What is productivity?

There are many definitions of productivity, but to me it is as simple as this: Productivity = Output x Value.

Productivity equals output times value

Outputs are the results of your labour. They are the widgets, solutions and services that customers consume.

Value is all about usefulness and benefit customers will derive from the Output. Value also dictates the price that a customer will be willing to pay.

To be productive is to be able to produce high value outputs.

Lets take a closer look to understand this better

To create an Output, you need Inputs. Inputs can be anything from materials, liquids, ingredients and electricity; through to knowledge, people, data and time.

Each input has a cost associated with it, so when a business creates an Output, it needs to ensure the Value of the Output is higher than the total cost of all the Inputs required to create it.

This is how businesses generate profits and explains why competitive businesses are constantly seeking to cut their costs and raise prices.

The more of an Output (with a positive Value) that a business can create and sell, the more profitable and productive it will be.

Apple is one of the world’s most productive companies. It is able to sell millions of new iPhones each year, each at a premium price and a fat profit margin; which is why it became one of the most valuable businesses in the world.

Rival Samsung may be able to produce more phones, but they cannot achieve the same price premiums, making them less profitable and therefore less productive.

Personal productivity

The Output x Value principle also applies to personal productivity.

In my first professional job, I was paid a salary of £20,000 per year. Now had I been more diligent, I could have worked longer hours and used productivity hacks to produce more output.

However as a junior, the Value of the work I was doing was limited and my employer would not have been able to generate much additional income for the extra Output I produced (which meant no massive pay rise for me).

The only way for me to justify a pay rise was to increase the Value of my Output by learning new skills and getting involved in challenging projects to gain experience.

By continuing to do this throughout my career, I have significantly improved the Value of my Output and boosted my earning potential well into 6 figures.

Gaining leverage

Our personal Output levels will always be capped by time and energy (after all there are only so many hours a week that you can work effectively), so once you have maximised your Output, all other productivity gains will come from increasing the Value of your Output.

But even these gains can have a natural limit to them. A rockstar software developer may be able to earn 3 or 4 times as much as a junior developer, but if they are not careful they will push themselves past the price point that clients will be prepared to pay for their time.

The only way for the rockstar developer to generate further gains in productivity is to replicate the specialist skills he is offering, either by recruiting several similarly talented developers to work alongside him in on different contracts or by packaging his offering into an algorithm and marketing it to thousands of business customers.

Productivity gains are not always easy

In principle it is simple – produce more high value outputs to make more money; but in reality once you have gathered the low hanging productivity fruit, it becomes harder to continue increasing productivity at the same rate.

To see this in action, simply compare the low growth of productivity in developed nations to the fast-growth of many of the up-and-coming developing world countries.

Productivity growth in the developed nations has slowed down because they have gathered their low hanging fruit and are now finding it harder to tap new productivity sources.

At a corporate level too, companies like Apple only come about through major investment and the chance of a unique set of conditions all falling into place at the right time. It is not possible to just spin up new Apple clones and let them grow into wealth-generating machines for the future.

Even our rockstar developer might struggle to realise his productivity gains if he is unable to manage his team of developers well or fails to market his algorithm properly.

All this doesn’t mean that it is not possible to make major productivity gains, it is, but you need to be realistic about the amount of time and effort you will need to invest to become more productive – there are no shortcuts!

How should you increase productivity in your life?

Whether you’re seeking to increase your wealth, your ability to compete in a sport, help your team achieve a great goal for humanity or grow a business that has impact; both Output and Value are very important.

However, I would recommend focusing on Value first, which means investing the time and effort to produce better outcomes for your customers and then finding ways to scale up the production of those outcomes.