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Productivity vs Efficiency – What’s the Difference?

Although many people view productivity and efficiency as synonyms, they are different concepts. The two terms are related but not interchangeable. 

The difference between them is a discussion between quality and quantity

For instance, a productive person is someone who gets things done. However, those accomplishments could be short-lived if that person didn’t build their strategy with long-term results in mind. 

That’s why, for the most part, efficiency and productivity can be at odds with one another. 

In this article, we take a look at the difference between productivity and efficiency. We will compare them and look at various examples so that you gain a clear understanding of the subtle differences between the two.


Defining Productivity

Simply put, productivity is output per unit of time. Measuring productivity is straightforward and that’s why a lot of people place their focus here. They typically calculate productivity by measuring output during a similar time period.

Defining productivity

Productivity Example #1:

If you produce 50 machine parts, and only 35 of them work as designed, you are less productive than someone who produces 35 machine parts, all of which work as intended and don’t need any repairs. 

Productivity Example #2:

Businesses, on the other hand, calculate productivity through a comparison of employees, departments, locations, and so on. An office in New York that generated $50,000 income for a firm may be compared to another office in California that generated $30,000 in that same month, making the New York office more productive.


Productivity Example #3:

Let’s say you have a social media presence and are publishing new content.  In January, you worked 20 hours on social media and published 200 status updates.  In February, you found a URL shortener that shortens posting time to half of what it used to be.  That month, you were able to work 20 hours as well, but you posted 400 status updates.  February was the clear winner, even though you used a tool to help.

If you stretch to increase your productivity – whether your product is car parts, or something else, it can actually do your business more harm than good.  

A better alternative might be to maintain a slower pace that is more deliberate or find tools to help so you can avoid the mistakes that occur when you work too fast. 


Productivity Formula

There are different formulas that you can use to measure productivity at different levels, such as employees, organizations, and software.

To calculate employee productivity, you can use the simple equation below to track productivity per individual, per team, or per department.


Total Output / Total Input = Labor Productivity.

Say you have a company that produces $50,000 worth of goods in a week (output). This is done utilizing 1,000 labor hours (input). In order to calculate the labor productivity of your company, you must divide 50,000 x 1,000, which equals 50. 

This means your company generates $50 for each hour of work.

You could also approach labor productivity from the perspective of individual employee contributions. So, instead of using hours, you would use the number of employees as the input.

So, for instance, if the same company has 20 employees and generates $50,000 worth of goods in a week, you would divide 50,000 x 20, which would equal 2,500. This means that each employee produced $2,500 for your company that week.

Even if you have a small company of your own doing something like retail arbitrage, your labor productivity is important and should always be measured.  Doing so will help you be more productive with your time.  


Defining Efficiency

While we defined productivity as being the output per unit of time, efficiency, on the other hand, is the best possible output for each unit of time. That is, doing things RIGHT. By doing things right, you achieve your peak level of efficiency and productivity.

Defining Efficiency


Efficiency Example #1:

As an example of efficiency, consider two people who teach courses online. The first teacher produces a course in two weeks but has many mistakes in the videos they recorded. 

The other teacher produces 10/12 lessons in two weeks, but his work doesn’t require the hours of editing that his counterpart’s work does.

Although the first teacher may be considered to be more productive, the second teacher is clearly the most efficient between the two because it’ll take him less time to choose an online course platform and launch their course because he has less mistakes in the video recording process.  


Efficiency Example #2:

To give you an example of how efficiency translates to productivity, imagine Anna, a content writer at an agency who produces 10,000 words per week while another writer, Sandra, only produces 7,000 words. 

It may look like Anna is more productive than Sandra. And that may be true if Anna has a low error rate. However, if her writing requires 20 hours of editing and proofreading, while Sandra’s work is error-free and can be uploaded to the CMS instantly, Sandra is clearly a lot more efficient than Anna. 

By doing the right things right, she is not only more efficient but is ultimately more productive than Anna – a fact that may be easy for some observers to miss.


Efficiency Example #3:

Say you had a manufacturing company that produced 30% more units in one week, compared to the week before. 

However, later, you find out that 25% of the units were defective. This means that while productivity is up, you were running at low efficiency. 

You might consider certain tactics to improve consistency and increase efficiency, such as a better selection of raw materials in order to reduce defective units, and so on. 

There are also plenty of tools out there to help workers increase efficiency.  With my own business, I recently came across Videoproc which helps my video editor complete their editing tasks in a much more efficiency manner.  

Tools like this exist in every industry, it’s just a matter of finding something affordable that fits into your business. 


Efficiency Formula

While productivity calculates quantity, efficiency is more about measuring quality. 

It’s possible to calculate a high productivity number for each employee in your company, but, on its own, that number does not give you insights as to the quality of work that you are getting from each employee. 

As previously stated, an employee could seem quite productive, but actually be producing low-quality outputs. 

You need a benchmark for comparing the productivity numbers

You can compare your current productivity with the standard level of effort required to achieve the same output. 

Divide the standard hours of labor by the amount of time worked, then multiply that figure by 100. The higher the final number is, the more effective the employees are.

This is the equation for calculating efficiency:

(Standard Labor Hours / Amount of Time Worked) x 100 = Efficiency

So if your company’s standard labor hours for a particular project is 70 and the actual amount of time worked is 82, you would divide 70 x 82 and then multiply the answer by hundred, giving you 85% efficiency.


What Should Organizations Strive For?

Now that we have defined productivity and efficiency, and you have the formulas for measuring both, you may be wondering which one organizations should strive for. 

The answer is simple: You should strive for both, even if you’re dealing with project dependencies.

There are many reasons for this, some of which are: 


Reason #1: Quantity vs Quality

As previously stated, efficiency is quality and productivity is quantity. This is the biggest difference between the two and both are necessary for the success of any business. While productivity focuses on bulk output, efficiency measures how much of that output works as intended.

So businesses need both productivity, which is performance, and efficiency, which is a measure of how well you perform.


Reason #2: Underlying Costs

It’s also important to note that efficiency takes into account underlying costs, which is something that productivity does not. Consider the writing example above, Anna wrote 10,000 words in that week while Sandra wrote only 7,000. 

So while Anna wins the productivity award, the writing was so messy it doubled the production cost. Meanwhile, Sandra’s work was perfect at half the cost of Anna’s. Instead of simply getting the words on the page ASAP, her careful and methodical work saved the writing agency money.

However, where productivity and efficiency are concerned, one may take precedence over the other at certain times, depending on the company’s lifecycle. 

For instance, with a startup, they are more focused on productivity (as opposed to efficiency) at the beginning simply because they need to build something. As the company grows, they may then begin to focus more and more on efficiency.

I dealt with this myself when I started my first website.  Right when I started it, I purchased a tool I love called Thrive Architect to help me build all of my website pages.  At the time, it was great because I made pages look just how I wanted. 

However, over time I realized that doing things like this could add extra code and slow a website down, so I had to change to the efficiency model and hired someone to code things manually and they designed the pages faster (and with less problems) than I could code them up myself.  


Reason #3: Raw Measure vs Refined Measure

Productivity is the raw measure, whereas efficiency is the refined one. 

Raw productivity shows you how much was accomplished while efficiency reflects the amount of productivity that generates profit, and it should always be used as an input during productivity planning. 

Ironically, this means that it also becomes an output – or else it’s Anna and Sandra all over again. 

Productivity is simply output, but efficiency includes built-in quality control. 

While efficiency may not help in speeding up productivity, it does ensure that what you produce will fit your requirements and needs the first time. This saves you tons of time, money, and other resources you might otherwise spend on fixing it. 

In short:

Productivity + Efficiency = True Productivity. 

A good “hack” for companies to complement the efforts of workers, whether they are productive or efficient, is to utilize their own customer base to spread the word about what the brand is creating or offering. 

For instance, I recently implemented a loyalty program for my own customers and the effects of this have compounded the impact of  my work and the work of all of my employees.  If you pair something like this with solid efficiency and productivity, it can lift the company’s bottom line. 


Conclusion

The bottom line is that both productivity and efficiency matter. 

It’s clear that the two have to be inextricably linked in order for a business to achieve true productivity. If they exist separately, this can sometimes have devastating effects. That’s why I advise most companies I consult with to utilize different communication tools to help in the process.  

In most businesses, particularly those in traditional manufacturing, having productivity without efficiency is a sure way to kill the business. It’s only when you have the two that you can experience true productivity and success.

The best way to achieve this is to intentionally couple productivity with efficiency. Don’t just assume that by having one it means that you automatically have the other.

Did this article answer the question of productivity vs. efficiency in full? Let us know in the comments section below!

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Ron Stefanski is a marketing professor and online entrepreneur who’s passionate about helping people create and market their own online business.  You can learn more from him by visiting OneHourProfessor.com 

You can also connect with him on YouTube, Linkedin, or in his Facebook community.