The Productivity Puzzle: Why Businesses Struggle to Measure Effectively
Productivity is one of those ubiquitous concepts that everyone acknowledges as important, yet many businesses struggle to measure it accurately. How, for example, do you measure the productivity of a retail store or a manufacturing company?
Manufacturers have long believed that measuring the productivity of individual workers in the production process ensures maximum output. They assume that if everyone is working at full capacity, productivity will naturally follow. Frequently, they track the number of widgets produced per hour, day, or week, using these figures to gauge operational efficiency.
I’ve had manufacturers contact me with concerns about productivity, believing that longer lead times must be due to staff not working hard enough. Some team members appear to be slacking, and they assume this must be the root cause.
However, when we dig deeper, the reality often tells a different story.
Why Traditional Productivity Metrics Fall Short
Most organisations—whether manufacturers, retailers, or service providers—aren’t measuring productivity correctly. Rather than focusing on the number of widgets produced, the key metric should be gross value added (GVA) per worker.
GVA is a financial measure that evaluates the productivity of an entire system, not just a single part. Tracking widgets per hour, on the other hand, only reflects output from one segment of the process. A production line could be operating at peak efficiency, yet if sales, procurement, customer service, or IT are underperforming, overall productivity will suffer.
The Bottleneck Effect
Another overlooked factor is the presence of bottlenecks in the manufacturing process. Almost every production line has a step that limits capacity. If the preceding processes work faster than the bottleneck can handle, it creates inefficiencies, increases work-in-progress, and leads to longer lead times.
Consider this analogy: when hiking in a group, the fastest walkers naturally pull ahead while slower ones fall behind. To keep everyone together, the slowest person must set the pace. The same principle applies to production lines. If the bottleneck can only process 300 units per hour, producing 400 units upstream creates chaos, inefficiency, and potential damage.
Image by Gianni Crestani from Pixabay
It may seem counterintuitive to have workers operate at 75% capacity when instincts scream for 100%, yet aligning production with the bottleneck’s capacity results in fewer errors, lower work-in-progress, and faster lead times overall.
Beyond Manufacturing: A Whole-Business Approach
To truly enhance organisational productivity, every department must be examined under the same scrutiny. Sales, service, finance, and IT—each function contributes to the overall system and must operate optimally.
What is the realistic, expected output for each department? Are they meeting those expectations? If not, why?
For too long, businesses have responded to productivity challenges by simply adding more people. How often have managers requested additional staff because they “can’t keep up”? The reality is, unless these new hires contribute additional value, adding more people only dilutes productivity.
Rounding It Off: The Path to True Productivity
The key to improving productivity lies in shifting focus from busywork to value creation. Instead of measuring the number of tasks completed, businesses should assess the value being generated across the entire operation.
Are your teams working on what truly matters, or are they caught in a cycle of inefficiency? Are you making data-driven decisions, or relying on assumptions?
If your organisation is struggling with productivity measurement and optimisation, it may be time to take a step back and rethink your approach. Get in touch to explore how to unlock your business’s true potential and build a culture of sustainable productivity.