Productivity vs Efficiency – What’s the Difference and Which One Matters More

All businesses aim to increase productivity and efficiency. These two important metrics are the cornerstones of modern business. The bond between the two is very strong. Moreover, many people use the terms productivity and efficiency interchangeably.

However, there is a difference between the two. Efficiency is closely related to the quality of work when the resources are considered. Productivity, on the other hand, refers to the amount of work performed by an individual, team, or business.

The connection between the quantity and quality of work is often strained. That is to say, the quality of the work done will often dwindle if the time necessary for said work is shorter. Simply put, quality demands time and resources.

So, how do you tell the difference between productivity and efficiency? And, more importantly, how do you get the best results for your business? We are here to help!

Defining Productivity

The most common definition of productivity is ‘’Unit of output per unit of time”. That is to say, it is easy to calculate mathematically. Most companies compare their productivity to previous periods. The factors that impact the productivity of a business, team, or individual are

  • The quantity of product compared to the used resources
  • The income or quantity of product compared to other employees, teams, departments, locations of the company, etc.

In other words, productivity will increase the better you use the resources you have. The connection between the two is the main component of productivity. This metric won’t improve if you are increasing the resources along with the produced goods. Simply put, the key to productivity is using available resources in a way that results in producing the largest possible amount of product.

That is why productivity is connected to quantity, but not necessarily the quality of the product. Using fewer materials or needing less time (as time is a resource in and of itself) can result in reduced quality of the final product.

Calculating Productivity

As we have previously mentioned, there is a way to reliably calculate productivity and give it a numerical value. That is why many businesses aim to improve productivity. Simply put, it is easier to track something when you have a way to measure it. The basic formula for calculating productivity is

Total Output/Total Input

In which the input can be calculated as the number of hours invested in creating a product, or resources used in its production.

Increased productivity means either the same amount of goods is produced in less time or with fewer resources, or that the amount of goods increases while time and resources remain the same.

This is a great way to track productivity per employee, team, and location. For example, let’s say your company produces a number of goods that costs $30.000 in a week. The input amounts to 1000 hours your employees invested in creating those goods. So, the productivity is

30.000/1000=30

In other words, the company makes $30 for each work-hour.

If you want to see how productive individual employees are, you can do so by dividing the output by the number of employees in the company. That is to say, if you employ 10 people and make $30.000 per week, the calculation would look like this

30.000/10=3000

This means each employee has produced $3000 that week.

The simplicity of this calculation allows for great precision and the ability to accurately calculate whether your business is staying on track, improving, or reducing productivity.

Productivity Example

The basic premise of productivity is achieving more (quantity) by using the same or smaller amount of time and resources.

So, for this example, let’s make you a gardener. Usually, you need 20 minutes to plant a single seedling. However, you are notified that you need to focus on productivity alone. This, in your case, means planting 4 seedlings in an hour instead of 3.

This means you will have to find a way to reduce the time needed to plant a seedling by 25%. So, you have to reduce the time certain steps take. For example, you will dig shallower holes for the seedlings, or take less time to secure them in the ground.

In other words, you will sacrifice some quality in favor of increased quantity.

The Drawbacks

If you were to measure the productivity of a manufacturing company, the results would be accurate and reflect the real state of your business. However, if you are relying on productivity reports alone in a company that doesn’t produce anything (i.e. professional service companies) problems are bound to arise.

Let’s say you are in charge of a law company. You won’t be able to rely on productivity alone to determine your success. For example, a junior member of your team can have more cases in a week than a lawyer winning a case for a major client. Comparing these two employees solely based on the general definition of productivity wouldn’t be fair or accurate.

Finally, let’s turn back to our gardening example. The seedlings that are planted in haste have a lower chance of surviving the winter or thriving, as they aren’t as well-rooted and watered as they should be. In other words, the increased productivity reflects poorly on the project’s quality and longevity.

Insisting on an increase in productivity may seem like a good idea, as your team will be making more money. This is a success in and of itself. However, as we have previously mentioned, the number of produced units doesn’t have to reflect their quality. In most cases, the opposite is true. Employees will make more mistakes if they’re given less time. Especially so if the employer insists on an unrealistic productivity increase.

Defining Efficiency

Efficiency relies on the quality of output, rather than its quantity. It is often defined as doing things right, which means utilizing the resources you are given in a way that creates a high-quality product while reducing said resources.

The resources in question can be material, workforce, time, or budget. That means the profitability will increase. If the resources, effort, and time increase, the efficiency of work will decrease and vice versa. Finally, the quality of the product must not be hindered for the work to be effective.

Calculating efficiency

Efficiency is closely related to the standard labor hours. That is to say, the less time it takes to create a standard high-quality result, the efficiency is higher. Here is a basic formula you can use

(Standard labor hours/Real-time worked)*100=efficiency percent

That is to say, the bigger the less time your team takes to finish jobs they would usually need an entire workday for, the higher the efficiency. For example, your employees have met the quota for the day after 7 hours of work, and the standard workday in your country is 8 hours. Let us see the efficiency.

(8/7)*100=114.3%

Any efficiency above 100 is considered greater than the standard. On the other hand, if your team takes longer than expected (i.e. 9.5 hours) to finish a job, the calculation will look like this:

(8/9.5)*100=84.2%

Efficiency lower than 100% is considered low, and you should think about ways to improve this ratio.

Improving Efficiency

There is no simple formula to measure quality. That is why many business owners rely on productivity measurement instead. In other words, efficiency depends on multiple factors, and the fact is that you cannot measure the quality of results in a tangible way and give them a numerical value. Efficiency also highly depends on the individual employee and their capabilities.

In order to get a better understanding of your team’s efficiency, you will have to let every team member understand how they use their time during working hours. Distractors, time theft, and wasting time are the biggest culprits when it comes to low efficiency. Conducting a time audit on the company level is a great way to obtain an insight into their daily habits and the ways to increase efficiency.

For example, daily meetings are considered one of the main hurdles for efficiency, as they take away valuable time and most employees don’t get any valuable information regarding their projects. Reducing the number of meetings, or reducing the meetings themselves to specific departments or teams is a great way to increase efficiency.

Simply put, while productivity can be increased relatively easily (mistakes and crunch time considered), efficiency can require systemic changes in the way your company structures its time.

Efficiency Example

Observing efficiency isn’t as clear-cut as calculating productivity. As we have mentioned, an increase in one doesn’t necessarily mean the other will follow. Hence, let’s observe the following example:

A manufacturing business has increased the number of products by 20% compared to the previous month. This is a great success when it comes to productivity. However, as the employees had less time to dedicate to each product, 25% of the products aren’t up to standard, and a recall needs to be issued. Moreover, due to customer safety and possible legal repercussions, the products from the last two months need to be destroyed.

In other words, the efficiency was higher when productivity was lower, as the company didn’t have to make any recalls, since the quality was up to standard.

Productivity vs Efficiency

The difference between these two terms is substantial when we start analyzing them. Productivity means the time frame stays stagnant and the results increase. On the other hand, when it comes to efficiency, the time (and other resources) decrease while the results remain the same.

Logically, they are very different. So are the preparations a business needs to go through to increase either of these two metrics.

On the other hand, both these terms refer to the time and resources a certain action takes, as well as the results of that action. This means that, even though they are very different, productivity and efficiency usually go hand-in-hand, and need to be observed together.

Productivity + Efficiency

So, you may ask yourself – Should I pay more attention to productivity or efficiency? And the answer is – both.

Combining productivity and efficiency is the best way to achieve better results. There are multiple reasons for this:

  • The ratio of quality and quantity
  • Fine-tuning the measuring process
  • Company costs

The Quality:Quantity Ratio

It is easy enough to deduce that productivity equals higher quantity and efficiency guarantees quality. However, you may be on the fence about which one is more important to you. The answer is – both. And neither should suffer on the account of the other.

In other words, while there are many moving parts in this ratio, the best result is to generate as much product (quantity, i.e. productivity) that fulfills the necessary standards (quality, i.e. efficiency). Losing track of either of these elements means your business is likely to face some issues. Simply put, you need both these elements at a high capacity to lead a successful organization that is going to grow and thrive.

The Measuring Process

Both productivity and efficiency are key progress indicators for a business. That means that they’re both used to measure the overall success of the company. The difference between the calculations you can get is largely related to their refinement.

Productivity is the initial, or raw, measure of success. It shows how much a company has accomplished. In contrast, efficiency is more refined. It shows how much of said accomplishments generate profit. That is to say, it is similar to productivity, but also includes a report on the quality and profitability of the final product.

Company Costs

If we were to reduce these two terms to their bare bones, we could say the following: Productivity is there to speed up the production process. Efficiency ensures the production is up to standards, so you don’t have to recall any goods, or spend money, time, manpower, and materials to make revisions.

That is to say, efficiency considers the underlying costs. The same cannot be said about productivity, which has a single goal – more products created. A careful and methodical approach to the production process can mean reducing costs to a great degree, as fewer errors are made and the need for fixing work mistakes reduces significantly.

How to Increase Both Productivity and Efficiency

As you may have predicted, we recommend combining efficiency and productivity to get the best results. However, since these two metrics are so different one from another, you may be wondering how to have the best from both worlds.

It is true, that efficiency can hinder productivity and vice versa. That is why we are here to help you combine these two elements into optimal and sustainable business practices.

Set Your Goals

A business with a clear set of goals and a vision is more likely to achieve long-term results and stay consistent when it comes to productivity and efficiency. Of course, this doesn’t mean you’ll be able to find that sweet spot between the two right away. However, your employees will be aware that they’re a part of a company that knows what it wants and gives its best to reach the goals it has set. In other words, building a strong foundation means better motivation and increased morale in the company.

This way, when you implement a new method with the goal of increasing productivity and efficiency, the workforce will be more inclined to follow the instructions readily.

Train Your Employees

Providing additional training for your team members is a great way to increase their productivity. There are many opportunities to increase your employees’ knowledge and add new skills to their repertoire. This will reduce the time they need to finish certain tasks and let entice them to find better ways to problem-solve and approach their position and tasks.

The knowledge isn’t supposed to stay limited to a single worker either. If you notice an employee excelling at their work, ask them whether they’d be interested in becoming a mentor to their younger coworkers. This way you’ll be able to return the investment of the courses, workshops, classes, etc.

Ask for Directions

A business owner often can’t notice and understand their employees’ needs. Yet, the workers are the ones who understand the difficulties they are facing firsthand. They also probably have an idea on how to improve the production process, no matter your industry.

This means you’ll probably need to encourage your employees to speak up when identifying the less productive and efficient elements of their work. Be ready for some criticism, and stay level-headed, as you won’t be able to improve, or ask your employees for honest feedback if you react overly negatively.

Track Time

Tracking time is a necessity in any organization that plans to thrive. This business practice makes all work, workers, and their time more transparent and honest. This enables actual progress when it comes to productivity and effectiveness, as you and your employees will have an accurate insight into all tasks that are being performed and the general state of your business.

Time tracking is a business practice with many benefits when done right. The tracking process itself can be as simple as clocking in and out, or as complex as filling different surveys and other data on a daily basis. Of course, if the process is too complex and takes too much time, it will reduce productivity and efficiency. However, if you solely rely on a clock-in/clock-out system, you will not be able to gather the data necessary to generate useful reports.

The happy medium would be a solution that features timesheets that keep all data necessary for a potential government audit (DCAA compliance). Digital timesheet programs like Time Analytics offer the ability to both save time on filling out the forms and help business owners understand and increase profitability and efficiency.

Reduce Distractions

No employee can work and be productive for 8 hours. This is well-known in the world of business, and it is unreasonable to ask for a raise in productivity that will fill the entirety of working hours. Simply put, people need to take breaks and rest to remain productive and efficient, as well as to be able to focus.

Yet, this doesn’t mean many employees aren’t distracted by their surroundings. An honest time audit is a good way to make your employees aware of just how much time they spend engaging with different distractions. After this, they will be less prone to wasting time, as most of the time this negative practice creeps in on a person, without them realizing they are doing it.

Distractions in an office setting often come in the form of browsing social media. However, some distractions may be related to the special organization of the workplace. This may be something you want to change, whether by changing the seating formation or transferring some employees into other offices.

Use Productivity Tools

Tracking employee time is only one of the possibilities the internet offers. Many different productivity tools can help office workers focus and become more aware of their work and distractions. Utilizing these technological solutions is a great way to motivate your employees to be more diligent with their time and effort.

These productivity solutions come in various shapes and sizes and offer different features. It is important for you to understand both the needs of your team and which members would truly benefit from using these programs. Here are just a few possibilities online productivity tools offer:

  • Digital reminders and to-do lists
  • Eliminating online distractions
  • Disabling certain features and apps for a period
  • Turning work into a game to motivate employees

Again, not all employees need these tools and apps. You should make sure you’re not overwhelming anyone with too many apps to keep track of.

Allocate Resources with Efficiency

Planning is an integral part of any business. This, among other things, means being mindful of the way you manage your projects. Every member of your team has strengths and weaknesses. If you can, you should allow every player to contribute their most valuable skills and (if possible) reduce their workload on the parts of the work they have problems with.

Understanding your client structure is equally important. Simply put, you should pay attention to the performance of all clients and base your plans around it. For example, investing a lot of time and manpower in a project for a low-performing client reduces your profit, and leaves your team with less time to do the projects that bring the company more money.

The logical steps are

  1. renegotiating the terms of collaboration with the low-performing clients
  2. ending the collaborations with the clients who insist on making your team work harder for less money
  3. invest more time, effort, and resources into high-performing clients

Freelancer Freebies

Are you a freelancer or an entrepreneur? No matter whether you’re just starting your business endeavor or have been struggling to increase productivity and efficiency for a while, it is important to make sure you’re doing everything you can to improve your work. Mind you – these tips can also help people who have only started working from home as well.

Conduct a Time Audit

Have you ever wondered “Where has the time gone”? If you simply blink and night is already upon you while you’ve done very little, it is the right time to do some mystery solving. A time audit (if done absolutely honestly and with precision) will show exactly where your time goes. This is especially important for freelancers, as they determine their work hours on their own, and cannot remain focused outside an office environment.

A time audit will probably have you face some unpleasant truths about your work habits and distractions. However, you cannot fix the mistakes if you can’t register them first.

Take Time to Organize

Let’s be honest. Organization is difficult and even though we try, we will lose track of our tasks, breaks, priorities, etc.

There is no universal tip for better organization. A solution that works perfectly for one person can be completely useless for another. That is why it’s important to create a system that works for you, no matter what that entails. Some of the most popular organizational methods include

  • Creating to-do lists for each day and crossing off the completed tasks
  • Determining certain amounts of time for every task (also known as time blocking)
  • The Pomodoro technique (working in periods of 25 minutes and taking a 5-minute break after each one
  • Using a time tracking tool to keep track of how much time you need for every type of task
  • Identifying your most productive periods during the day and dedicating them to the most important tasks
  • Following your circadian rhythm and starting work at the time your productivity rises (this is not necessarily 9 to 5 for everyone)

Be Moderate with Technology

The technological leaps we have witnessed in the last decade have made our lives much easier. However, relying on technology can make us feel overwhelmed and reduce our desire to work. That is to say, you can get lost in the sea of different technological business tools.

This isn’t a jab against using technology at all, as this would make most freelancers’ careers very difficult or completely impossible. However, you should make a conscious choice with the apps you use. Having a great number of productivity apps, plus your internet browser, plus the tools you need for work will leave you jumping from one app to another, wasting valuable time, and getting distracted. Hence, moderation is key here as well.

As we have previously said, different productivity tools are great, but only if they work for you. You can try out different tools, but keep using only the ones you find truly useful.

Organize Your Space

Work independence is a great benefit, but it also brings unique problems. For example, if you are working from home and taking care of a baby, you’re basically doing two jobs at the same time. in this case, it is important to boost your efficiency in both fields.

There is a fine balance between work and personal matters when working from home, and many remote employees and freelancers have noticed they can’t distinguish between the two a lot of the time. It is very difficult not to bring your work home if you’re working from your living room. This can often cause overworking and burnout.

Designating a home office as a space you work in, and working exclusively from there, will prevent you from considering the entirety of your apartment a workspace. It is especially important not to work from your bed, as you won’t be able to differentiate between work and rest.

Reduce Distractions

Working from outside an office, be it your home or a cafe near you, can impact your productivity through numerous distractions. An office environment is usually designed to reduce, if not outright eliminate, distractions. So, you will have to work with what you have and try to monitor your activity. There are different apps that block distracting sites for a set period which can help you. Remember, your desktop is your work environment, and keeping it as well-organized as possible is a good way to reduce distractions.

To Conclude

Productivity and efficiency are as similar to each other as they are different. Yet, they are both integral to leading a successful business, whether as a company owner, manager, or a freelancer. Combining them will create true productivity, which is a metric you should pay most attention to and make sure it’s on a satisfactory level.

However, you will most likely face some obstacles. This is absolutely normal, and you should expect it from time to time. Yet, if the productivity and efficiency levels don’t return to normal or continue to dwindle, it is time to make changes to the way you organize your business.

 

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