What is Multifactor Productivity? How to Increase Multifactor Productivity in the Organization?

Imagine you are working in a restaurant as a cashier and you’re responsible for collecting cash from incoming customers. There are cooks who are preparing meals in the kitchen, waiters taking orders from customers who are dining in. A delivery team who dispatches order to people at homes. A restaurant manager who is organizing everything and managing the teams operating on the floor. When people work together, they produce results. There’s no such thing as a one man show or a single man army. 

Believe it or not, nobody is a super-man. 

When people work together, they achieve goals and when they do it better, they achieve better. 

Multifactor productivity is the measurement of how well individuals work collectively and utilize resources effectively to produce better outputs. As in our case of a restaurant, if waiters aren’t efficient in taking down orders, the cooks might get delayed in preparing the meals. It is the combination of different factors such as labor, materials, energy, market capital and purchased services altogether. The combined inputs are compared to the amount of output produced to complete the work equation and measure mfp. 

What is the Definition of Productivity? 

Productivity is the state or quality of being productive in an organizational setting. It is the rate of output against the rate of input. It helps in identifying how well organizations are using labour and capital effectively to produce a certain level of output. It is an indicator of efficiency measuring performances. 

While there are several productivity types, the few that are widely accepted are: 

Labor Productivity 

Multifactor Productivity

How to Differentiate Between Labor Productivity & Multifactor Productivity? 

Labor productivity can be defined as output per unit of labor. To calculate labor productivity, we simply have to divide the output produced with the amount of labor involved. The best example of labor productivity which I can mention here is that of a factory. Just imagine, a factory producing 2,000 shoes every hour with more than 50 employees working in the factory. So when we measure labor productivity, we can divide 2,000 shoes with 50 employees (2000/50) to find out the amount of labor productivity involved. In the following case, 40 shoes are created by a single employee and that’s the labor productivity of the shoe factory. 

As far as MFP or Multifactor productivity is concerned, Multifactor productivity involves all the inputs which are considered within the production process. It can include a number of factors such as labour, land, capital, and other relative inputs. MFP or Multifactor productivity is the output per combined number of inputs. For instance, if we have to calculate the MFP for the same shoe factory, now the work equation for the factory won’t be limited to just the labor involved in manufacturing the shoes. It involves several other factors. So the work equation for an MFP will become (2,000/(Labor + Capital + Land + Intermediate Inputs). It is a more comprehensive approach to measuring organizational productivity. 

What is a Good Productivity Percentage? 

As far as the good productivity percentage is concerned, may it be labor productivity or an MFP in a business context, 70 percent rule is the way to produce better results. Why is it important that people should withhold their productive percentage, it’s because giving their complete effort into something will eventually deprive them of the energy to work more. To strike the perfect work-life balance, it is essential that some room for productivity may always remain. It sets the good productivity percentage altogether.

What Factors Contribute to the Progress of Multifactor Productivity?  

There are different factors which sums up to make the best recipe for excelling an organization’s multifactor productivity. However, to put a few into perspective, they are discussed as below: 

1) Technology

When it comes to multifactor productivity, technology plays a significant role. When you are considering optimizing your organization’s multifactor productivity, your initial focus should always be focused on employing the most advanced technologies which can produce the greatest possible level of productivity. Using the best technologies can help you save up on multiple intermediate inputs such as labor cost, capital investment, etc. and at the same time make your operations and processes more streamlined and efficient. Also, the output produced with the latest technologies will be of the highest standard & quality. 

Great technology may have several interesting benefits, but the one that makes it stand a class-apart from the rest is the output produced with advanced technology is of the highest possible number whereas the cost per unit of the output is fairly less in comparison to cost inducted in other implementations. 

2) Technical Progress

With the passage of time, the organization will eventually expand. And when it expands, it will expand its relative operations and upgrade its facilities technically. This technical progress of facilities is what makes more room for the organization to capitalize on Multifactor productivity. As the organization expands so does its resources and hence, with the expansion of resources, it becomes evident that the organization should make the best use of them. By bringing technical progress into consideration productivity engineers working at the back-end can get the most positive outcomes easily. 

Concluding Thoughts

Multifactor productivity increases the overall efficiency of the organization tenfolds.It has some relatively positive impacts and can enable organizations to make significant contributions in different areas of progression. Changes in multifactor productivity can bring better management practices, more increased knowledge, increased sales, increased profitability and more brand exposure. Organizations which are capitalizing on increasing the MFP in their business operations are definitely seeing some great results.

Are you also aiming to make the best out of multifactor productivity? Feel free to discuss how you are making worthwhile implementations across your organization and what are the outcomes? 

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