Despite the elegant simplicity and apparent innocence of the term, productivity targets are a deadly serious subject in business management. These seemingly-arbitrary goalposts set the stage for the ultimate success or failure of streamlining and efficiency drives in a business. Developing useful, accurate and achievable targets for your operational productivity can be a lot more complicated, and much more important, than you think.
Overview: What is a productivity target?
In its most basic and technical definition, this term describes the expected ratio of output versus input. Every operation in a company has an expected outcome or desired result. A set amount of input materials, power consumption and direct labor is expected to yield a certain number of viable products per day.
Depending on the nature of the operations in question, success rate can vary significantly depending on many different factors. Failures in the process, flawed material and operator error can all impact overall productivity. Non-conformant products, or those that don’t meet designated quality standards, do not count towards the target goal. Problems that arise may temporarily halt or slow down operations, which also impacts productivity within that period.
3 benefits of setting productivity targets
There are many reasons for companies to carefully evaluate and establish productivity targets in their workplace. Setting these goals ensures consistency across operations, which is a basic foundation for establishing standards, embracing new initiatives and measuring overall improvement across an organization.
1. Establish expectations for employees
Establishing and communicating goals for individual and collective productivity can really focus managers and workers. Understanding what’s expected of them in a given hour, day or week helps individual employees budget their time and evaluate their own performance. It may even encourage them to adjust their own behavior to reach these goals without intervention, oversight or discipline.
2. Set a baseline for metrics
Another key reason to adopt productivity targets is that it gives you a standard to measure against. In the age of datamanagement, there’s no excuse for not leveraging information whenever possible. You should always measure your inputs and outputs, no matter what they are, and compare them from period to period. Comparing results to an established standard is a fast and easy way to determine if things are going well in a particular day, week, month or even year.
3. Improve overall efficiency
Ultimately, setting productivity targets is all about improving organizational efficiency. When rates fall below target lines, it’s a sign that there is a consistent problem or breakdown in a specific process. Setting targets at individual, divisional and corporate levels allows you to isolate the specific operations producing a tangible negative impact.
Why are productivity targets important to understand?
As a key element in any kind of efficiency evaluation or improvement initiative, business leaders and decision makers absolutely need to understand this concept. Setting targets for specific and general productivity is a basic management practice that should be instituted regardless of company size or industry.
1. Eye on the prize
A firm grasp on the full dimensions of productivity targeting is essential for actually using them effectively in your company. You should set targets with an eye on the final prize, which is the ultimate consequences on your short and long-term profitability. Arbitrary objectives don’t help anyone. Productivity goals should focus on total value addition to your business, not just the efficiency of a particular process or maximizing employee work time.
2. The details matter
Understanding how to set targets for productivity also means developing a better understanding of each part of your value-adding processes. These processes are what drive your company’s income and long-term viability, so it’s always a good thing to have a firm grasp on these issues. Lean business management lives or dies on attention to detail.
3. Lasting implications
You need to understand productivity targets before you establish and apply them because they really do matter. Basing all of your efficiency goals and prioritizing procedural renovations based on incomplete data is a huge waste of time. Your posts should be planted firmly in the ground before you start fixing the fence.
Industry examples of productivity targets
While productivity targets are appropriate in any kind of business environment, they are frequently used and easily illustrated in the manufacturing industry. For example, a particular process line in a chocolate factory may be expected to produce 100 viable candy bars every hour. This encompasses the mixing and pouring of ingredients, packaging of products and final quality check, which includes labor and material input from various machines, conveyors and personnel.
You can also apply these concepts to services and indirect processes outside of manufacturing. A furniture warehouse may set productivity targets for their individual salespeople as well as the entire site. Each full-time salesperson may be expected to finalize at least one sale for every ten customers they interact with. Likewise, the store itself may have a target of selling at least $200,000 worth of furniture every quarter.
3 best practices when thinking about productivity targets
If there’s one thing you need to know about productivity targets, it’s that they are very easy to abuse and misuse. These goalposts are essential for any kind of meaningful quantification of your efficiency, but they are basically useless if you don’t understand how to use them properly.
1. Consider all factors
One of the most common mistakes with productivity targets is oversimplification. It’s easy to fixate on a particular type of input, like materials, and lose track of the big picture. Metrics for efficiency should always include all the major, relevant factors and not prioritize some at the expense of others. This should cover all sources of operational cost, both immediate and long-term.
2. Think beyond labor
Over emphasis on direct labor is particularly hazardous because it can hamper employee morale and create tense work environments all based on a faulty premise. There are times when worker input is the cause of poor efficiency, but sometimes it’s better to focus on working smarter not harder. Employers should examine the tools available and the procedural guidelines alongside their policies regarding direct labor to strike a positive balance.
3. Seize opportunity for innovation
Identifying and evaluating production targets opens the door to innovation opportunities, which you can leverage for serious benefits at all levels of your organization. In the process of researching and implementing these standards, you are likely to realize some of the hurdles that you never really thought about in the past. Take these opportunities to implement lean and smart solutions that help workers work more efficiently.
Frequently Asked Questions (FAQ) about productivity targets
1. How do you achieve productivity targets?
Achieving your productivity goals is a complex process that should involve input from everyone involved, from managers to front-line workers. In some cases, it can even help to bring in outside consultants and experts to provide objective insight and evaluation. In any case, achieving targets should involve examination of individual employee behavior, quality of tools available and procedural guidelines that impact daily workflow.
2. How do you measure productivity?
Measuring productivity in a particular workplace really depends on company structure and industry. Manufacturers generally have an easy time with this, because their value adding products are uniform and easily quantifiable in set time periods. Other types of companies, like professional service providers, have to use broader and more detailed metrics to measure the success of individual projects or operations.
3. When should you adjust your existing targets?
You shouldn’t be afraid to change your productivity targets, especially after the initial trial period. Whether you’ve set expectations too high or too low, you should leave yourself room to adjust these targets to a balanced position. You should consider adjusting targets if they are not sustainable in terms of company profitability or limitations of resources, which could include worker fatigue or available materials.
Set goals to keep you moving forward
Productivity targets are essentially just goals for your business. Goals only have one real purpose: to give a definite purpose and destination point for daily activity. Reaching a goal is a way of verifying that you have performed as you should in the given circumstances. Failure to reach the goal means there is room for improvement.
Ultimately, setting these goals is a way to drive ambition and motivate a company as a whole to keep moving forward. Urgency and competitiveness drives innovation and progress. However, it’s important to balance this kind of impetus with the human need for a sense of achievement, completion and success. It can take some trial and error to find the targets that keep your team moving forward without driving them to exhaustion and despair.