Productivity (Edexcel IGCSE Business)

• 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

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

• 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

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