Different Kinds of Productivity

We must distinguish between different kinds of productivity. Economic theory refers to macroproductivity on national and global levels, microproductivity on business and institutional levels, and nanoproductivity on suborganizational levels such as the department or the productivity of an individual job or person. We also distinguish between performance (or material) productivity and economic (or financial) productivity. Both performance productivity and economic productivity are important for managing and analyzing enterprise success, but they can differ markedly, particularly in competitive situations. For example, if a company can now produce a specific type of machine with half the inputs needed earlier, performance microproductivity and performance nanoproductivity double. However, if competitors also improve their microproductivity and nanoproductivity performances to the same extent and everyone lowers their price to half of what it was, the economic microproductivity will not change. It may even be reduced. Every company will achieve progress, but the revenues for each unit of labor and resource utilization will remain the same as before. As a result, customers will benefit, but from a financial point of view, the company will not.

If the inputs and output quantity remain the same and the output quality, or the number of features or options increases, value creation and performance nanoproductivity will increase. If the enterprise can command a higher price for its outputs, the economic microproductivity will also rise. However, if competitors also raise quality and increase features and options, prices may remain stable, or drop, even though the value of what is being delivered to the customers has increased (assuming that they want and benefit from the improved quality, extra features, and options). So, while all participants are “more productive” from a performance point of view, the economic impacts will be far harder to measure or may not have changed at all. Better knowledge at the point-of-action —the workplace — makes it possible to deliver more with less or to provide higher quality outputs without increased efforts. Since competitors also strive to improve, the need to innovate faster than the competition is vitally important to maintain leadership.

Improvements in workplace operations and enterprise products and services through innovation and improved knowledge, understanding, and other intellectual capital (IC) assets normally lead to progress and performance productivity gains. But these gains may not provide increases in economic productivity if competitive or other mechanisms prevent organizations from realizing the economic benefits. Improving performance productivity without being able to realize economic gains is often the price of remaining competitive. Improved application of personal or organizational knowledge does improve performance productivity. However, that may not translate into financial productivity! This explains why many attempts to link the success of KM initiatives to so-called hard numbers (typically, greater profits) do not take into account that people are thinking better, acting more effectively, and being more productive, just so the organization can remain competitive.

An additional, and unpleasant, aspect of progress and improved performance productivity is that frequently fewer people are required to provide the products and services demanded by the market. Better production machinery, infrastructure, systems, procedures, and so on may lead to layoffs and other kinds of staff reduction. Progress can therefore result in negative societal effects such as increased unemployment.