Define productivity. State its importance giving suitable examples.
Productivity is a ratio of actual output (production) to what is required to produce it (inputs).
Output means the amount produced or the number of items produced and inputs are the various resources employed, for example, land, building, equipment and machinery, materials, labor, etc.
Productivity = Output/Input
Importance of Productivity:
Productivity is a tool required in evaluating and monitoring the performance of an organization, especially a business organization.
Proper use of productivity measures can give the manager an indication of how to improve productivity: either increase the numerator of the measure, decrease the denominator or both.
Productivity measures can be used to compare its performance with similar firms and competitors, compare performance among different departments within the firm.
Example: If two firms have the same level of output, but one requires less input leads to a higher level of productivity, that firm will be able to charge a lower price and increase its market share or charge the same price as the competitor and enjoy a larger profit margin.