What It Is:
Productivity refers to the measure of output (e.g. products) from a production process per unit of input (e.g. labor and capital).
How It Works/Example:
Productivity is usually expressed as a ratio of output to inputs. It can be expressed as units of a product (e.g. cars) per worker-hour (total number of hours worked by all workers on that car). Given the cost of the worker-hour, productivity can also measure the efficiency of a company.
These measures are quantitative and relatively easy to measure. However, other factors of productivity, such as creativity, innovation, teamwork, and even quality are qualitative and more difficult to measure
Why It Matters:
In most business models, profitability is a function of productivity, price, and volume. In other words, a company's success is measured by how efficiently it uses its resources to produce its product, the price it can sell its products, and how many products it can actually sell. When comparing companies within a sector, for example, it is very important for investors to understand the relative productivity comparisons between companies producing the same products.