3.4.3 Making operational decisions to improve performance: increasing effciency and productivity Flashcards
Efficiency
Production is maximised based on given levels of capital, land, labour and enterprise
Labour productivity
Concerned with the amount (volume) of output that is obtained from each employee
Why does labour productivity matter?
-More products= more money
-Reward hardworking staff
-Remove under performing staff (allows training to be considered)
-Piece rate pay ( Employers pay piece-rate workers for the number of tasks they perform, or per unit of work they complete)
-Labour costs are a significant amount of total costs
-Business efficiency and profitability
-Remain competitive, keep costs low
Labour productivity formula
output per period (units)/number of employees at work = output per employee
What factors influence labour productivity
-Staff treatment
-Working environment/conditions
-Motivation levels
-Type of management
-Rewards
-Skills of the workforce/ability
-Methods of production organisation
-Training and support
-External factors
-Quality of technology/machinery
Ways to improve labour productivity
-Motivate/train staff
-Offer rewards
-Contracts = job security
-Better quality equipment/tech
-Improve working conditions
Potential problems when trying to increase labour productivity
-Costs
-Time consuming
-Employee resistance=doesn’t want change
-Might demand higher pay for improved productivity
-Potential ‘track off’ with quality
Labour capital
Unit costs and resource intensity
Labour intensive
Production relies on using labour resources
Labour capital
Production relies on using capital resources
Labour intensive examples
-Food processing
-Hotels/restaurants
-Hairdressing
-Fruit farming
Capital intensive examples
-Oil extraction and refining
-Car manufacturing
-Web hosting
-Transport infrastructure
Labour intensive benefits
-Fast production
-Supply jobs
-Customer service
-Easier to train staff
-Flexible staff
-Unit costs still low
Labour intensive drawbacks
-Unreliable
-Unmotivated staff can lead to decrease in work
-Employee laws
-Expensive
-May be less productive
-Most likely to make mistakes
Capital intensive benefits
-More reliable
-Don’t often make mistakes/no human error
-Cheaper in the long term
-Efficient increased productivity
-Low labour costs
Capital intensive drawbacks
-Could break down
-Costly to buy machinery (short term)
-Constant maintenance
-Rely on electricity
-Generate resistance to change from labour force
Operational efficiency
Involves maximising the output achieved from given inputs including machinery, materials and people
Improving efficiency
-Better/improved technology
-Train staff
-Improve productivity
-Increase capacity utilisation
Optimal resource mix (labour intensive vs capital intensive)
Low efficiency
Low output, not using all resources
High efficiency
High output, using all resources, pushing to the max
Importance of capacity
-Ability to match supply to demand
-Image/public perception
-Workforce motivation
-Ability to achieve business objectives
-Inverse relationship between capacity utilisation and unit costs
Difficulties increasing labour productivity
-May impact negatively on quality and customer satisfaction
-Damage to long term reputation
-Increase waste affecting unit costs
-Employees may feel exploited
-Working harder for the same pay, may work with unions to negotiate higher pay
-Business benefiting but not the employees
-Increased workload leading to stress and demotivate
