Efficiency vs Productivity
Efficiency and productivity are two very important concepts in economics and also two that confuse many because of the obvious similarities between the two. Both concepts pertain to improving production in any company engaged in manufacturing and even in agriculture or services sectors of the economy. However, there are subtle differences between the two that will be highlighted in this article.
The concept of productivity can be easily understood by comparing the outputs of two farmers having same sized farms. The ratio of outputs to inputs is thus the productivity. However, there is also a factor of quality that has to be taken into consideration while comparing the produce of the two farmers. The concept becomes clearer when there are two telephone callers making calls to generate leads in a banking company. If one makes 100 calls in 8 hours while the other is able to make 150 calls in the same time, the second caller obviously has a higher productivity than the first one.
A person may work all day but may have no results to show. This means he is not productive at all. One can be productive only when he is doing right things. If someone is making efforts in the wrong direction, he will have nothing to show at the end of the day implying zero productivity.
It is the desire of all managers to make the best use of their resources to improve the productivity of the company. Often, management makes the mistake of increasing the capacity of production thinking this will improve productivity. The manager who is able to achieve higher output with the same inputs is labeled as more productive. However, it has to be understood that many factors are at work to affect the productivity of workers in an industrial unit. More output per worker in a shift means lower cost of goods than the competitor. This translates into higher profits for a company.
Efficiency is a word that is used very commonly by people in their daily lives. Many say that the efficiency of their air conditioner has gone down over the years resulting in poor cooling than when it was new. Others say the same thing about the mileage of their cars expressing disappointment. What this means is that the efficiency of products goes down with usage and wear and tear over a period of time. The concept of efficiency is used in power plants to express the result that is achieved as a percentage of what ideally could have been achieved. In power generation and transmission, there are always losses that lead to lower efficiencies than what are usually expected.
In daily life, it is a common perception that the private sector is more efficient than the public sector. It is also said that given the resources at the hands of public sector, it should really be much ahead of the private sector. Many believe that job security and promotions without any attention to performance is what is the primary reason of lower efficiency of the public sector enterprises.
What is the difference between Efficiency and Productivity?
• A car is said to be more fuel efficient than other cars in its class if it gives higher mileage than other cars per liter of gas.
• Using the same inputs, achieving higher outputs is said to be more productive than those achieving lower outputs
• If an economy produces more goods and services with the same inputs like natural resources and manual labor than another economy, it is said to be more efficient than the other economy.
• Higher productivity is not always a result of higher efficiency as there are other factors at work also
• A manufacturer is obviously more efficient than his competitors if he achieves lower cost per unit of goods