What is productivity and why does it matter?

by Mike Sharkey

Productivity at work

Productivity was a hot topic even before global lockdowns. Now it’s business-critical. Discover what we mean by productivity, how to measure it, and how you can boost productivity post-pandemic.

There’s little argument that productivity growth has been sluggish in the US, the UK, Japan and many European countries since the 1970s. And that’s despite working hours going up. By these measures, it seems like no matter how long we spend at work, we’re not producing a whole lot more.

Productivity in a pandemic

But when COVID-19 hit, and people started working remotely en-masse, something interesting happened. Output went up. Forty-three percent of European executives and managers questioned in one survey reported working from home had positively impacted productivity, with only 29% saying it had fallen. Meanwhile, US productivity has leaped by 7.3% - the most significant increase since 2009 - although hours worked have fallen, and people have lost jobs.

Perhaps any uptick from remote working shouldn’t be too surprising. In theory, working from home should boost productivity because people spend less of their day doing other things like commuting. A study carried out back in 2012 showed a 13% jump in productivity when employees in a Chinese online travel agency were allowed to work from home four days a week. They put their supercharged output down to fewer distractions and merely spending more time working.

Productivity gains may partly explain why we haven’t seen a stampede back to the workplace post-COVID. Why would you want to go back to 'normal' when it makes people less productive? But while some organizations may get rid of their physical workplaces altogether and go completely remote, for most companies, hybrid working looks to be the future, with an estimated 48% of employees expected to work at least part of the time remotely, compared to 30% pre-pandemic. And that means a gradual, if partial, return to the workplace for many of us.

So what does that look like productivity-wise? How can we keep the gains we’ve made while remote working? And how are they connected with the other improvements we’ve seen during this period, with 90% of business leaders saying their culture has improved, 84% believing employee engagement has gone up, and 83% believing employee experience is better?

Suppose we want to maintain better productivity and better employee experience. In that case, it might help to look at why productivity has risen and how the two influence each other. Remote workers have fewer distractions and a better work-life balance. They have more flexibility and more control over their working environments. How can organizations replicate any of these conditions when people return to work? And what should we be aiming for in creating an even better workplace?

Having a good understanding of what productivity means and how it works is a start.

What do we mean by productivity?

According to the OECD, productivity is 'a ratio between the output volume and the volume of inputs.' So what does this look like? An input can be anything involved in producing something, like equipment or time or capital or labor, or land. An output is whatever is made - like a car, for example, or the amount of corn grown on a piece of land.

But while it’s relatively easy to think about productivity this way in manufacturing or agriculture, it’s not so easy when you’re thinking about the services sector. Because, in a law firm, or a healthcare provider, or an insurance business, for example, inputs and outputs are incredibly varied. It’s not always easy to define what they are or what productivity means for these organizations.

How is productivity calculated?

Measurements of productivity are complicated because there isn’t just one input or output to consider. But the basic calculation shows productivity as the output divided by input.

So if you have 3000 cars made by 100 employees, the productivity calculation would be:

3000 cars ÷ 100 workers = 30 cars per worker per day.

But in the services sector, focusing on something quantitative - like the number of customers a retail assistant serves in a store, for example - might not give you an accurate productivity picture. What was the experience of the customer? Did they buy anything? Will they come back? Will they recommend the store?

This is one of the reasons why there are other approaches to productivity measurement. Some companies might divide the revenue generated by each worker by their salaries. Others might give employees performance objectives and measure productivity against these. Or they might look at productivity in the light of customer or patient experience and satisfaction with the service they receive.

As Xiofeng Li and David Prescott say in their report on measuring productivity in the service sector: “Quality in the service sector is very important because customers usually evaluate a given service by its quality.”

This idea gives rise to a different calculation:

Productivity = (quantity of output + quality of output) ÷ (quantity of input and quality of input).

Why is productivity important?

However you measure it, why do economists and business leaders remain so focused on the idea of productivity? There are many good reasons. Here are just a few.

Efficiency

Productivity isn’t the same as efficiency, but the two are so inextricably linked that productivity is sometimes described as a measure of production efficiency.

In a world where there’s a push to reduce the environmental impact of human activity, organizations must use resources efficiently with as little waste as possible. Plus, the coronavirus pandemic means we’re returning to the workplace in a changing economic environment where there may be expectations for people to do more with less. Getting the most output bang for our input buck can help us do it.

Living standards

Greater productivity means better results for everyone - not just organizations. It can lead to higher wages because companies are making more profit. It could enable lower prices with cost savings passed on to consumers because businesses use resources more efficiently. And higher demand could lead to higher employment and a more vibrant and competitive economy. As the Deloitte report, The UK Productivity Puzzle, says: “It is hard to overstate the importance of productivity in driving improvements in living standards.”1 On the flip side, when productivity goes down, so do wages and decent jobs.

Profitability

Greater productivity equals greater profitability for businesses. That can be a win-win for everyone if the system can translate it into higher wages and more significant staff opportunities. Organizations can reinvest profit back into the business enabling it to grow and create further opportunities.

Employee wellbeing

Productivity and wellbeing are a virtuous circle. Having too much work to do with too little time to do it is stressful and can lead to people feeling burned out and disengaged. But if people are empowered to be more productive, they are free to enjoy a better work-life balance and have more room for career development. Taking care of employee wellbeing can be self-fulfilling for business leaders - people who feel healthy and satisfied with their work are more likely to be productive.

Higher morale

People feel good when they know they’re using their time productively. That feelgood factor can spread through an organization, raising morale, reducing absenteeism, and encouraging collaboration and growth. But while higher morale can mean higher productivity, productivity measures that don’t take account of employee wellbeing - not giving people enough time to complete tasks, for example - can lower morale, leading to lower productivity.

Employee engagement

Productivity has close links with employee engagement. Disengaged employees cost billions in lost productivity. But, according to Gallup’s State of the Global Workplace report, companies with highly engaged workplaces have 21% more profitability and 17% higher productivity than those with low engagement. They also have better staff retention, less absenteeism, better customer engagement, fewer accidents, and better health outcomes. Proof, perhaps, of the strength of the link between productivity and the Employee Experience (EX).

Customer satisfaction

But it's not just employees. Using time more productively - to answer queries faster or serve people more quickly, for example - can lead to more satisfied customers, too. But productivity measured in a purely quantitative way won’t necessarily take customer satisfaction into account. You can serve customers quickly, but that doesn’t guarantee you'll serve them well. That’s why it’s important to consider quality of service in productivity measurement.

What causes low productivity?

Only one in four UK workers believe they’re consistently productive at work, a 2019 survey shows. And with sluggish productivity a phenomenon in many countries, it’s reasonably safe to assume this malaise is pretty widespread. But what is it exactly that causes low productivity? Not surprisingly, with such a complex issue, there’s no simple answer.

Absenteeism and presenteeism

One of the critical issues is employee wellness, or rather, the lack of it. Having high levels of wellness will have a positive impact on productivity and vice-versa. Sickness absence has a considerable effect on productivity: some cost estimates for illness-related lost productivity are as high as $530 billion a year. Quite simply, employees can’t be productive if they’re not working or if an illness is affecting their performance. So anyone wanting to boost productivity needs to look at sickness absence in their business, the reasons for it - whether they’re work-related or not - and how they can address it.

Just as sickness absence is a pretty sure sign that you’ve got a productivity problem, so is its opposite - presenteeism. Employees that regularly put in more than their official hours can indicate your organization may have a productivity problem and that people aren’t working as hard as you think.

‘Jackets on the back of seats’ syndrome could have several causes. It might be rooted in a company culture that promotes after hours working as normal, making it difficult for anyone to leave on time. It might be because people are too distracted to get on with their work during normal working hours or have a problem with their work that they’re not sharing. Or it might simply be because of what’s sometimes called Parkinson’s Law - that “work expands to fill the time available for its completion.”

In any case, it’s a problem organizations need to address. Working longer hours doesn’t get more accomplished - it can result in just the opposite. In fact, some people see reduction in working hours as the answer to the productivity problem - one of the reasons for calls for a four-day week or the six-hour day. If you’ve only got four days to fit in all your work, the argument goes, people get on and do it. Then you’ll have three days off for better wellness and a better work-life balance - all leading to more productivity when you are at work.

Distractions and lack of control

So, what is it that’s stopping people from being productive during their regular working hours? One of the culprits is distraction. Too many emails, too many meetings, coffee breaks, noise, and unhealthy buildings are all cited as reasons for people not getting on with their work.

Many of these distractions went away when so many workers found themselves working from home during the coronavirus pandemic. So if you’re planning your return to the workplace, you should explore how you can give people the same control over their work environment they enjoyed at home. Look at things like temperature, noise levels and office furniture. Are they comfortable? Can people adjust them to suit their needs?

Almost inevitably during remote working, you’ll have cut down the number of face-to-face meetings people were obliged to attend. Organizations have shifted to virtual solutions that will still play a part in the meeting mix of the future. How can businesses capitalize on the COVID reset to improve the focus and productivity of future meetings while also preventing a return to meeting fatigue?

Similarly, many organizations will have reduced their reliance on email, using other communication tools for an everyday chat and internal communications. If this is less stressful and more effective, all the more reason to continue during the return to work.

Poor communication and information flow

A lack of communication can make people feel isolated and unmotivated. Not being able to find the information you need to do your job. Not feeling you can ask questions. The feeling that managers aren't available to help can all have an impact on productivity. They could also damage morale and cause stress, reducing productivity even further.

Communication is in the spotlight during mass remote working because it companies realized it could be a big problem connecting a dispersed workforce.

But is it a problem in your workplace anyway? Now, as people return to work, it’s time to take stock. If you opened better communication channels during the pandemic - regular check-ins, clear goal setting, dedicated channels for different communication types - you should consider keeping them open. If your communication and information flow was a problem, address it now before it becomes more complicated by a mix of people working on-site and working remotely.

How to improve productivity

Set productivity goals

Being busy doesn’t necessarily mean you’re being productive. Define tasks that have value in terms of productivity (not just answering emails) and set out timeframes for achieving them - focusing on the number of calls that salespeople should make in a day, for example.

Control non-productive tasks

Think about how you can stop things with less productivity value from eating into your day. Consider setting aside specific times to look at email and use communication tools that enable people to receive messages that are most relevant to them. And think twice before you organize that meeting. Is it really necessary? What outcomes do you want it to achieve?

Reduce multi-tasking

It sounds like doing more than one thing at once would be super-productive. The reality is that it’s not actually possible to do more than one thing at a time. When we multi-task, we switch quickly from one task to another, which means we have to stop concentrating and lose valuable time, especially when we’re doing something complex. Estimates suggest that productivity can be reduced by as much as 40% by switching between tasks. To address this, empower people to organize their workload so they can concentrate on a job until they've completed it before starting on another.

Offer training

Research shows workforce education boosts productivity - which isn’t surprising. Staff who are confident in their abilities to do their jobs effectively are likely to be more productive. Plus, if they know what they should be doing, they’re not so likely to have to ask for help or advice, meaning other employees can focus more on their work.

Put recognition on the agenda

Being recognized for doing an excellent job boosts morale, engagement and productivity. It also gives a great example to other employees about the culture of collaboration at your organization. Productivity and performance are 14% higher in organizations that offer recognition, according to Deloitte. The source of credit is important: research shows that managers' recognition is most valued, followed by praise from a leader higher up in the organization.

Delegate, delegate, delegate

“If a job’s worth doing properly, do it yourself.” But if this phrase dictates your working life, it could mean you don’t trust your team. It also means you’re likely to become overloaded with work, upping your stress levels and reducing your productivity. Managers need to have enough confidence in their teams to delegate work to them without micro-managing. If this doesn’t feel possible, look to find training for your people.

Use the right tools

The right communication and tools will mean messages get to the right people in the right way. People will access information quickly, and team collaboration will flow smoothly, ironing out any productivity glitches.

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