# Defining the Concept of Productivity

**Pages:**6 (1831 words)

**Published:**August 29, 2010

Employee productivity is one of the most common criteria used for personnel decisions of raises, promotion, and termination. Pritchard (1992) defined productivity as a combination of efficiency (quality of resource use) and effectiveness (achievement of goals). In attempt to quantify employee productivity, the authors propose two models to represent this combination: (1) the additive model, which considers productivity to be the sum of efficiency and effectiveness and (2) the multiplicative model which considers productivity to be the product of these two. To compare the two models, an example of a grocery clerk is used. Productivity levels of the grocery clerk are determined using additive and multiplicative models for 5 different cases of varying levels of efficiency and effectiveness. Comparison suggests that multiplicative model is a better way to define productivity in measurable terms, as it overcomes the limitations in the additive model. Introduction Organizations strive to maximize productivity. One way they can do this is to seek out and maintain high performing employees. Another option is to reward individuals for higher levels of productivity and punish those with low. For example, supervisors at General Electric Company rank order their employees by their level of performance each year and fire those who fall in the bottom 10% (GE, 2001). In order to make appropriate appraisal decisions, it is essential that we know how to accurately assess employee productivity.

The Additive Model

In the additive model, productivity is defined as the sum of efficiency and effectiveness indices. The additive model follows the commutative and associative laws of addition. A multiplying factor of 100/2 is used so the final productivity index is scaled to 100. Both the efficiency index and effectiveness indices are ratios. The effectiveness index can assume a value from 0 to 1 in this equation, whereas the efficiency index can assume a value of greater than 1 for employees performing faster than the set norms. This can be depicted by the following equation: Productivity Index (PI) = [Efficiency (η) + Effectiveness Index (EI)]*100 / 2

Additive model: PI = [45 / 50 + 0 /100] * 100/2 = 45 Multiplicative model: PI = 45 / 50 * 0 /100 * 100 = 0 Case 5: Very low efficiency and high effectiveness Case 5 represents a scenario that is the opposite of case 4. The grocery clerk here demonstrates a high level of effectiveness by scanning all the items correctly (100% accuracy), but a very low level of efficiency by only scanning 5 items in 10 minutes. Additive model: PI = [5 / 50 + 100 /100] * 100/2 = 55 Multiplicative model: PI = 5 / 50 * 100 /100 * 100 = 10

Limitations of the multiplicative model

1. Quantifying effectiveness and efficiency for all jobs may not be possible especially for managerial jobs. 2. The model assumes that the equipment, machinery and resources required to perform the given task are available to the employee and are working properly. This may not be always true, particularly when there are multiple workers sharing the resources. 3. Since efficiency cannot be zero (it might take on infinitesimally small values though, as even starting the work will have some value) the pane 1 in the figure can never be completely opaque.

Defining Productivity, Efficiency, and Effectiveness

Pritchard (1992) defined organizational productivity as “how well a system uses its resources to achieve its goals” (p. 455). Building on this definition, Payne (2000) defined individual productivity as “how well an individual uses available resources to achieve his/her goals” (p. 9). Pritchard further defined productivity as a combination of efficiency (quality of resource use) and effectiveness (achievement of goals). Traditionally, efficiency is defined as the ratio of output over input. It...

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