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Dickeson--Use the Right Efficiency Formula

January 1999
"Productivity is simply the ratio of chargeable hours to available man hours." Thus spoke NAPL consultant Bill Herrott at the 1997 Web Offset Conference.

So, when the national economists report that "productivity" of the United States is up or down for a recent quarter, are they saying that the national ratio of chargeable hours to available hours rose or fell?

In a word: No.

When economists say productivity is up, they mean that the value of the gross national product, factored by the resources applied, has risen. Nobody mentions "chargeability."

So if Herrott didn't mean the same thing that national economists mean, what did he mean? Has Herrott taken a page from Lewis Carroll's Alice in Wonderland, where one character likes to say, "It means what I say it means when I say it"?

Herrott and the NAPL are saying, more accurately, that the "chargeability" ratio is a statistical measure of some sort: hours identified with specific jobs divided by total hours employed. They're not speaking about "productivity" as it is commonly understood by economists. They're using their own definition.

The problem is that "chargeability" (or non-chargeability) is a term peculiar to rate-making for cost accounting. It's based on a forecast (from budget assumptions) of the number of hours the company expects to employ people during a coming period related to the number of those hours that are expected to be identified with specific jobs performed for customers.

The more hours you can trace to jobs, the higher your productivity. In fact, the more inefficient you become the greater your NAPL productivity ratio may be!

In the end, checking a chargeability ratio is really nothing more or less than monitoring the validity of rate-making forecasts.

At this point, you may be tempted to decide that the entire issue is meaningless, akin to the medieval quibble concerning the number of angels that can dance on the head of a pin. Resist that temptation.

It is vitally important to the survival of your enterprise to understand productivity. Productivity is the act of "adding value" to materials by performing services. If value is not added to goods by services, productivity is negative.

"Value" is an external perception by the customer, isn't it? The buyer's perception, limited by the competition, places a dollar value on the productivity. That's the "effective productivity"—an external measure.

How efficiently the printer uses resources to produce added-value measures "internal productivity."
 

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