Management is concerned with productivity, thereby implying efficiency and effectiveness.
Factors of production of an organization such as labor, capital, land, equipment etc. are used efficiently and effectively prepared through management for achieving organizational goals.
Productivity is the relationship between a given amount of output and the amount of input needed to produce it. Successful companies create a surplus through productive operations.
Although there is not complete agreement on the true meaning of productivity, we will define it as the output-input ratio within a time period with due consideration for quality. It can be expressed as follows;
The formula indicates that the productivity can be improved by;
- Increasing outputs with the same inputs
- Decreasing inputs but maintaining the same outputs
- Increasing output and decreasing inputs to change the ratio favorably
Productivity improvement programs were mostly aimed at the worker level. Yet, as Peter F. Drucker, one of the most prolific writers in management, observed
The greatest opportunity for increasing productivity is surely to be found in knowledge, work itself, and especially in management.
Effectiveness is the achievement of the objective. “Effectiveness” is how well the process achieves its desired output and the desired output is what its user or customer requires- are the chosen output and process the right ones.
Effectiveness can be measured in terms of how well the products or services meet customers’ requirements.
Are my chosen destinations/goals correct ones?
Efficiency is measured in terms of a ratio of “output generated” divided by inputs used in the process.
For Example, widgets produced per kilogram of raw material used.
Efficiency is the achievement of the ends with the least amount of resources. In organizational terms, minimization of the extent of expenditure of resources (including money, time and information) in a process to get an output (result) is called “efficiency”.
Efficiency can be measured in terms of the ratio of output to inputs, utilization percentage of various resources, the unit cost of the product, cycle time or lead time, the extent of wastage etc.
Effectiveness measures the total output produced – for example, total widgets produced in a day. To understand the concept of effectiveness and efficiency in a business we have to see the below example;
|workers||Pen production (effectiveness)||Material used (kg) (Efficiency)||Pen produced per 1 kg material (Productivity)|
|A||75 piece||15||5 piece|
|B||130 piece||30||4.33 piece|
|C||120 piece||18||6.67 piece|
Here, worker ‘B’ is the most effective as he produces the most amounts of pens and worker ‘A’ is most efficient as he uses the least amount of material.
But depending on the objective and competition on the today’s’ managers must aim at effectiveness as well as efficiency to maximize profits it is that is required.
In that case, worker ‘C’ is the best choice for the management. Because worker ‘C’ has the closet perfect balance of effectiveness and efficiency. Thus, making him the most productive of all workers.