PROFIT LINKED PRODUCTIVITY MEASUREMENT AND ANALYSIS

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“Identifying the dollar impact of productivity gains has become much simpler, thanks to this profit robust measurement procedure.”

Value Proposition

Productivity is the NOW best thing! The idea of ‘growing the cake’ through producing more products using relatively less resources has taken centre stage in the corporate world regardless of the type, size or nature of the business. The amazing and yet unparalleled benefits of improved organisational productivity are evident and very much desirable especially in these economic turbulent times characterised by volatility, uncertainty, complexity and ambiguity (VUCA world). Productivity is now the most important long term organisational growth indicator by any standard.

But wait a minute… If you can’t measure it, then you can’t manage it!

This is why we are offering the Profit Linked Productivity Measurement and Analysis Model. This model tracks the period to period changes in profitability and dissects it into changes due to productivity (relative physical volumes of outputs and inputs) as well as price recovery (net effects of changes in output prices when matched with corresponding input prices). We measure and analyse productivity data with regards to the framework: . This helps in effective monitoring and management of productivity gains for entire organisations, specific product lines or profit centres as well as harness performance improvement opportunities. This model is equally effective in MSMEs as it is in large corporates.

Unlike the archaic methods of measuring productivity which only present the results in  indirect indices and ratios, this method speaks in financial terms and relates to the bottom line, the profits. In addition, the contribution of each input such as labour productivity and capital productivity to profitability is also measured through the input weighted value of each factor. Further disaggregation of the productivity contributions to profitability of each employee level on the organogram or finer input details can also be analysed.

This method has been applied in many firms both internationally and locally mainly in the manufacturing sector though recently it has also been applied to the service industry. Its application has also been extended to the Non-Profit Organisations including NGOs and local authorities. This method has also helped to unearth some underlying inefficiencies in resource utilisation and pricing strategies of many organisations.

This model gives firm-specific answers to questions like:

v  “Our plant manager has just announced a 10% increase in labour productivity; does this mean a 10% increase in the gross profit?”

The analysis will establish the relationship which obtains between profitability and productivity and will clarify the contribution of productivity to the obtaining increases or decreases in profitability.

v  “How can I present productivity Data in a way my CEO will understand?”

This productivity measurement model talks in terms of profits and not mere ratios and indices such as kilogrammes per man-hour and this makes it ideal for reporting purposes to all stakeholder.

v  “How can I distinguish between productivity- improvements contribution in the profit and loss statement from other factors such as prices increases?”

This will be sorted out through the dissection of the profitability into its contributory factors.

v  “How can I gauge the effects of my sales pricing strategies on my profit growth?”

The analysis also delves into the contribution and effectiveness of the pricing strategy of the firm to the overall profitability of the organisation. It establishes how well the organisation is doing in shielding the effects of input cost inflation and at the same time making profits.