor productivity means the extent to which the product meets output requirements.
“Use value” is the amount that the customer is prepared to pay for a product of given quality.
“Use value” can be improved by better design and specifications. Many companies around
the world fight a constant battle to incorporate technical excellence into marketable products.
Breaking down the walls between research, marketing and sales has become a major
productivity factor. For example, leading Japanese companies continually redesign products
which are on the market. Product “place value”, “time value” and “price value” refer to the
availability of the product at the right place, at the right time and at a reasonable price. The
“volume factor” in particular gives us a better notion of the economies of scale through
increased volume of production. Finally, the cost-benefit factor can be enhanced by
increasing the benefit for the same cost or by reducing the cost for the same benefit.

Plant and equipment

These play a central role in a productivity improvement programme through:

- good maintenance;
- operating the plant and equipment in optimum process conditions;
- increasing plant capacity by eliminating bottle-necks and by corrective measures;
- reducing idle time and making more effective use of available machines and plant
capacities.
Plant and equipment productivity can be improved by attention to utilisation, age,
modernisation, cost, investment, internally produced equipment, capacity maintenance and
expansion, inventory control, production planning and control, and so on.

Technology

Technological innovation constitutes an important source of higher productivity. Increased

volume of goods and services, quality improvement, new marketing methods, etc., can be
achieved through increased automation and information technology. Automation can also
improve materials handling, storage, communication systems and quality control.

During the past 25 years, considerable productivity increases have been realised through the
use of automation and current developments in information technology suggest great
improvements to come. Significant examples of the application of this technology are the
development of automatic downtime recording systems and automatic lubrication systems
which have reduced the idle time of men and machines, and reduced overtime expenditure.
New technology is normally introduced as a result of such productivity improvement
programmes as fighting obsolescence, process design, R & D and the training of scientists
and engineers.
Materials and energy
Even small efforts to reduce materials and energy consumption can bring remarkable results.
These vital sources of productivity include raw materials and indirect materials (process
chemicals, lubricants, fuels, spare parts, engineering materials, packing materials). Important
aspects of materials productivity include:
- material yield: output of useful product or energy per unit of material used. This is
dependent upon selection of the right material, its quality, process control and control of
rejects;
- use and control of wastage and scraping;
- upgrading of materials by initial processing to improve utilisation in the main process;
- use of lower grade and cheaper materials;
- import substitution;

- improving inventory turnover ratio to release funds tied up in inventories for more
productive uses;
- improved inventory management to avoid holding excessive stock;
- developing sources of supply.

Soft factors
People
As the principal resource and the central factor in productivity improvement drives, the
people in an organisation all have a role to play - as workers, engineers, managers,
entrepreneurs and trade union members. Each role has two aspects: application and
effectiveness.
Application is the degree to which people apply themselves to their work. People differ not
only in their ability but also in their will to work. This is explained by a law of behaviour:
motivation decreases if it is either satisfied or blocked from satisfaction. For example,
workers may do their jobs without working hard (no motivation), but even if they did work to
their full capacity they would not be satisfied (motivation is blocked from satisfaction).
In order to stimulate and maintain motivation, the following few factors should be
considered:
A set of values conducive to higher productivity should be developed in order to bring about
changes in the attitude of managers, engineers and workers.

Motivation is basic to all human behaviour and thus to efforts in productivity improvement.
Material needs are still predominant, but this does not mean that non-financial incentives are
not effective or have no place. Workers' success in increasing productivity should be
reinforced immediately by rewards, not only in the form of money, but also by improving
recognition, involvement and learning opportunities, and, finally, by the complete elimination
of negative rewards.
If management can plan and execute effective incentive schemes, then the result is invariably
a significant improvement in productivity. Wage incentives must always be related to the
amount of change accomplished.

It is also possible to improve productivity by eliciting co-operation and participation from

workers. Labour participation in goal-setting, for example, has been quite successful in many
countries. Human relations can be further improved by reducing the complexity of
communications procedures and by minimising conflicts. Labour productivity can be tapped
only if management encourages workers to apply their creative talents by taking a special
interest in their problems and by promoting a favourable social climate.

Standard of performance plays an important role in productivity. It should be set at a high but
realisable level. Management expectations of high performance need to be considerably
raised in many cases. However, standards should always be achievable to maintain
confidence and the “will to do”.

The “will to do” is affected by job satisfaction which managers can enhance by making jobs
interesting, challenging and bigger, more worth while and self-contained. Job enrichment and
job enlargement can influence job satisfaction and motivate higher productivity.

The second factor in the role played by the people involved in a productivity drive is
effectiveness. Effectiveness is the extent to which the application of human effort brings the
desired results in output and quality. It is a function of method, technique, personal skill,
knowledge, attitude and aptitude - the “ability to do”. The ability to do a productive job can
be improved through training and development, job rotation and placements, systematic job
progression (promotion), and career planning.

To summarise, the following key approaches, methods and techniques can be used to
improve labour productivity: wages and salaries; training and education; social security -
pensions and health plans; rewards; incentive plans; participation or co-determination;
contract negotiations; attitudes to work, to supervision and to change; motivation to higher
productivity; co-operation; organisation development; improved communications; suggestion
systems; career planning; attendance; turnover; job security.
Organisation and systems

The well-known principles of good organisation such as unity of command, delegation and
span of control, are intended to provide for specialisation and division of work and co-
ordination within the enterprise. An organisation needs to be dynamically operated and led
towards objectives and must be maintained, serviced and reorganised from time to time to
meet new objectives.

One reason for the low productivity of many organisations is their rigidity, They fail to
anticipate and respond to market changes, ignore new capacities in the labour force, new
developments in technology and other external (environmental) factors. Rigid organisations
lack good horizontal communication. This slows down decision-making and inhibits
delegation of authority close to the point of action, encouraging inefficiency and bureaucracy.

Compartmentation according to professional groups or functions also inhibits change. For

example, the decision-making steps may have been designed for a particular existing
technology, for a definite product or service mix. Things have now changed, but procedures
have survived because managers want to minimise change.

No system, however well designed, is efficient in all situations. Dynamism and flexibility
should be incorporated into the system design in order to maximise productivity.

Work methods

Improved work methods, especially in developing economies where capital is scarce,

technology intermediate and labour-intensive methods dominant, constitute the most
promising area for productivity improvement. Work method techniques aim to make manual
work more productive by improving the ways in which the work is done, the human
movements performed, the tools used, the workplace laid out, the materials handled and the
machines employed. Work methods are improved by systematically analysing present
methods, eliminating unnecessary work and performing the necessary work more effectively
with less effort, time and cost. Work study, industrial engineering and training are the main
tools of improving work methods.
Management styles

There is a view that in some countries management is responsible for 75 per cent of
productivity gains, because management is responsible for the effective use of all resources
under enterprise control. One productivity expert and consultant to many leading Japanese
companies believes that as much as 85 per cent of the quality and productivity problems in
United States industry are common problems of the system that lie within the province of
management, not the individual worker, to correct.2 There is no perfect management style.
Effectiveness depends upon when, where, how and to whom a manager applies a style.
Management styles and practices influence organisational design, personnel policies, job
design, operational planning and control, maintenance and purchasing policies, capital cost
(working and fixed capital), sources of capital, budgeting systems and cost control
techniques.