Productivity, Efficiency and Performance

Productivity, efficiency and performance; all words that are commonplace within organisations. However, their meanings are often confused: managers will say that top performers are productive and efficient. So, are they the same things? The answer is no. These are separate, but connected and key concepts for us to understand and improve the ability of organisations to be successful.

What is Productivity?

Productivity is a measure of the efficiency of production, expressed as the rate of output that is created for every unit of input using variations of the following:

This means that where input remains unchanged and the output increases, we become more productive. Alternatively, we could become more productive where we maintain output but decrease the input. Equally, the reverse of each of these results in decreased productivity.

Let us think about this in terms of cars on a racing track: car A and car B. Car A crosses the finish-line first, in a time of 45 minutes. At this point, car B is still a mile behind. We can say that in 45 minutes, car A is more productive; it produces half a mile greater distance than car B. What then are the options available to car B to improve its productivity and beat car B in a rematch?

What is Efficiency?

Efficiency is a ratio of effort to outcome and is used to measure process. If two processes create the same outcome, then the one requiring the least effort is the most efficient.


Let us say that car B has a standard manual transmission: a gear stick and three pedals (clutch, brake, accelerator). The effort required to change gear in car B is greater than in car A, which has a semi-automatic transmission found in most modern race cars: paddles and two pedals (brake and accelerator). Car A is more effective than car B in the process of changing gears.

Whether it is a new gearbox to improve the process of changing gears, a new lubricant to improve the process of the engine turnover through reduced friction or a new car design to improve the aerodynamic process and reduce air resistance; all these changes improve efficiency.

Efficiency, therefore, relates to the demand-side of productivity. When we improve our internal processes so that we can generate the same output from less input or greater output from the same input, then we are more productive.

What is Performance?

Performance is a measure of how an action is performed. If two people are performing the exact same process with the same tools and systems, then the one who create the greatest net value is the best performer. Now, value can take different forms, but it is often taken to mean a combination of speed and quality.


Another way to look at performance is to say that it is the difference between the perfect performance of the process and the reality of what was done. To improve performance in car B, they could spend more time training the driver so that executing processes become instinct.

Performance, therefore, relates to the supply-side of productivity. When we improve the ability of our people so that we can generate the same output from less input or greater output from the same input, then we are more productive.

Bringing these together

We can see that these things are interconnected. As efficiency is improved, there is less variability in process outcome. With less variability and distractions, the likelihood of errors is reduced, which in turn improves performance.

Think about productivity, efficiency and performance in your own business. When there are productivity challenges, do you tend to look first at the performance of your workforce or do consider the efficiency of the process? How much time and effort do you spend focusing on the underperformance of a single worker rather than dealing with the inefficiency of a process performed by hundreds or thousands of your staff? What could you do differently that will make a real difference?

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