Productivity as a Performance Measure

Both the improvement of productivity and the effectiveness of performance measures have been topics of extreme interest to managers and researchers in recent years. Looks at the potential advantages and disadvantages of using the traditional productivity measure, output/input, as a measure of performance at the firm, work‐unit, individual, product, or product‐line level. Considers the ability of productivity measures to adjust for price changes and to detect factor substitutions. The distortion of productivity measures by fixed expenses and the inability of productivity measures to consider quality changes are among the disadvantage cited. Also, criticisms that have been levelled at traditional cost accounting measures are found to apply to productivity measures. Proposes three criteria that can aid in determining when productivity measures are appropriate as performance measures. Makes recommendations for ways of using productivity measures effectively also.