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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:

  1. Increase the return rate on the same investment rate.
  2. Reduce the investment rate on the same return rate.
  3. 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.


Copyright © 2002 Productivity Solutions

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