If your business doesn't have productivity objectives, it doesn't have direction. If your business doesn't have productivity measurements, it doesn't have control. In The Essential Drucker: The Best of Sixty Years of Peter Drucker's Essential Writings on Management, Peter Drucker explains that productivity is the best yardstick for comparing management effectiveness.
Productivity is the Best Yardstick
According to Drucker, productivity is the best tool for comparing management effectiveness across your enterprise:
A productivity measurement is the best yardstick for comparing management of different units within an enterprise, and for comparing managements of different enterprises.
Productivity is the Degree to Which Resources are Utilized and Their Yield
The quality of management differentiates one business from another in the same field. Drucker writes:
All businesses have access to pretty much the same resources. Except for the rare monopoly situation, the only thing that differentiates one business from another in any given field is the quality of its management on all levels. The first measurement of this critical factor is productivity, that is, the degree to which resources are utilized and their yield.
Continuous Productivity Improvement
Management's most important job is continuous productivity improvement. Drucker writes:
The continual improvement of productivity is one of management’s most important jobs. It is also one of the most difficult; for productivity is a balance among a diversity of factors, few of which are easily definable or clearly measurable.
Labor is Only One Factor
According to Drucker, there's three major resources when you're considering productivity objectives: land, labor and capital. Drucker writes that you can't let labor make the other resources less productive:
Labor is only one of the three factors of production. And if productivity of labor is accomplished by making the other resources less productive, there is actually loss of productivity.
Objectives are Direction, Measurement is Control
According to Drucker, productivity is central:
Productivity is a difficult concept, but it is central. Without productivity objectives, a business does not have direction. Without productivity measurements, it does not have control.
Key Take Aways
Here's my key take aways:
- Productivity is the best tool for comparing effectiveness.
- The quality of management differentiates one business from another in the same field.
- Management's most important job is continuous productivity improvement.
I think the meta-point is, assuming both businesses produce effective results, the more efficient one wins in the long run. That's consistent with my experience.
I think another important point here is that if you focus on your productivity, you can usually find a lot of opportunity for innovation in your processes.
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