It’s simple, be nimble – Part 6
Economists define productivity as Output / Input
Normally output per hour of labour is measured for comparison over the years or across companies or countries. Multi-factor productivity measurement is also resorted to. This measure mostly used in manufacturing sector is normally quantitative – say x meters of cloth per hour of labour.
In the context of services the quantitative measure alone would not be sufficient and both output and input will have to be measured in terms of quantity and quality.
Quantitative aspect would mean efficiency or use of Human Resources in the most efficient manner. Following factors would help the firms to improve their efficiency and help reduce the cost:
1. Use of technology
2. Adequate infrastructure
3. Standardization of services
4. Full capacity utilization
5. Ensuring adequate capacity to deal with fluctuations in demand for services.
6. Use of MBBR (see previous article) for efficient allocation of human resources
Qualitative aspect would mean outcome or effectiveness of service or perceived value as assessed by the customer against his expectations. Main factors influencing effectiveness of service would be:
1. Appearance of professional’s office, it’s interior
2. Manner of dealing and quality of communication of the employees with the clients
3. Efficient HR management
4. Appropriate training programs
5. Performance linked rewards
Thus for professional, productivity would be measured by both the aspects- Efficiency & Effectiveness.
Due to diverse nature of services, for professionals, the output would be equal to actual fees charged (and realized) as it takes into account confirmation of clients satisfaction reflected in the payment.
On the other hand the input being the time of various employees engaged in rendering the service, the cost of such time would be the input.
Thus continuing with our example (please see previous article) we can state productivity or productivity factor
Productivity Factor of Mr. A = billing rate per hour / cost per hour
= 680/ 225 = 3.02
For the firm productivity factor would be = Fees for a given period / Direct cost for that period
= 66,00,000 / 24,00,000 = 2.75
In the above examples the calculated productivity factor was more as a target.
So productivity factor, based on actual performance, compared to target productivity factor would be simple but very powerful measure of assessment of performance of the firm.
This productivity factor number just like “Net interest margin” number for banks would facilitate comparison with other firms too.
What is stated above is a theory or science of Productivity.
Each firm may develop its own practices and techniques based on MBBR principles to reach their self-determined productivity factor and that I would call Art of productivity improvement.
Appreciation of the firm’s fine-tuned art by the world, would be more in terms prompt payments from clients, least number of instances where discounts (compared to standard billing rates) are demanded or doled out, more instances where firm was able to collect premium over the standard billing rates, increased number of clients through referral from existing clients and so on.
Somewhere in the process of this evolution , firms may realize that they are in a kind of “Auto pilot mode” where due to cultural change within the firm, things are happening virtually automatically.
This is a stage where you can just tweak the number of Productivity Factor and take it to higher level, say in the above example from 3.02 to 4 (i.e. revise billing rates upwards as per the revised productivity factor) and the firm will be surprised to discover that the whole eco system adjusts to the new rates in no time which translates into actual higher productivity and profitability.
Lo! You have improved your productivity by sheer arithmetical operation.
Discover magic of arithmetic.