Efficiency, Productivity – Just What Are We Talking About?

If you listen carefully, you will hear almost every software vendor use the term “productivity” in their message.  Everyone’s software, it turns out, makes knowledge workers more productive.

I beg to differ.  That’s not to say that the software doesn’t necessarily enhance productivity.  But that’s not what the software companies, really  mean to say.  Their software is intended to make workers more efficient.  Once the workers become more efficient, they can become more productive.  But productivity doesn’t necessarily follow in the steps of efficiency.

Productivity is defined in economics as the rate at which goods or services are produced.  We tend to view this as output per unit of labor.  When the workforce was still largely industrial, we knew exactly what productivity was: how many widgets go flying out the factory door and how fast we are able to make them.  To make them quickly, however, had little to do with productivity and everything to do with efficiency.

The Bureau of Labor Statistics (BLS) measures productivity by comparing the amount of goods and services produced with the inputs that were used in production.  Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.  The broadest measure of productivity published by BLS is for the U.S. business sector, which is responsible for ca. 78% of the value of the GDP (as of 2000).

Efficiency, on the other hand, is accomplishing a job or task with a minimum expenditure of time and effort.  In industrial settings, companies have developed processes, such as just-in-time manufacturing and factory automation (think robots), that were more efficient than older methods.

It is possible to be very efficient without producing something even nominally useful.  E-mail is innately efficient but if an e-mail exchange takes three weeks to cover the same ground that a five-minute phone call could have achieved, one isn’t being efficient at all.

I should also point out that we truly do not have a good way of measuring productivity for knowledge workers.  For the knowledge economy, the first question might be “what’s output?”  The answer is not as straightforward as what good or service are we producing?  Is it the actual document or design – or the thinking behind it?  Is it crossing things off one’s to-do list and getting things done?  One can be quite busy being efficient without having much to show for the effort.

Software companies make tools designed to make knowledge workers more efficient.  Improvements in efficiency will (one hopes) lead to improvements in productivity.  This is far from straightforward and we’ll need to do a lot more work to answer this question (and we will attempt to do so over the coming months).

I recall a comment made to me years ago by a client, the CFO of a company in the fashion industry, while we were standing outside the bookkeeping department.  “What are all these people doing?” I had asked.  His reply: “I don’t know but they are always very busy doing it.”

Jonathan B. Spira is CEO and Chief Analyst at Basex.

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