The productivity of a company’s workforce plays a key role in its profitability and competitiveness. It makes sense: Increase productivity levels and you can expect to generate higher profits without adding headcount. That boosts the likelihood of long-term success in competitive markets. So it’s important that business leaders understand how to measure productivity, then use that data to identify and overcome obstacles to making their workforces more productive.

What Is Productivity?

Productivity is a fundamental driver of growth and success for organizations of all sizes. At its core, productivity measures how efficiently resources—such as labor, capital, and time—are transformed into valuable output, be that goods or services. When productivity improves, companies can achieve more with less, boosting profitability and freeing up resources for innovation and expansion. But this isn’t just about working harder; it’s about working smarter—leveraging technology, streamlining processes, and empowering teams to focus on what matters most. The result of this is higher productivity, lower costs, greater competitiveness, and the ability to deliver better value to customers.

Key Takeaways

  • Productivity is key to a company’s profitability and ability to thrive.
  • Workforce productivity is a measure of how efficiently a company converts inputs, such as labor or capital, into outputs, such as goods and services.
  • Obstacles to increasing productivity include too much email, too many meetings, too many manual processes and industry-lagging technology. Simple fixes can help address these problems.
  • Identifying and tracking productivity metrics can help companies manage and improve workforce productivity.
  • Performance management software can make it easier to measure and manage productivity.

Productivity for Businesses Explained

Productivity is calculated by dividing output by inputs. The basic formula is:

Productivity = Output / Input

Output is typically measured as the dollar value or the units of products and services that a company produces. Inputs are any resource used to create products and services. The two most common types of input are capital—which includes investments in assets used for production, such as manufacturing equipment and computers—and labor. Other inputs may include energy, technology, materials, and purchased services.

  • Labor productivity measures the output per hour of labor.
  • Capital productivity is the productivity attributable to the money invested in assets used to produce your company’s output.
  • Multifactor productivity, also known as total factor productivity, takes into account multiple inputs. The U.S. Bureau of Labor Statistics calculates national multifactor productivity by dividing an index of output by an index of combined labor and capital inputs.
  • Material productivity measures how efficiently a business turns raw materials into finished goods, calculated as the amount of output produced per unit of material input. Higher material productivity can result in reduced waste, lower costs, and improved overall efficiency.

How Does Productivity Work?

Productivity goes up when output increases at a faster rate than inputs or when a company can generate the same output with lower inputs. Here’s an example that shows how this works, exploring the effect of different inputs.

Suppose you own an apple orchard, and you’re looking at ways to increase the productivity of your annual apple-picking operation. Currently, your company’s 50 workers can pick a total of 10,000 large apples per hour by hand, on average. Your hourly labor productivity is therefore 10,000 apples/50 people = 200 apples per hour per picker. Not bad, but there are four options to do better, beyond just pushing people to work harder:

  1. Technological improvements: You can add inputs in the form of technological improvements that expand output by more than their cost. If you provide each apple-picker with Acme’s Super Duper Apple-Picking Machine, labor productivity jumps twofold: They can each pick 400 apples per hour.
  2. Technical efficiency: Companies can improve technical efficiency by using their existing technology or skills more efficiently. Perhaps your workers can do better than 200 apples per hour if they become more skilled at picking apples by hand.
  3. Organizational improvements: You may be able to improve hourly output by reorganizing apple-picking teams so they more efficiently cover the entire orchard.
  4. Increasing scale: You may be able to increase productivity by expanding your operation. Doubling your apple output may require you to double the size of your orchard, the number of pickers you employ, and the number of machines they use. But it won’t require you to build a second headquarters building, hire twice as many administrative workers, or double your marketing and advertising budget. Your output will double, but your inputs will not.

Why Is Productivity Important?

Because it’s a measure of efficiency, high productivity is key to winning in a competitive marketplace. Increase your productivity and you can generate higher profits—or charge lower prices and take customers away from your competitors. On the other hand, if your productivity declines or increases more slowly than competitors’, you may be unable to operate profitably or suffer from sluggish growth.

Levels of Productivity

Productivity isn’t a one-size-fits-all concept—it can be viewed from several perspectives depending on what’s to be measured. By breaking productivity down into different levels, businesses and individuals can better pinpoint where gains can be made and which strategies to prioritize. Each level offers unique insights and opportunities. Here are the five basic levels.

  • Personal productivity:

    The term “personal productivity” is often used to describe how much individuals can accomplish every day in their personal lives and in the workplace. It reflects a person’s ability to manage their time, energy, and resources effectively to achieve their goals. Improving personal productivity often involves setting priorities, minimizing distractions, and using tools or techniques that help streamline daily tasks.

  • Workforce productivity:

    Workforce productivity (which is what we’re mainly concerned with here) is the aggregate productivity of all individuals in a company’s workforce. It measures how efficiently employees collectively turn inputs—such as time and skills—into valuable outputs for the business. High workforce productivity generally leads to a stronger competitive position in the market.

  • Sector productivity:

    The aggregate productivity of all companies in an industry or sector can help identify and measure trends, strengths, and weaknesses within that industry, which can inform investment and policy decisions. Sectors with high productivity often drive economic growth and innovation across the broader economy.

  • Team or department productivity:

    This is the collective output of one or more individuals united under a common goal. Team or department productivity focuses on how well a group collaborates and uses resources to achieve shared objectives. Effective communication, clear role definitions, and streamlined processes are key factors that can enhance productivity at this level.

  • National or global productivity:

    The aggregate productivity of all industries in an economy—nationally or globally—is a critical indicator of economic health and competitiveness on the world stage. Improvements at this level can lead to higher living standards, increased economic output, and greater resilience to economic shocks.

Examples of Workplace Productivity

From simple fixes to elaborate strategies, there are many ways for productivity to be increased. Here are a few examples:

  • Completing high-priority projects ahead of schedule by using effective time-management strategies, such as blocking out focused work periods for critical tasks.
  • Increasing the number of products manufactured per labor hour—say, a furniture company tripling its output from two to six chairs per hour after streamlining its operational processes.
  • Improving customer service efficiency through better workflow organization and training—for example, a call center boosting the number of calls handled per employee.
  • Implementing continuous improvement practices, such as Toyota’s Kaizen philosophy, where employees regularly suggest and adopt small changes that cumulatively enhance productivity.

Benefits of Increased Productivity for Businesses

The basic advantages of higher productivity—greater competitiveness and profitability—can generate a broad range of additional business benefits. They include:

  • Higher customer satisfaction: Customers will be happy if your company’s increased efficiency enables you to reduce prices or deliver goods and services faster.
  • Better terms from suppliers: If greater productivity enables the company to increase production, it can buy raw materials and components in larger quantities, which usually means it can obtain them at lower prices.
  • More attractive wages: Higher productivity can make it possible to pay higher wages, which can help attract employees.
  • Increased access to capital: When improved productivity translates into higher profits, that can pave a smoother path to obtaining funding, either by issuing equity or borrowing.

Common Business Productivity Challenges and Pitfalls

Most companies don’t operate at maximum productivity. We’ve all heard the stats about disengaged employees who “work” only a few hours per day—and that’s only one of many challenges to achieving greater productivity. Some are easier to overcome than others.

Here are six common pitfalls:

  • Achieving “busyness” rather than productivity: People often tell themselves that they’re being productive because they’re working long hours. But they may actually be working harder instead of “smarter, faster, better,” as bestselling writer and productivity guru Charles Duhigg describes it. Companies that reward people for merely looking busy may not achieve high productivity. The answer is to measure outputs and focus on improving them.
  • Inefficient meetings: Inefficient and unnecessary meetings can eat into productivity for everyone involved. Companies can increase efficiency by starting and ending meetings promptly, requiring a clear agenda, ensuring that all attendees come prepared, and assigning a to-do list of tasks at the end.
  • Email: According to a survey commissioned by Slack and conducted by OnePoll, the average employee spends 10 hours and 47 minutes a week drafting emails that few recipients read. That’s often time that could be spent more productively. Companies that discourage unnecessary CCs and BCCs can reduce this problem.
  • Poor time management: Time spent on emails and meetings often masks a larger time-management problem. If your company’s employees don’t have daily to-do lists and organize their time accordingly, many will default to being reactive—responding to a badly managed calendar, incoming email, and whoever demands their attention during the day. Some people are good at managing their time, while others need assistance and closer supervision.
  • Putting off technology improvements: Companies sometimes delay technology upgrades that can radically improve productivity. For instance, investing in collaboration tools can help employees work productively from anywhere. ERP systems can tie together many business processes, automating the flow of data and reducing manual effort. And any technology that helps companies stay abreast of key performance indicators (KPIs) that measure productivity, such as order picking accuracy in a warehouse, will pay off.
  • Manual processes: The amount of time a worker spends importing, exporting, entering, reconciling, and manipulating data among one or more information systems can slow down productivity. Additionally, the amount of time needed to assemble reports or analyses for decision-makers can lead to less productivity.

How to Measure Productivity in the Workplace

To truly understand and enhance productivity, businesses need reliable ways to measure it. Tracking the right metrics the right way helps organizations assess the impact of their improvement efforts and identify areas for further advancement. Depending on the industry and business function, there are many different productivity measures in use. Here are some of the most popular:

  • Revenue per employee: This is a core productivity measure for many companies. It’s typically calculated as the most recent 12 months of revenue divided by the current number of full-time equivalent employees. Revenue per employee may be a particularly relevant KPI for consulting services firms.
  • Number of parts produced: This fundamental measure of manufacturing productivity is usually measured in parts per worker per hour.
  • Customer satisfaction score (CSAT): This is the average customer rating, generally gathered from surveys and measured on a scale that ranges from 1 to 5 or 1 to 10. Low scores may be a warning that customers will defect. CSAT is a core element of a customer experience (CX) focused strategy.
  • Downtime: This is the percentage of time that an important business system is unavailable. Unplanned downtime will compromise productivity.
  • Employee turnover rate: This is the percentage of employees who leave an organization during a certain period of time. High turnover is often associated with low productivity due to the time required to find and train replacements. Fortunately, companies can take steps to minimize employee turnover.
  • Labor utilization rate: This ratio assesses the proportion of workers’ time spent on productive tasks. It’s calculated as the time spent on productive or billable hours divided by the total number of employees’ available hours and, like revenue, is important for services firms to track.
  • Gross profit margin: This profitability metric reflects the efficiency of a company’s core business operations. It’s calculated as net sales revenue minus cost of goods sold or services delivered. A business whose gross profit margin is consistently below others in its industry risks being overtaken by more productive competitors. Thus, it’s important for all companies to track their gross profit margins.

Factors That Impact Workplace Productivity

Many elements contribute to employee productivity. From the physical workspace to leadership styles, each factor plays a role in shaping how efficiently teams operate and how engaged they feel on the job. Here are some of the most important factors that impact workplace productivity:

  • Physical environment: A comfortable, safe, well-lit, and organized workspace reduces distractions and helps employees stay focused, directly boosting productivity.
  • Setting clear expectations: When employees understand their roles and what’s expected of them, they can prioritize tasks effectively and work toward shared goals.
  • Employee well-being: Supporting physical and mental health through wellness programs and flexible work arrangements helps employees stay energized, engaged, and productive.
  • Company culture: A positive, inclusive culture that values collaboration and trust encourages employees to contribute their best ideas and efforts to the team.
  • Access to technology: Providing up-to-date tools and software streamlines workflows, reduces manual effort, and enables employees to accomplish more in less time.
  • Effective training and development: Ongoing learning opportunities ensure that employees have the skills needed to adapt to new challenges and perform at their highest level.
  • Employee recognition and incentives: Acknowledging achievements and offering rewards motivates employees to maintain high performance and strive for continual improvement.
  • Communication: Open and transparent communication keeps teams aligned, reduces misunderstandings, and helps resolve issues quickly.
  • Leadership: Strong, supportive leaders provide direction, inspire confidence, and empower employees to take initiative and excel in their roles.

Calculating National Productivity Trends

National productivity is typically tracked using a country’s gross domestic product (GDP), which is the total value of all the finished goods and services produced within a country’s borders in a specific time period. According to the Organization for Economic Co-operation and Development (OECD), average labor productivity growth across OECD countries was estimated at about 1.4% in 2023, similar to the long-term average from 2001 to 2019. The Conference Board projects that in 2024, 77% of global GDP growth will come from labor productivity gains, signaling a renewed focus on productivity as the main driver of economic growth.

US Productivity Trends

Recent data shows that US labor productivity has experienced a notable rebound. In 2023, labor productivity grew by 2.7%, significantly outpacing the 1.5% annual average since 2004 and nearly matching the 2.9% growth rate seen during the productivity surge of the 1990s. During the period from the second quarter of 2023 to the third quarter of 2024, productivity growth averaged 2.6%, more than double the average rate of the prepandemic decade. Economists attribute this recent strength to increased business dynamism, the widespread adoption of remote and hybrid work, and advances in technology, including AI.

What Productivity Means for Job Growth

Recent research shows a positive correlation between productivity growth and job growth at the country level. An OECD study using data from 13 countries over the past two decades found that higher productivity is linked to both increased employment and wage growth, especially when supported by complementary policies that help translate technological and organizational changes into job creation. Overall, quicker productivity growth increases the overall demand for labor, leading to higher employment and rising wages, rather than higher unemployment rates.

6 Tips for Improving Productivity in the Workplace

How can you improve productivity in the workplace? There’s no single cure-all, but certain approaches can help managers at any company boost output—such as helping staff better plan their time, reducing distractions, and applying the right technology. Here are six workplace productivity tips:

  1. Help your staff plan more effectively: Encourage employees to supplement their daily to-do lists with lists of longer-term goals. Make sure everyone has a long-term plan and encourage people to align their daily tasks with that plan. Help workers track their time and hold them to deadlines, which will identify higher performers as well as those who need more support.
  2. Provide clear direction: Whether you’re supervising two people or 200, communicate clearly what your priorities are in the short, mid, and long term. If there are people between you and frontline workers, make sure the message reaches them, rather than becoming distorted as it filters down through organizational layers. Some effective managers hold regular town hall meetings with their staff to ensure that communication happens.
  3. Show staff you trust them through delegation: As a manager, delegating select jobs to carefully chosen people is good for employees’ morale and professional development—and for your own efficiency. Start with tasks that are not mission-critical, which makes it easier to ratchet back responsibility if someone doesn’t deliver. If you don’t delegate, you’ll never find out what your employees can do.
  4. Give people the tools they need: Issuing people the right tools—including technology—makes them more productive by eliminating tedious manual work and providing better access to information. For example, All-Safe Pool, a maker of pool fences, nets, and covers, doubled its productivity across the board by deploying a cloud ERP solution. Real-time access from any location to financial, inventory, and customer information helped the 40-person company achieve strong and steady growth in sales to businesses and consumers. In addition, within the limits of what you can afford, make sure that your employees’ computers and printers are up to date and that they can access company systems securely from home.
  5. Create the right workplace environment: Companies can maximize productivity by paying attention to the work environment. Some businesses reduce distractions by encouraging employees to turn off their phones and check them only during breaks, or by offering soundproof headphones to employees as needed. They make the environment physically comfortable and pleasant by providing attractive workspaces and managing the temperature: Between 68 and 70 degrees usually keeps people comfortable. And they encourage employees to take breaks, stretch, and walk around—preferably outside.
  6. Help employees create productive home workplaces: Working from home has many benefits: no commute, a more flexible schedule, and potentially lower stress. But it’s important to take steps to ensure your people remain productive when working remotely. Creating a dedicated, distraction-free workspace, scheduling the day, and using time management techniques can help.

Monitor, Measure, and Improve Workplace Productivity With Software

NetSuite SuitePeople human resource management solution can make it much easier to measure and track improvements in workforce productivity. Performance management allows businesses to manage training, recruiting, budgeting, and a number of other areas, and lets employees set goals and track progress against them. It shows who is performing better than expected and who is lagging behind, helping companies identify which employees may be ready for more responsibilities and which need more help.

Crucially, tracking performance in a software system allows leaders to conduct workforce analytics that show whether productivity justifies the company’s level of investment in employee development—and to identify where the problems are. Are employees taking too much time over some tasks but not others? If so, what’s getting in the way? Do you have the wrong tools, the wrong processes, undertrained employees, or something else? Cycles of analyzing the data and conducting reviews can help improve efficiency as well as employee satisfaction.

Productivity is key to a company’s competitiveness and long-term survival, so it’s important for any company to measure and track productivity improvements. Identifying common pitfalls and focusing on performance management can help companies drive productivity improvements that increase profitability and drive business growth.

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Productivity FAQs

What is meant by “productivity”?

Productivity is a measure of how efficiently a company converts inputs, such as labor and capital, into outputs—products and services. It’s calculated by dividing outputs by inputs.

What is a productivity example?

Productivity is commonly measured in output per worker or output per worker per hour. For a manufacturing company, a measure of productivity might be the number or value of the finished products each worker can produce within a given time.

What are productivity theories?

Productivity theories are frameworks that explain what drives people and organizations to work efficiently and achieve more output with the same or fewer resources. Key theories include Maslow’s Hierarchy of Needs, which suggests that people must have their basic and psychological needs met before they can reach peak productivity; Herzberg’s Two-Factor Theory, which distinguishes between factors that cause job satisfaction and those that prevent dissatisfaction; McGregor’s Theory X and Theory Y, which contrasts authoritarian and participative management styles; and Reinforcement Theory, which states that behaviors followed by rewards are more likely to be repeated.

What are the five main factors that affect productivity?

The five main factors that affect productivity are work environment; leadership and management; training and skills development; technology and tools; and organizational culture and motivation.

What is the most common measure of productivity?

The most common measure of productivity is labor productivity, which is typically calculated by dividing total output (such as goods produced or sales revenue) by the total number of labor hours worked. This metric helps organizations and economies assess how efficiently labor resources are being used and is widely reported by agencies, such as the Bureau of Labor Statistics.