Roger Martin, a well-known professor at and former dean of the Rotman School of Management, had written this brilliant article about how economists have got it wrong about measuring productivity.
According to him, the productivity numbers as we hear from the economists and IT enthusiasts, don’t really depict the actual numbers as represented in the modern economy.
Thinking of productivity as a quotient (a physical output divided by a physical input) is not the way it will work in today’s time. It might have worked in the old times when it was easy to compare the output (for example: one ton of coal) against the input (for example: an hour of labor). Using this same method for modern enterprises will be comparing apples vs oranges. The numerator in this quotient needs to be changed to the financial measure instead of physical measure – much like the calculation of country’s GDP. Putting the financial figure in the numerator will make it easy to compare the productivity across industries and jurisdictions – and this comparison will be in terms of created financial value.
Therefore, while figuring out how to improve productivity, it needs to be noted that along with the focus on the factors of the denominator (like use technology, training, work processes, automation), one should not forget that the dollar value in the numerator is directly proportional to what the organization charges for its products or services.
Another important aspect is the strategic decisions – such as branding, product design, distribution channels etc., – which can have a huge impact on the numerator (dollar value generated by the company) irrespective of the denominator (labor hours).
Although the impact of such decisions have a substantial effect on the productivity numbers of the company, these are often ignored. Smarter strategic decisions should be,in fact, one of the key productivity improvement recommendations – says Roger Martin.
You can read the article at – https://hbr.org/2015/09/what-economists-get-wrong-about-measuring-productivity