Ephraim F. Sudit

Productivity measurement in industrial operations

Abstract Conceptual foundations of productivity measures encompassing technical change, technical efficiency, scale efficiency, and allocative efficiency are discussed. Three principal approaches to productivity measurement — index measurement, programming methods, and econometric estimation — are reviewed. The merits, uses, information requirements, and limitations of methods for the estimation of production and cost frontiers and their derivative productivity measures are assessed.

Additive nonhomogeneous production functions in telecommunications

An additive form of a nonhomogeneous production function is suggested in this paper as a tool to study economic trends in production processes. This information allows for variable elasticities of substitution and for variable economies of scale, and is readily estimated by ordinary least squares. The marginal products are explicitly stated as a function of the input ratios. This additive nonhomogeneous functional form has been empirically tested on telecommunications data, related to Bell System, Western Electric, and Bell Canada production systems. Marginal products and elasticities have been computed and compared with the same series generated by a multiplicative nonhomogeneous form recently proposed by H.D. Vinod. Several similarities as well as major differences between the findings are cited and discussed. The author concludes that the additive formulation offers a more plausible description of some aspects of the Bell System and Bell Canada production processes than comparable findings generated by the multiplicative formulation.

Productivity-based financial net income analysis

This paper develops the analytical framework for a productivity based financial analysis, which has been successfully introduced by the authors as standard reporting in a major corporation. This analysis is designed to broaden and supplement conventional income statement analysis. It partitions expense and revenue items into their respective price and quantity components and establishes the precise relationship between total factor productivity performance and key aspects of financial performance. The underlying theory is reviewed. Subsequently, an actual case study example is analyzed. Some of the major additional insights into factors affecting the economic health of a productive enterprise and their implications for corrective actions are illustrated and discussed.

Productivity based management

Realization of productivity gains is a necessary condition for long-term consistent improvement in economic well being. We have to work smarter and produce more efficiently to attain an ever higher quantity and quality of goods and services without sacrificing leisure. This is true for the economy at large as well as for individual firms. In a competitive environment, businesses must continuously improve the productivity of their operations in order to sustain and augment profitability and growth. This basic requirement may be temporarily obscured by unexpected external developments or financial manipulations, but it is nevertheless essential to the long-term health of any economic enterprise. Increasing awareness of the importance of productivity has recently motivated renewed interest in the development and refinement of productivity-based management techniques. The purpose of this book is to review and evaluate some of the new contributions in this area. The analysis of productivity-based management in this book encompasses planning, decision making and control methods which explicitly incorporate techniques designed to measure, monitor, induce and improve underlying productivity performance in production, financial planning, marketing and international operations. These productivity-based methods can easily accommodate built-in efficiency incentives designed to motivate people vii viii PRODUCTIVITY BASED MANAGEMENT working in decentralized organizations toward goal congruent behavior. It is argued throughout the book that productivity-based management, at its best, is likely to improve significantly the efficiency and effectiveness of economic enterprises.

Externality Production Functions

Publisher Summary This chapter presents a general framework for the estimation of externality production functions. It discusses the generalized joint supply model developed by Whitcomb as the abstract model of externality. The chapter also discusses the problems involved in empirical specification of alternative joint product models, depending on the nature of the joint production process and the availability of data on the possibilities of input allocation among salable commodities and externalities. The chapter reviews alternative statistical estimation techniques for multivariate models in terms of their relative merits in regard to taking full account of the jointness in production and the stability of the estimates they produce. It highlights the issue of specification of proper functional forms. For joint product externality models, conventional production function forms such as Cobb–Douglas, CES, homothetic, and CRES may be even more restrictive than in ordinary cases.

Methodological Issues in Aggregate Productivity Analysis

Total factor productivity (TFP) has been termed by Abramovitz “a measure of our ignorance” and by Domar the “residual.” This terminology alludes to the basic, inevitable fact that productivity is conceptualized and defined to reflect, in aggregate, whatever is not understood or is misunderstood about sources of growth in real output. In other words, given our present state of knowledge and data availability, the sum total of the portion of growth in real output that cannot be accounted for by changes in specific identifiable inputs is thrown into the productivity #x201C;wastebasket”.

EFFECTIVENESS, PRODUCTIVITY AND DESIGN OF PURPOSEFUL SYSTEMS: THE PROFIT-MAKING CASE,

Abstract A generalized goat attainment model or effectiveness is presented and a measure of system effectiveness which indicates how close a technology comes to delivering operational goals Is developed. The operational goals themselves arc defined In relation to underlying values. The effectiveness measure Is then related to system efficiency (itself one effectiveness goal but also a determinant of effectiveness) measured here by total factor productivity. Improved system efficiency (productivity) control can result in an increase in effectiveness thereby facilitating goals/values adaptation. Two examples of this interaction are provided.

Measuring Dynamic Marketing Mix Interactions Using Translog Functions

Jagpal et al. (1979) showed, using multiplicative nonhomogeneous (MNH) sales response functions, that current econometric specifications for measuring marketing mix interactions and/or carryover effects may be structurally restrictive, regardless of their predictive usefulness. They concluded that there is a need for more flexible specifications of the sales response function which provide greater consistency with marketing theory and hence allow more effective control of marketing instruments. This paper proposes the transcendental logarithmic (translog) formulation because it is more general than the MNH function. First, we develop the rationale for the translog specification. In the second part of the paper, we estimate a translog advertisingsales model using the monthly Lydia Pinkham data. The translog results are shown to be consistent with marketing theory, to differ significantly from previous analyses of the same data, and to have useful policy implications.

Effective Management of Human Resources

This chapter singles out for special discussion the needs of employees on the grounds that human resources are the most important assets of any purposeful system. It is argued that decentralization, self-management, participative management practices, management by incentives, and extensive democratization of the workplace is conducive to effective management of human resources, and thereby to the enhancement of organizational efficiency, quality, and effectiveness.

Efficiency and Effectiveness

Understanding of the relationship between technical efficiency and effectiveness is crucial for sound managerial planning and decision making. In a world of incomplete information, an operation can be highly efficient in terms of very impressive physical input-output (productivity) ratios, but ineffective in terms of delivering higher-level objectives. For example, a profit making firm can, due to intra-organizational conflicts, produce very efficiently an undesired product or service which will result in poor profitability. Failure to attain minimum profit goals will result in this case in low effectiveness in spite of relatively high productivity. At times, there may even be a trade off between technical efficiency and effectiveness. For example, it may be occasionally easier for the production department to improve productivity by standardizing products at the expense of neglecting customized demands, thereby adversely affecting marketability and profitability. Generally speaking, we can cite numerous examples where efficiency and effectiveness are not necessarily positively correlated. This simply illustrates that both efficiency and effectiveness have to be measured and monitored to improve goal congruency and overall organizational performance.