Nowadays, just about everything can be measured to a specific number or data point, including business productivity.
Measuring productivity allows you to make operational changes, or executive decisions based on real numbers, data, or KPIs (key performance indicators). Instead of guessing or following your intuition.
After all, productivity plays a huge role in the profitability or competitiveness of any business.
But at this point, you're probably wondering, how do you measure productivity, exactly?
"Productivity" may sound like an abstract business concept, but don't worry, by the end of this guide, you'll have a more specific approach to improving productivity. And as a result, improving direct revenue.
Here's what we'll cover in this guide to business productivity analysis:
- What Is Business Productivity And How Does It Work?
- 4 Methods To Measure Business Productivity (With Examples)
- 5 Practical Ways To Increase Business Productivity
- Why You Should Be Measuring Your Business Productivity: 5 Biggest Benefits
What Is Business Productivity And How Does It Work?
First things, first, what is business productivity, exactly?
Business productivity is a measure of an organization's economic or business performance. It refers to how your company efficiently covers operations input - labor and capital into output - goods, and services.
How business productivity works
Business productivity specifically measures a company's operations efficiency qualitatively rather than quantitatively.
In other words, your company's scale does not affect its business productivity.
Business productivity rises when output increases faster than its input factors. When a company can sustain the same output level with decreased input, business productivity also increases.
To measure business productivity, we use this formula:
Productivity = Output/Input
What are output and input in this context?
Here’s the difference.
Input is the number of units, usually labor hours, capital, and energy invested into producing specific goods or delivering certain services. They are the resources that your company uses to create products and services.
So, depending on the exact nature of your business, the input can range from kilowatts of power to jobs where payroll is calculated per hour.
Output is the number of goods produced or services rendered based on operations input. Also, depending on your company's nature, it can be anything from sales to productions.
Now, let's look at how the labor productivity formula can be applied in context.
As an example, consider a developer who puts in five hours to complete three projects.
According to the formula, productivity is analyzed to be:
3 projects/5 hrs of work = 0.6 projects per hour
You can also apply the formula to measure productivity based on how much the business earns in a given timeframe. For example:
$100,000 worth of goods/500 hours = $200 per hour
The productivity formula is relatively straightforward. However, you might need further expansion when applying to your company/business.
And this brings us to the next question when talking about business productivity analysis.
Why should you measure business productivity?
Productivity is pivotal to the healthy development of any company, by extension its employees.
A good productivity analysis insight can facilitate up to a 100% increase in operations efficiency.
When you measure productivity, employee management becomes simple and optimized. It will be easy to see your operation progress, check if you are meeting targets (business goals or KPIs), and know where you fall short.
Since decisions are based on facts (data and numbers) instead of intuition and guesswork, you can avoid major pitfalls and optimize your company's development to compensate for noticeable flaws according to productivity insights.
According to ImpactMyBiz, the capability of businesses to leverage the data sets and information in their companies will be a determining factor in their competitiveness. Which in turn can lead to a lot of different ways your business will benefit.
Being the critical indicator of business productivity, business productivity analysis allows your company to optimize productivity itself. You can continually field higher revenues with fewer resources and achieve more in less time.
3 Other business productivity concepts to consider
Three arms of productivity mainly underpin the concept of business productivity in any organization.
Their importance cannot be understated. Each of the three elements impacts your operations supply chain in products and service delivery.
They are as follows:
- Labor productivity - This measures operations per hour of labor in a fixed period. This is the most relevant element of the productivity concept as it tells you whether you're effectively converting labor into a product or service.
- Capital productivity - Based on money invested in assets(inputs) used to produce goods or deliver services. This productivity analysis concept tells you the ratio of products or services to physical capital (equipment, real estate, liquid cash, etc.). In other words, it allows you to see how efficiently you are converging capital input to output.
- Multifactor/total productivity - this productivity covers multiple inputs and everything that capital and labor productivity do not account for. It could be the use of organizational structures, returns to scale, or management tactics, depending on the nature of your business.
Now that you have an idea of how business productivity works, let’s take a look at how to actually measure it inside your organization.
4 Methods To Measure Business Productivity (With Examples)
Measuring productivity is very straightforward. While you might need to tweak or expand the concept to match your business outlook, the underlying principle remains the same.
Below, we’ll cover 4 different ways to measure and analyze your business productivity. Then, we’ll show you how to increase it.
The 4 ways you can measure your business productivity include:
- Simple productivity output.
- Measuring efficiency.
- Time tracking.
- 360-degree feedback.
Here’s what you need to know about each method.
Simple productivity output
Here, we're going to recall the labor productivity formula. You will apply the formula for simple productivity output calculation. It is usually applied to units produced or tasks/projects completed like in a factory.
Its simplicity, however, means that it is not suitable for measuring the productivity of more complex work. Nevertheless, it remains a good tool to measure labor productivity.
Here's a practical step-by-step guide to measuring business productivity with the labor productivity formula:
- Note your output figure. It could be how much goods your company produced, projects/tasks completed, or services delivered in a timeframe. Let's say it's $2,000 in one week.
- Count and record how many hours of labor were invested to reach the output figure - this will be your input figure. We'll use 50 hrs.
- Now, we divide the output by input, giving you productivity per hour of work based on dollar value. In our case study, the calculation goes like this: 2000/50 = 40
This interprets labor productivity as $70 per hour of work.
To measure employee productivity, the productivity equation can also be applied. But instead of work hours, your input will now be the number of employees.
So, productivity calculation here will translate to the amount of money your company spent to produce goods or deliver services divided by the number of employees.
Using our case study example, let's say there are five employees;
5000/5 = 1000
This means that employee productivity per week is $1,000
Using efficiency to measure business productivity
Efficiency is a fundamental benchmark for productivity measurement. Efficiency calculated as part of productivity allows you to evaluate employee performance on overall operations efficiency.
Let’s break this down step-by-step.
- Determine how long a task or project takes(standard labor hours) to gain a particular output. Let's assume it's 50 hrs.
- Calculate how long it took to gain said output. Here, we'll assume it's 60 hours.
- Divide standard labor hours by the actual time worked, then multiply the result by 100. In our case example it’s: 50/60 x 100 = 83%. This means your overall efficiency is 83%.
You can also use this calculation to calculate idle time, activity, and labor capacity.
Tracking time to measure business productivity
If employees work remotely, especially if they have limited contact with one other, you can easily measure productivity by tracking working/productivity hours through tools like Toggl.
- Depending on your specs, pick the right time-tracking tool. There are many available options that you can go for, each with its different coverage capacity and price tag. Though, you have to make sure that your choice must account for more than just time. You want to be able to see how employees use their time, like through activity logs, screenshots, and idle time.
- Compare work productivity between employees in the same department with similar responsibilities. You can now use the average productivity as a benchmark for what to expect from workers carrying out a specific task.
The 360-degree feedback strategy takes the route of subjective measurement. So, it’s not objective-oriented and therefore, not the most objective tactic for measuring productivity.
Instead, it focuses on how routine work is done. It targets optimal employee productivity/management.
It is handy when you have a team of employees who constantly interact, especially if all the members are familiar with their working styles.
Here’s how to use this methodology.
- What you want to do first is empower your employees. Ensure that they know how to evaluate themselves and their coworkers. Their training should cover the different employee roles so that employees can understand the job requirements of themselves and their coworkers.
- Then, mandate them to evaluate their coworkers. Assessment needs to be comprehensive. Subordinates and even managers must be inclusive in an employee's evaluation. It is best to have a template where employees can provide information about evaluation - how each person meets job requirements and contributes to work efficiency.
- Finally, you will need to use the evaluation feedback to access each employee. By considering evaluations from multiple people, you can be sure that you've compensated for any personal feelings of any single individual that may cause inaccurate reports.
If you’re looking for practical examples, one area you can improve your overall business productivity has to do with document automation. Read more on that here:
- How Does Document Automation Work? Complete Overview
- How To Automate Paperless Billing for Banks: Steps & Examples
- 7 Types of Financial Documents to Automate in a Financial Web Portal
Now that you have a better understanding of how to measure and analyze your business productivity, let’s take a look at some practical steps to boost it inside your business.
5 Practical Ways To Increase Business Productivity
Now that you've learned how to measure business productivity in your organization, let's look at how you can increase productivity and, by extension, business performance and direct revenue.
1. Limit unproductive meetings in operations
Long hours of meetings can be very time-consuming and, frankly speaking, unproductive.
These meetings take up time otherwise spent on productive tasks. Therefore, it is essential to limit the number of meetings as much as possible (if you can).
Ensure that you schedule only project critical meetings or those that pertain to highly relevant topics requiring employees' presence, such as business strategy meetings and important announcements.
To help boost meeting productivity, Amazon replaced PowerPoint presentations with memos to help participants develop clarity about the project. This in turn makes for effective meetings by reducing the number of meetings, the length of meetings, and more.
2. Incorporate automation
Manual processes can be a significant clog in the wheel of operations efficiency. For instance, research shows that an office worker spends an average of 3 hrs a day sifting through emails.
Based on the productivity equation, if calculations are done right, should you eliminate the 3 hours of redundant tasks, productivity can spike by as much as 40%.
Several other processes apart from email actions can be automated to boost productivity.
See how document automation works for one example that can boost your overall workflow and productivity.
3. Provide the right tool and necessary equipment
When you provide relevant tools and appropriate equipment for employees, tasks are performed efficiently and completed on time.
These tools might even include technology, as applicable, improving value-adding processes or other marketing tools.
4. Offer support and set realistic goals
You can achieve this by leveraging your knowledge of productivity measurement. By evaluating individual employee productivity, you know your high-performing employees and those who excel in specific tasks.
You can now tailor tasks to match work proficiency, provide clear direction, clarify objectives and expectations, and give incentives to employees performing suboptimally. This will drive up productivity as employees now have clear focus and goals.
One way to plan this out is with SMART goals:
Why You Should Be Measuring Your Business Productivity: 5 Biggest Benefits
Measuring productivity is vital to your business in so many ways.
Whether for better business decisions or comprehensive value addition - everything from time management to customer satisfaction, measuring business performance and productivity is of high importance.
Let us look at the top five reasons you should measure productivity to improve business performance in the long run.
1. Conduit for conducting efficient operations
When you measure productivity, you are essentially assessing the efficiency of your operations based on allocated resources and overall yield.
You can now make better and more informed business decisions since you have an insight into the resources available to you, be they technological, human assets, or others.
It helps analyze how effectively you transform these resources to achieve your desired business goals, driving your organization to develop better strategies that align with self and ensure sustainable, efficient operations down the road.
See other key tactics to streamline business operations for more practical examples.
2. Proper allocation and optimal time management
The proper allocation of labor and adequate analysis of the time required to perform a task are critical factors in measuring business performance.
When you measure business productivity, you have further clarity regarding allocated labor, the time to complete tasks, and their overall performance. This enables you to streamline resources and optimally allocate time for each task to drive up value and achieve desired business results faster.
3. Identification of weak areas
The primary purpose of productivity analysis is to identify weak productivity links and business bottlenecks.
When you measure business performance in tandem with business productivity, you can quickly locate these weak links in your business.
By extension, results from your business productivity analysis help to tailor targeted business strategies that you can implement to fix these weak business areas.
According to Zippia, the biggest workplace distractions include social media, news websites, chatting with co-workers, and more.
4. Timely feedback and consistent progress
Measuring productivity helps you provide relevant feedback when and where it is needed.
When you discover a productivity black hole, timely feedback enables your organization's workforce to promptly adjust to compensate and re-align efforts in the right direction and move forward to drive value to consistently match business goals.
5. Increased number of products and services
A business that measures productivity will better understand itself and its competition space. Ensuring productivity allows you to easily adjust your output variables - products and services to match consumer expectations.
To ultimately adjust, you have the opportunity to improve and develop new products and better services to bring to the market.
And, stand out while placing you in a winning position in your competition's space as you leverage available business productivity insight.
Where To Go From Here
Productivity eliminates guesswork and drives up value in any organization.
When you measure productivity, you are directly empowering your employees and business as a whole to strive towards company goals and vision, ultimately improving direct revenue.
Now that we've unraveled the mystery of productivity, we hope that you've been able to learn one or two things, and can now apply these things to your business/company to achieve better business results.
Now, where do you go from here?
One of the biggest business areas you can fully automate to boost your productivity has to do with document generation.
By going paperless this way, you gain a verity of benefits, from overall higher efficiency to better communication to helping the environment.
Read on for 5 practical changes you can make to go paperless now!