Productivity
Productivity is the rate at which what you get out
(return) exceeds what you put in (investment).
The key to understanding productivity lies in
understanding the importance of rate.
Rate measures amount over time.
- Putting $10 in and getting $100 out, sounds like a
good deal - unless it involves putting $10 in every day and getting $100
out every month.
- Putting $10 in and getting $100 out sounds a better
deal than putting $10 in and getting $11 out - unless the cycle time on
the former is a year and the cycle time on the latter is a day. (The
former generates a profit of $90 in a year, while the latter generates a
profit of $365 a year).
It's also important to understand the productivity
ratio. The productivity ratio is the ratio between return and
investment. A $1 million pa profit sounds better than a $480K pa
profit, but if they were on 1.1:1 and 25:1 productivity ratios respectively,
it's a different story.
(A $1 million pa profit on a 1.1:1 productivity ratio
means that $10 million was invested to secure an $11 million return.
While this is not to be sneezed at, it isn't anything
like as impressive as A $500K profit on a 25:1 productivity ratio, which
means that $20K was invested to secure a $500K return.)
The three simplest ways to improve productivity are
to:
- Increase the return rate on the same investment
rate.
- Reduce the investment rate on the same return rate.
- Reduce the cycle time on the same productivity
ratio (the ratio between return and investment).
(A more complex way is to increase the return rate
significantly by increasing the investment rate slightly.)
Productivity improves dramatically when two of the
three simple approaches are combined:
- Increasing the return rate while reducing the
investment rate
- Reducing cycle time on a lower investment rate
- Reducing cycle time on a higher return rate
The ultimate is to reduce the cycle time while
increasing the return rate and reducing the investment rate.
This is what systemic focus guarantees.
|