Productivity (Edexcel IGCSE Business)

Revision Note

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

$\frac{Total Output}{Number of Workers}$

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

$= \frac{46, 000 units}{50 workers} = 920 units per worker$ (1 mark)

Step 2 - Calculate productivity for 2022

$\frac{= 69, 000 units}{60 workers} = 1, 150 units per worker$ (1 mark)

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

$= \frac{1, 150 - 920 units}{920 units} \times 100 = 25 %$ (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

Last updated: 10 October 2024

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