Industrial Engineering and Project planning

International Journal of Production Economics, 28 ( 1992) 95-106 Elsevier

95

Consensus and conflicts in understanding productivity

R.P. Mohanty

NITIE, Bombay-440 087, India

(Received 2 January 1987; accepted in revised form 27 March 1992)

Abstract

Productivity is the key in almost all societies for enhancing the economic and social welfare. It is a complex concept that reflects more often value judgements held by various groups in a society. There exists confusion in relation to definition, circumscription and application. In this paper, an attempt has been made to explain some of the areas of consensus and conflict, and some suggestions are outlined how researchers in productivity might be pursued in the future.

1. Introduction

Productivity is the key in almost all countries for enhancing the quality of life and economic well being. As a concept, productivity is per- ceived differently by different people [ 11. For example, political leaders find that productivity is a key strategy to solve the problems of unem- ployment, industrial leaders see it as panacea for all evil and as an answer to the questions of growth and survival, and labour unions consider it as a factor to maximize their earnings and ben- efits. However, the notion about productivity is diversified. To some it is a philosophy, to some it is a way of life, to others it is a revolution to- wards innovations, and to quite a few it is a set of techniques in management science. In fact, they are all partly right, but only partly like the blindfolded people who attempted to describe an elephant. Although proliferation of ideas, con- cepts, methods and techniques relating to the field of productivity over the past two decades have been pervasive, very little has been understood about the characteristics of the productivity management process. Presently, the issues of en- vironmental uncertainties, technological inno-

Correspondence to: Prof. R.P. Mohanty, National Institute of Training in Industrial Engineering, Vihar Lake, Bombay- 400 087, India.

vative complexities, and geo-political economic relationships have brought some additional di- mensions to create complications in understand- ing. The multiple facets of productivity are so di- verse, that it is only through a proper understanding of the totality of the concepts and issues, that one can bring about a coherence and confluence both in thinking and in action. It is emphasized, that [ 2 ] productivity as a philoso- phy, as a concept, as a measurement indicator, or as a set of techniques can be applicable in all types of work systems concerning the human endea- vours or life supports, whether for profit, wel- fare, or even for pleasure. It has been mentioned by the author, that productivity is the “soul” of an organization for which individuals working in the organization have to integrate their “Body- Mind-Intellect” (BMI) in a holistic manner for maintaining the internal balance and for perpet- uating the external equilibrium of the work sys- tems [2].

Despite the prominent place accorded to pro- ductivity management in almost all organiza- tions throughout the world, confusion and am- biguity still characterize the subject. There are problems of definition, circumscription, and ap- plicability. In this paper, it is intended to explain the different perspectives in a synoptic manner, to evaluate these perspectives for identifying po- tentials and limitations, and to provide a

0925-5273/92/$05.00 0 1992 Elsevier Science Publishers B.V. All rights reserved.

96 R.P. Mohanty / Consensus and conflicts in understanding productivity

groundwork for the discussion of an important such as production per hour, manhours per unit, research task, which is explained here as action material utilization rate, machine utilization rate research. and space utilization, etc..

2. Definitions of productivity 2.2. Micro-level definitions

Several definitions exist in the literature [ 3- 5 1. Although these classifications in definitions are justified because of the purposes and uses in- tended, they do not consider some root detini- tions from which different views can be pragmat- ically derived [ 11. Mohanty [ 2 ] has provided twelf definitions, which may be thought of as ge- neric types. Here productivity has been defined from a very broad economic angle: macro and micro.

Resource viewpoint. Productivity of a resource is defined as the efficient utilization of the re- source (input) in producing goods and services ( outputs ) .

Total productivity measure. It is a ratio of real gross output to the all real inputs. Gross output includes all the goods and services produced and the inputs constitute labour, capital, materials, and energy.

2.1. Macro-level definitions

International viewpoint. Productivity can be defined as the ratio of gross or net output of an economy or a country per unit of labour as com- pared to other economies or countries (the gross output is measured in terms of gross domestic product (GDP) or gross national product

(GNP) ). National viewpoint. The productivity of a na-

tion is a measure of its economic performance. It is defined as the sum of the national products (market value of goods and services produced). Sometimes, it is interpreted as an index of growth.

Total factor productivity. It is the ratio of the net output to the sum of associated labour and capital inputs. Net output is also called value- added output.

Organizational viewpoint. Productivity of an organization is defined as its ability to create goods and services at a higher level of perform- ance with the lowest expenditure of resources (human and non-human ) .

Industrial viewpoint. Productivity of an indus- try can be defined as the capability to produce goods and/or services when it is related to the production goals. In machine-dominated indus- tries, the gain in fixed capital will be the measure of productivity and in case of labour-dominated industries, the output per manhour will reflect the productivity measure.

Partial factor productivity. It can be stated as the ratio of output to the one class of input, for example, labour, capital, or raw material.

Engineers’ viewpoint. Engineers generally de- fine productivity as the measurement of physical assets, e.g. production output per manhour spent, shop utilization, space utilization, material utili- zation, and time utilization, etc..

Accountants’ viewpoint. Accountants generally view productivity in terms of financial ratios, e.g. rate of return on investment, fixed capital utili- zation, sales turnover, and budget control.

Management viewpoint. Management inter- prets that productivity is to organize and direct the managerial skills and talents to best utilize physical and mental efforts of an organization to create goods and services in right quantities at a well defined quality at the right time. Managers frequently use various ratios to achieve this objective.

Manufacturing viewpoint. The productivity can be defined as the total manhours needed for manufacturing a well defined product by a qual- ified operator using standard machines. Here, engineers generally seek to measure the utiliza- tion of the physical assets and other resources

There are a few other terms which are related to the productivity family, for example, (a) Effectiveness: it is used to validate the

goals of an organization or how much util- ities are attained because of the outputs.

(b) Efficiency: it is used to measure the con- sumption of an input when used in achieving a certain output.

R.P. Mohanty /Consensus and conflicts in understanding productivity 97

(cl

(d)

(e)

(f)

Profitability: it generally measures the ability of a firm to realize financial gains from its operations. Performance: often refers to workers or equipment in relation to an established standard. Utilization: normally refers to actual pro- portion of time or capacity consumed in producing a desired level of output. Quality: it is the degree to which a product or service conforms to a set of predeter- mined standards related to its utility for which it is designed.

Several view-points have been identified to conceptualise productivity. In the evolution of many fields of human endeavour, productivity is a field of management which is primarily an eco- nomic process and has influenced the contem- porary managerial practices and, eventually, has yielded different perspectives.

3. Factors affecting productivity

Now, it is intended to identify the various fac- tors that affect productivity. Table 1 presents a summary view.

The various factors identified here have inter- actions, interdependence, and linked interfaces in real-life situations. However, when these fac- tors are considered in their totality, the produc- tivity of a worksystem can be realized. Further- more, some of these factors are human related, and some are contrived by the human system, for example, technology, innovations, economic policies, etc.. These factors are highly affected by time, for time itself may cause changes in direc- tions that are not desired or directions that are needed. No research exists to test the impact of these factors in improving the total productivity of a system. Mohanty [ 2 ] has conducted a sur- vey to identify the varieties of factors that can affect the productivity of manufacturing organi- zations. It was postulated in this study that the more prominent conceptualisation of productiv- ity of the work system would result from the compatibility between the managers’ percep- tions and the mechanisms provided by the orga- nization of the work system. It is postulated here that whenever productivity management strate- gies are to be formulated, it will be necessary to

Table 1 Factors affecting productivity

International viewpoint - Policy of technology transfer from the developed to the

developing countries. - Migration of skilled labour from one country to another. - Balance of payment positions. - Oil and resource prices in the world market. - Law of protectionism vis-a-vis free trade policy.

National viewpoint - Inflation rate. - GDP and GNP. - Unemployment level. - Costs of energy and other resources. - Education and management skills.

Organizational viewpoint - Capital investment opportunities. - Market demands. - Labour laws and industrial relation policies. - Strategy-oriented production management systems. - Management information systems. - Decision support systems.

Industrial viewpoint - System objectives. - Planning of industrial production processes. - Plant maintenance programmes. - Output and input levels. - Quality standards. - Research and development opportunities.

Resources viewpoint - Availability and quality of resources. - Cost of resources. - Age of plant and equipment.

Management viewpoint - Work ethics. - Work standards. - Work methods. - Works management techniques. - Human learning and development process. - Knowledge about productivity management.

Individual viewpoint - Education and training. - Innovation. - Incentives or benefits. - Wages and salaries. - Cost of living. - Motivation. - Knowledge and skills. - Work environment. - Physical and mental health.

98 R.P. Mohanty /Consensus and conjlicts in understanding productivity

take into account the various factors that can af- difficulties in uniform measurement yardsticks. fect productivity. These examinations may re- - National separation and distinction between quire action research to identify and separate developing or developed countries are difficult short-run from long-run problems. Then, the se- in productivity measurements. cret of improving productivity may become not - Migration of manpower from one country to how to solve reoccurring problems, but to obtain another creates difficulty in measuring the la- a priori knowledge about factors and planning to bour input, particularly when skills need to be avoid future problems through continuous mon- evaluated. itoring and evaluation of these factors. National problems

4. Evaluation of productivity measurement models

- Indirect and direct cost of goods or services, and various levels of wage rates of labour are difli- cult to differentiate and assess.

Much attention has been given to the measure- ment of productivity at firm level. A number of productivity measurement models using differ- ent approaches have been developed over the years. We consider a definition given by Sum- manth and Yavuz [ 61 which is stated as follows: “Productivity is the quotient obtained by divid- ing the output by one of the factors of produc- tion. In this way, it is possible to speak of the pro- ductivity of capital, investment, or raw materials according to whether output is being considered in relation to capital, investment, or raw- material”.

We have seen, that most of the measurement models have centred around this definition. We present a comparison among the various models and the critical evaluation of these models in Ap- pendix A. Our evaluation is an extension of the research presented by Mohanty and Rastogi [ 71. The evaluation suggests that there is no general theory of productivity management. All the models historically developed specific relatively simple and analytically tractable solutions, and examine an organization and its resources con- sumption features that are empirically relevant. The concepts differ in three forms: ( 1) parame- tric differences, (2 ) differences in production ar- guments (capital and labour in industries ) , and (3 ) differences in ratio variables.

- Direct measure of the quantities of inputs and outputs are difficult, due to the heterogeneity in the nature of products produced by firms.

- Services cannot be quantified in terms of units of value, so the problem may occur in measur- ing labour productivity.

Organizational problems - Lack of information about different company

standards and also lack of coordination in or- ganizations create comparison problems.

- Development of new products, due to the mar- ket demand, distorts the measurement process, and an accurate picture cannot be obtained due to diversification of pursued policies.

- Due to inadequate availability of resources, in- puts, or market uncertainties, the data col- lected are subjected to a lot of randomness and, hence, it becomes difficult to establish a stand- ardized productivity measure.

Industrial problems - The aggregating of the different inputs in one

common denominator acceptable to all parties. - The effect of automation, renovation, and

modernization at shop floor level, reducing the unit production cost and the problem of esti- mating the time-lag between these two effects.

- Manhours being treated as homogeneous units and with no distinction between the hours spent by different groups of workers at different lev- els of effort and skill.

5. Problems of productivity measurement

Some of the problems that are encountered in measuring productivity are enumerated below: International problems - Different social, cultural, political, and eco-

nomic conditions of different countries cause

- The problem of separating the normal operat- ing hours from the overtime operating hours and the associated rates of outputs.

- Inventory adjustment, when neglected, leading to significant errors in the measurement.

Manufacturing problems - Measuring outputs: especially with respect to

R.P. Mohanty /Consensus and conflicts in understanding productivity 99

changes in design, sizes and types of individual products, as well as in the proportion of differ- ent product lines with respect to time.

- Measuring inputs: great multiplicity and types of materials, facilities, equipment, etc., usually used in the manufacturing process over a pe- riod of time and at different manufacturing stages.

- Manufacturing includes a lot of operations, in- volving the man-machine interactions. They are ignored in productivity estimation, because of the problem of quantification.

- Some issues, such as the incorporation of salar- ied employees involved in set-ups and mainte- nance, inspection and tool room operations, need careful assessment before the actual measurement.

Resource problems - Quality yield and timely availability of re-

sources are not incorporated in the analysis. - An increase or a decrease in the purchase price

of the resources creates problems during the measurement of productivity.

- Resources generated and used internally are difficult to estimate accurately.

- Aggregating different resources into a single common acceptable denominator possesses some difficulty in measurement.

- Whether the work-in-process should be in- cluded or not in productivity measurement.

- When the output has no bearing on the desired goals of the company and does not result from concluded inputs.

- Problem op setting up engineering standards. - Problems occur, when measuring the white col-

lar productivity, because of highly interactive operations of an individual in his group or team.

- Problems may occur due to budgetary limita- tions, decision rules, and quality policies.

Individual problems - The problem of measuring the skill and leam-

ing of an individual. - Higher wage rate reflects inflationary increases

for unchanged labour input against greater contributions through a shift to higher skill.

- Motivation, incentives, and rewards boost up the productive efficiency of labour, and cause abrupt changes in output.

- Technology change causes the learning disper- sion, and, hence, a problem in the measure- ment of blue collar productivity.

- Organization of workplace and environment.

6. Conclusion

As outlined in this brief paper, the intention and motive have been to provide some view points about the productivity management. These viewpoints are neither methods nor solutions, but they are significant guide-lines merely to suggest some ways of viewing the subject. It is submitted that productivity management should not be viewed as a collection of a few techniques of sci- ence and applying them through force fitting to complex situations. Techniques are merely the means to effect an end. They are merely the use- ful tools for directing the process but not a holis- tic map. In practice, productivity management cannot be reduced to a simple set of calculations, etc.. It is essentially a conglomeration of differ- ent complex activities, which defy sometimes logical explanation. Management process in its totality includes many elements, such as creativ- ity persuasion, conviction, agreement, leader- ship, beliefs, and desires. All our systems are bas- ically contrived systems and are under the control of humans, the essential nature of management must be human [ 19 1.

In summary we submit that an integrated, comprehensive and complete research on pro- ductivity should try to embrace the consensus and conflicts of the productivity process. A thorough analysis may ensure that the differing perspec- tives are captured, both physically and econom- ically, and conflicting issues are resolved through creativity, persuasion, and motivation. Mundel [ 20 ] has emphasized that being successful at im- proving productivity may require ( 1) finding out what is really going on, and (2 ) making certain that those who will participate know the objec- tives and ground rules. It was the intention here to clarify such objectives and ground rules.

Appendix A

1. Kendrick-Creamer model [ 8 ]

100 R.P. Mohanty /Consensus and conjlicts in understanding productivity

TPI=O,P,,/Z,P,,, TFPI=O/(L+C),

PPI=O/L and O/C.

Type of inputs: - L: weighted cost.

Approach: - Total productivity measure. - Total factor productivity measure. - Partial productivity of labour and capital. Type of inputs: - Labour (man-hours ) . - Capital (prices and ROI ) . - Purchases (at product prices). Type of outputs: - Net output excluding intermediate goods and

- C: service cost of fixed assets. - R: weighted cost. - Q:energy, insurance, taxes, and overhead

expenditures. Type of outputs: - Summation of all units produced times selling

price. - Gross output “deflated”. - Dividends and interests. Special features:

services. - Output in base period prices. Special features: - Useful in indicating the savings achieved in

each time period for each of the inputs per unit of outputs.

- Intermediate products are generally important, and cost elements cannot be ignored from the outputs

- Productivity is a measure of conversion of physical input monetary values.

- A short-cut approach to obtain values of pro- duced output equal to sales plus changes in inventory.

Potentials of the model:

Potentials of the model: Measuring partial factor productivity is useful

to indicate savings achieved when utilising in- puts and to observe the effect of changes in in- puts and outputs.

The outputs of the model take care of the units produced, including the inproces inventory. In the definition of output, units produced are con- sidered rather than the units sold. Here, capital input is represented by the service-value concept. Limitations of the model:

Limitations of the model: It was observed, that total factor productivity

measures are not appropriate to study the cost- price relationship at the company and industry level, because materials and other intermediate products are important cost elements. Applicability:

The short-cut approach for deriving the value of output has an element of inaccuracy, although it is argued that it is simply one of the many cost- accuracy trade offs managers must make every day. Applicability:

The model is applicable in measuring partial labour productivity through productivity indices at company level. In the short-run an increase in total productivity shows better utilisation of ca- pacity, while in the long-run such an advance in total productivity would reflect technological progress.

In this model, the service value concept is ap- pealing for total productivity measurement in an organisation. It is a service flow model, because physical inputs are converted into monetary val- ues and productivity is the measurement of effi- ciency of the conversion process.

3. Ebert model [ 10 ]

Tc = : Tct , T~,=C,+C~+C~+Ci+C~. t=i

2. Craig and Harris model [ 9 ] Approach:

PI,=O,/(L+C+R+Q).

Approach: - Total productivity measure. - Service flow model.

Aggregate productivity planning model. Type of inputs: - Man-month per unit of output. - Cost of hiring and firing. - Shortage cost. Type of outputs:

R.P. Mohanty /Consensus and conflicts in understanding productivity 101

Based on the complex cost structure and in- cludes work place, size, production worker, end- ing inventory, etc.. Special features: - It considers the synthesis of productivity and

aggregate planning, using the improvement curve analysis.

- It is assumed, that the rate of productivity growth of a new worker is the same as the most experienced one.

- Stressed that no single static measure is ideal for expressing a firm’s productivity, because a production system is dynamic in nature.

Potentials of the model: Here miscellaneous input factors include util-

ities, supplies and other purchased services, which are expressed in the base period. Limitations of the model:

Potentials of the model: The advantage of this model is the direct use

of the improvement curve analysis in aggregate planning. It was used by generating a series of ag- gregate plans for various learning rates. These plans are then used to develop manpower schedules.

Usually, the production systems are dynamic. Therefore, we cannot say that this model is ideal, and some conceptual problems may exist while measuring the productivity. Applicability:

The model’s physical inputs and outputs fac- tored with prices are applicable at manufactur- ing or shop floor level in a firm.

Limitations of the model: 5. Mundel model [ 12 ] It considers that the productivity rate of a new

worker is the same as the most experienced worker, which is not true in real situations. Also, it assumes that the workforce level remains the same during planning, while actually a lot of fluc- tuations occur in the workforce level due to de- mand change. Applicability:

PI = (OMP/IMP ) / (OBP/IBP ) x 100,

PI= (OMP/OBP)/(IMP/IBP) x 100.

Approach:

It is applicable to integrate productivity and aggregate production planning. It can also be ap- plied using more complex cost functions, with the disruption effect of manpower significantly ob- served by an average productivity.

Total productivity measure (index approach). Type of inputs: - C: aggregated inputs “direct cost”. - Q: overhead cost. - R: direct cost of material. Type of outputs:

4. Hine model [ 111

Approach: Total productivity measure.

Type of inputs: - L: weighted wage rate. - C: uniform annual cost. - R: weighted cost. - Q: utilities, supplies, and services purchased. Type of outputs: - Value produced including work-in-proces. - Gross output “weighted” average. - Dividends and interests. Special features: - An elaborate form of Craig and Harris model.

- Aggregated outputs. - Include products produced, utilities created,

and services offered. Special feature: - Model measures the change in performance. - Specifies errors in measuring productivity, such

as counting output not related to inputs, or goals and suboptimization errors.

Potentials of the model: This gives a useful work measurement con-

cept, which refers to use of any technique to de- termine the amount of resources required to pro- duce outputs. Limitations of the model:

This model does not specify how the inputs and outputs are broken down. It mentions some er- rors, e.g. suboptimalization error, counting out- put error, which occur during calculating pro- ductivity indices. Applicability:

102 R. P. Mohanty /Consensus and conflicts in understanding productwity

The model is used to measure effectiveness, ef- ficiency, and improvement in the performance of the plant, section, or machine from previous pe- riods to the current.

6. Gold model [ 13 ]

U/TI= O/Cap x Cap/F1 x FI/TI,

and/or

II/TI= (Ry/O- TJO) x O/Cap

xCap/OxFI/TI.

App~oa~h~

- The measure mainly looks back to investment

Total productivity measure through manage- rial control ratios. Type of inputs: - C:annual cost method. - L: total expenditure “deflated”. - R:“deflated” cost and investment cost, and

productive capacity of the plant and equipment.

Type of outputs: - “Weighted” gross output produced. - Physical output measured with relative price. - Contribution to all resources. Special features: - A series of physical and financial ratios for

managerial control to understand the produc- tivity of the firm.

and attributes to profit. Potentials of the model:

By adding the determinants of profitability, as represented by certain managerial control ratios, a complete analytical framework is obtained. This provides a systematic approach to trace the im- pact of actual changes in the network of physical productivity relationships on cost and profitability. Limitations of the model:

Performance measures or any changes in fac- tors depend upon production, capacity, and in- vestment of a plant. The quantities of various products can often be aggregated in terms of weight and volume, but such measures seldom reflect their representive economic value. Applicability~

The model can be applied in a batch produc-

tion industry to identify possible productivity and cost effects of innovation. The prime use of the model is to analyse the effects of changes in any of the components of the model and the effect of these changes on productivity, cost structure, and profitability of the plant.

7. Taylor and Davis mode/ [ 14 ]

PI= S+X+M,+E

L( w+B)+C(&+K,)’

Approach: Total factor productivity measure.

Type of inputs: - C:fixed and working capital including inves-

tors contributions. - L: labour wages and benefits weighted. - R:not considered. Type ofoutp~ts; - Value added concept. - Output “deflated” average. - Products for in-plant use. Special.features: - A new capital cost concept of investors contri-

bution, based on the rate of return of capital in base-year.

- All products produced are considered as outputs.

nor output. - Purchased material is considered neither input

Potentials of the model: Advantage over other models is that it in-

cludes all inputs and outputs, material supplies, depreciation and rentals. The model is easy to apply in assessing the long-term impact of technology. Limitations of the model:

It is actually not a total productivity model, but it is a total factor productivity model because it takes exclusion of raw materials as an output. It is more limited to batch production systems. Applicab~lity~

The application in a firm can provide useful help to the firm’s managers in decision making. It is not only applicable to measure the perform- ance of the company, it is also possible to de- velop the model for measuring productivity trends.

R.P. Mohanty /Consensus and conflicts in understanding productivity

8. Aggarwal model [ 41

PI=a(II/TI)+b(O+M,)/L

+ CSIN,,, + DIN,,, .

Approach: Composite productivity measure.

Type of inputs: - C: total investment cost. - L: man-hours. - R:purchases from supplier in dollars. - Q:not considered. Type of outputs: - Gross output “deflated” average value added

concept. - Total sales to the costumer. Special features:

Here productivity can be best measured in four areas: 1. investors’ satisfaction, 2. employees’ satisfaction, 3. customers’ satisfaction, 4. suppliers’ satisfaction. Potentials of the model:

The four financial ratios of the model may be used individually to measure the specific pro- ductivity of a respective department, for which data will be available easily. Limitations of the model:

A disadvantage is, that the model does not in- clude all input factors. Under the condition of regulated prices of items, a high satisfaction of the customer is indicated by the low cost to him. Applicability:

The model is useful to compare the relative performance of a company from one period to another. Composite productivity measurement is useful for the customer’s satisfaction and sup- pliers’ satisfaction areas.

9. Roll and Sachish model [ 15 ]

Approach: - Partial productivity measure. - Comparison index approach. Type of inputs:

- L:standard and actual hours”.

- C:physical “weighted” inputs).

Type of outputs:

103

labour input: “man-

assests (single unit

- Output in physical units produced. - Weighted with standard output. Special features: - Unlike physical monetary units are considered. - Partial single factor indices compared with

previous standards or norms (technology change).

Potentials of the model: The advantage of the model over the others is

that a continuous updating of standards is sug- gested instead of a fixed basis for comparison. Limitations of the model:

The problem is setting proper standards and the identification of suitable production func- tions to enable the desired frequent updating. Applicability

Useful1 for aggregating the single factor (phys- ical) productivities into an overall (economic) index.

10. American Productivity Centre (APC) model ]I61

PI=S/C, + C”/P.

Approach: - Total productivity measure. - Productivity relates with profitability. Type of inputs: - L: labour man-hours. - C: weighted with base-period. - R:materials. - E: energy consumption to produce outputs. Type of outputs: - Gross output factored with prices. - Inventory change figures adjust for differences

between sales and production. Special features:

Productivity is measured through profitability with respect to the price recovery factor, which captures the effect of inflation. Potentials of the model:

In this model, the productivity gives an indi- cation of the amount of resources consumed to produce the firm’s output.

104 RJ? Mohanty /Consensus and conflicts in understanding productivity

Limitations of the model: Usually, the physical volume of output is not

physical at all in this approach. Inflationa~ ef- fects cannot be eliminated due to prices in inputs and outputs. Applicability:

puts are not in the same units. The usefulness of an exclusively firm level measure is limited be- cause it does not tell the management of the firm which product is causing growth or otherwise in TPM. Applicability:

The model measures profitability in terms of productivity and prices of inputs (when known ) . It is useful in a business organisation, where changes in prices of inputs and outputs are considered.

11. Sumanth and Hassan model [ 51

The model is applicable not only as an aggre- gate planning tool at firm level, but can also be used at an operation unit level. It can also be ap- plied in service organisations. It is helpful to ob- serve which unit is profit making in a firm. It is integrated with evaluation, planning and im- provement phase of the productivity cycle.

PI=COi/(Li+Ci+Ri+Qi), 12. Riggs model f 17 ] i

i = type of product ( 1,2 ,..., N) .

Approach: PI= (O+M,)/(LfC+R+Q).

Total productivity measure. Type of inp~ts~ - Tangible inputs.

Ap~roach~

- L: weighted cost of labour. - C: fixed and working capital “leasing method”. - R:weighted cost, value of raw materials used. - Q:energy and “other expense input”, Type of o~tput~~ - All tangible outputs “deflated”. - Finished units produced with base-period

prices. - Work in process value. - Dividends and interests. - Other income. Special features: - Extended Craig-Harris and Hine models. - Total productivity measure product-wise with

respect to their inputs. - Operational total productivity model (OTPM )

version is useful for productivity measurement at firm level.

Potentials of the model: The strength of the model is that it points out

specific inputs or resources whose utilisation must be improved. The model considers the im- pact of all imput factors on the output in a tangile sense. It helps the strategic planners in the deci- sion making. Limitations of the model:

All tangible inputs and outputs have to be ex- pressed in terms of value, as all inputs and out-

Total productivity measure and partial pro- ductivity measure. Type of inputs: - L: weighted cost, direct and indirect. - C:annual capital cost of fixed assets. - Other inputs are classified as intermediate

goods and services, including raw materials, energy, purchased services, etc..

Type of outputs: - Gross output “deflated”. - Real monetary value concept. - Products made for inter-plant use, “value-

added”. Special features: - Selection of productivity measure is guided by

“productivity objectives” (effective utiliza- tion of resources to meet objectives}.

- Team productivity measures, followed by con- structing a team performance matrix to im- prove team productivity.

Potentials of the model: - A team productivity indicator has potential to

derive the performance of a cohesive group of workers in stead of that of individual workers.

- Only output that contributes to the organisa- tion goals.

- Every performance indicator serves purpose, exposing a specific pathway to improvement.

limitations of the modei: - Major limitations in team productivity mea-

R.P. Mohanty / Consensus and conflicts in understanding productivity 105

sure involve human feeling and quality of work ments are the measure of overall productivity life. of the organisation.

Potentials of the model: - Objective measures should be preferred over subjective measures.

- Trade-offs between quality and quantity, and time have fascinating economic possibilities. These trade-offs are a pathway to improve productivity.

- Skilled and unskilled workers should be sepa- rated on the basis of their quality of work.

Applicability: - The approach of productivity by objective has

a large application area in manufacturing sec- tions, where every group drives to achieve se- lected objectives.

- A surogate productivity measure is useful when output is not physically measurable, engi- neered standards are not available.

The model can help to identify and quantify the strengths of the relationship among various subsystems of an organisation. It is an objective- oriented approach, starting from data collection, taking, action, evaluating results, and feeding back the information into the system in an itera- tive manner. It provides the various dimensions for objectives (not necessarily in commensura- ble units, or physical or monetary units, but more appropriate to the nature and function of the subsystem under consideration) so that relation- ships among subsystems can be revised with the changing trends with respect to time and nature of the mission. Limitations of the model:

- Further, the “objective matrix” is useful for appraised individuals and productivity sharing.

13. Mohanty and Rastogi (action research) model [71

PI (material) = WIP/S, PI (finance ) =K.J&, PI (marketing) =,S,/FA, PI (production) = (S+ C+ MP) /L, PI (planning) =P/v.

Approach: - Overall productivity measure of the system. - Performance ratios of each subsystem. Type of inputs: - L: personell.

An elaborate procedure to measure productiv- ity though it is very practical and relevant for or- ganisations. Therefore, it is time consuming and requires long-term strategic planning as inputs into the system’s operation. It can modify the long-term strategic plans of the company also, which will be revealed during the action research phase. Applicability:

The model is applicable at organisations of firm level to measure total productivity through par- tial productivity measures of each subsystem. As the systems and subsystems are continuously in- fluenced by internal and external changes, it is sensitive to these changes and it controls these variations.

- C:tixed and wordking capital. - R:raw material utilized. - E: energy consumed. - I: information flowed. Type of outputs: - Goods produced. - Rejects and wastes during manufacturing. - Work in progress. - Utilities and services created. Special features: - Action research approach is a pathway to a mu-

tual acceptable frame-work, and concerns the users in an uncertain situation.

- Performance indices of individual depart-

Symbols TPI = total productivity index, TFPI = total factor productivity index, PPI = partial productivity index, PI = productivity index,

0, =output at time period t,

4 = input at time period t,

Pb = base period prices, L = man-hours, c = capital input, R = raw material input,

Q = miscellaneous expenses,

T, = total cost,

C” =unit cost,

106 R.P. Mohanty /Consensus and conflicts in understanding productivity

IBP

G

II FI

G

TI

Lap

G

s

MP

Ci

E

G

W B D

N

& &

OMP

N

OBP

cus N

IMP

SUP

VA* hJ VB? hJ P 0 MP WIP FA V

= inputs in base-period, =profit,

= labour cost,

= fixed investment, = total investment,

= cost of hiring,

= revenue, = capacity,

= cost of firing labour,

= sales, = manufacturing product,

= inventory holding cost,

= exclusions, = wages,

= shortage cost,

= benefits, = demands,

= planning horizon,

= fixed capital, = working capital,

= aggregated output in measured period,

= number of customers, = number of suppliers,

= aggregated output in base-period,

= standard input of company A,

= standard input of company B,

= inputs in measured period,

= purchases, = output, = manufacturing plant, = work in process, = fixed assets, = volume/capacity.

References

111

t21

Mohanty, R.P., 1983. Primary tasks and root defini- tions for action research in productivity. Proc. of In- ternational Productivity Congress, Bombay, India. Mohanty, R.P., 1988. Factors affecting productivity: The perceptions of indian managers. Industrial Man- agement & Data Systems. July-August, 2 l-26, 1988.

131

[41

[51

[61

t71

[fJl

191

[lOI

[I51

t161

t171

[I81

[I91

[TOI

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