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Productivity (Edexcel IGCSE Business)

Revision Note

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Calculating Productivity

  • Productivity is the output per person during a given time period

    • E.g. an IKEA worker is able to produce 2 Poāng chairs per hour
       

  • Productivity is expressed as a number of units and is calculated using the formula

begin mathsize 16px style fraction numerator Total space Output over denominator Number space of space Workers end fraction end style

Worked Example

The table shows the number of pairs of luxury wool socks produced by Sokkemani Ltd in 2021 and 2022. 

Year

Units Produced

2021

46,000

2022

69,000

In 2021 Sokkemani Ltd employed 50 staff. In 2022 the number of staff employed by the business increased by 20%.

Calculate the percentage change in productivity between 2021 and 2022.   (4)
 

Step 1 - Calculate productivity for 2021

equals space fraction numerator 46 comma 000 space units over denominator 50 space workers end fraction space space space space space equals 920 space units space per space worker          (1 mark)

 

Step 2 - Calculate productivity for 2022

fraction numerator equals space 69 comma 000 space units over denominator space 60 space workers end fraction space space space space space equals 1 comma 150 space units space per space worker         (1 mark)

 

Step 3 - Calculate the percentage difference between the two years ((new-old) / old)

equals space fraction numerator space 1 comma 150 space minus space 920 space units over denominator 920 space units end fraction space space space cross times space space space space space 100 space space space equals space 25 space percent sign space space space space      (1 mark)

 

Step 4 - Identify whether the percentage difference is an increase or decrease

Labour productivity has increased from 920 to 1,150 units so it is a 25% percentage increase  (1 mark)
 

Examiner Tips and Tricks

You should always include your full working in calculation questions. You may be awarded marks for substituting correct numbers into a formula, even if your final answer is incorrect.

Ways to Increase Productivity

  • The higher the level of productivity, the lower the average total costs

    • With lower average costs a business could choose to reduce selling prices to attract customers or make higher levels of profit

  • There are several ways a business can increase productivity
     

Ways to Increase Productivity

Method

Explanation

Employee motivation

  • Motivated workers tend to be more productive

    • Financial incentives linked to output may increase worker productivity

    • Non-financial incentives may include workers in decision-making, increase their commitment and productivity

Skills, education & training staff

  • Well-trained and educated workers are likely to be able to make useful contributions to decisions that improve productivity

    • Workers are more autonomous so the need for supervision is reduced

    • Contributions from knowledgeable staff are likely to lead to improvements in productivity

Business organisation & working practices

  • Flexible and adaptable workplaces can improve the commitment of workers and allow a business to respond to changes in demand

    • Hours and location of work can be adapted to better meet the needs of workers and demand

    • Workstations may be used for various purposes with careful planning and training

Investment in capital equipment

  • Increased automation can improve levels of output and quality

    • Well chosen machinery is less likely to make mistakes than humans

    • Machinery and technology can operate for long periods without a break as long as it is properly maintained

The Impact of Productivity Improvements

  • Businesses that increase their level of productivity are likely to be more competitive

    • Competitiveness refers to the ability of a business to maintain or grow its sales and market share given the presence and actions of rivals

Diagram: Productivity & Competitiveness

2-4-1-the-link-between-productivity-and-competitiveness-1

There is a strong link between productivity & competitiveness
  

  • Businesses that are competitive are likely to have the financial resources required to continue investing in improvements to their productivity such as

    • Purchasing more technology and upgrading manufacturing equipment

    • Improving staff training and recruiting skilled workers

    • Moving to larger premises

  • Customers benefit if reduced costs resulting from higher productivity lead to lower prices

    • Product quality and customer service may also be improved if the production process is more efficient, leading to an improved reputation and greater customer loyalty

  • Higher levels of productivity can motivate workers if they are rewarded for higher levels of output

    • E.g. workers may receive a bonus linked to their output

  • However, higher levels of productivity may create difficulties for workers

    • If increases in productivity are achieved through the use of new machinery, some may lose their jobs

    • Employees may feel pressurised to increase their output and could feel overworked

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    Author
    Reviewer
    Lisa Eades

    Author: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.