Productivity refers to the ability to generate the maximum amount of valuable output (goods, services, or results) from a given set of inputs (such as time, labour, capital, or resources) within a specific period. In a business or economic context, productivity is usually quantified by the formula:
Productivity = Output / Input
This calculation allows organisations and economies to assess how well they convert resources into desired outcomes, such as products, services, or completed tasks. Productivity is a central indicator of organisational performance, economic growth, and competitiveness because improvements in productivity drive higher living standards and create more value from the same or fewer resources.
Relationship to Efficiency and Effectiveness
- Efficiency is about using the least amount of resources, time, or effort to achieve a given output, focusing on minimising waste and maximising resource use. It is often summarised as “doing things right”. A system can be efficient without being productive if its outputs do not contribute significant value.
- Effectiveness means “doing the right things”—ensuring that the tasks or outputs pursued genuinely advance important goals or create value.
- Productivity combines both efficiency and effectiveness: producing as much valuable output as possible (effectiveness) with the optimal use of inputs (efficiency).
For example, a business may be efficient at manufacturing a product, using minimal input to create many units; however, if the product does not meet customer needs (e.g., is obsolete or unwanted), productivity in terms of business value remains low.
Best Related Strategy Theorist: Peter F. Drucker
Peter Ferdinand Drucker (1909–2005) is widely recognised as the most influential theorist linking productivity with both efficiency and effectiveness, especially in the context of modern management.
Drucker’s Backstory and Relationship to Productivity
Drucker, born in Austria, became a preeminent management consultant, educator, and author after emigrating to the United States prior to World War II. He taught at New York University and later at Claremont Graduate School, fundamentally shaping the field of management for over half a century.
Drucker introduced the pivotal distinction between efficiency (“doing things right”) and effectiveness (“doing the right things”), arguing that true productivity results from combining both—particularly for “knowledge workers” whose roles involve decision-making more than repetitive physical tasks. He believed that in both industry and society, productivity growth is the primary lever for improving living standards and economic growth.
His classic works, such as “The Practice of Management” (1954) and “Management: Tasks, Responsibilities, Practices” (1973), emphasise the responsibility of managers to maximise productivity, not just by streamlining processes, but by ensuring the right goals are set and pursued. Drucker advocated for continuous improvement, innovation, and aligning organisational purpose with productivity metrics—principles that underpin modern strategies for sustained productivity.
In summary:
- Productivity measures the quantity and value of output relative to input, ultimately requiring both efficiency and effectiveness for meaningful results.
- Peter F. Drucker established the now-standard management framework that positions productivity at the heart of effective, efficient organisations and economies, making him the foundational theorist on this subject.
