Productivity vs. Efficiency: What's the Difference?

By Indeed Editorial Team

Published December 14, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

There are several ways a company might measure equipment and employee performance. Productivity and efficiency are two similar ways that organizations evaluate production output that can provide unique information about performance and resources. Learning about these two measurements helps you identify when tracking them might help improve overall business processes and effectiveness. In this article, we discuss the definitions of productivity and efficiency, explore some key differences between the two and provide tips for improving them.

What is productivity?

Productivity is the ability to produce many items or complete many tasks within a specified time range. It's a metric used to measure the production of goods or performance. Companies often measure productivity by evaluating an employee's or machine's output during a period. You can measure productivity in product output, labor or capital.

What is efficiency?

Efficiency is the ability to produce the most amount with the least amount of waste. More focused on product quality, efficiency is how companies measure how many functioning products or other outputs a person can complete. Companies may evaluate efficiency to understand how their employees use their resources and what the outcomes are.

Related: Utilization vs. Efficiency: What's the Difference? (Plus Tips)

Productivity vs. efficiency

There are several ways that productivity and efficiency overlap and differ:

Formula

The formula for calculating productivity is:

Productivity = Output / Input

Output is often the units produced, while input is the time spent on the activity. When comparing metrics, you can easily see, for example, how many units each employee produces in an hour. The formula for efficiency is similar, but people calculate the useful output first:

Efficiency = Useful output / input

This emphasized the need for quality outputs, while productivity considers both quality and defect outputs.

Related: What Is Business Productivity (Plus How To Measure It)

Use

Companies measure productivity to understand the highest amount of goods they can produce or tasks they can complete. This can help for several reasons, including comparing productivity between employees or measuring the productivity of certain equipment. Companies can measure efficiency to monitor the quality of equipment or performers. For example, a machine can produce 100 parts in an hour, which might seem productive. Upon evaluating efficiency, management notices that 20% of them are defective. Another machine might produce only 85 parts per hour with zero defects. The first machine is more productive, but the second machine is more efficient.

Cost

It can be more straightforward when calculating costs. For example, if a salesperson makes 20 calls an hour, you can estimate the labor costs needed to meet any calling quotas. With efficiency, there can be additional considerations. With the sales example, if 10 calls result in a sale, you might consider this inefficient, as you might need additional labor hours to meet sales targets. Efficient labor, machinery and technology could save a company more money as you might need fewer repairs or time to process returns or customer issues. Calculating efficiency can help companies to more accurately estimate costs.

Performance measures

Depending on the business needs, companies can evaluate both productivity and efficiency when measuring employee performance. For example, a marketing company may measure evaluate how productive an associate is by the number of blog posts they produce. Efficiency may be a more valuable performance metric in an area like technology, where the quality of software releases might be more valuable than the number of products released.

Resources

Productivity is a measure that companies might use to maximize their current resources. If businesses cannot buy new equipment or hire new talent, their goal might be to increase overall output and productivity. Efficiency guides these companies to possibly explore new resources. For example, if a manufacturing company only measures productivity, it may seem like their equipment and processes meet their business needs. By measuring efficiency, they may consider alternative solutions that can produce higher-quality goods.

Related: How To Measure Productivity and Increase Efficiency in the Workplace

Tips for improving productivity and efficiency

Here are some tips you can use if you hope to improve productivity and efficiency in your role:

Explore automation

To improve both efficiency and productivity, you might explore automating tasks at work. For example, if a sales associate spends time creating and organizing their schedule each day, this might affect their productivity. Consider how automated tools might increase output for primary responsibilities that can help generate revenue. This can also improve efficiency, as you can invest more time in performing tasks well rather than rushing through tasks to meet productivity goals.

Related: 12 Simple Strategies To Improve Work Efficiency

Monitor them regularly

Monitoring productivity and efficiency can help you understand different areas of your business. For example, if you notice a change in productivity on certain days, you might investigate why and see how you could improve these metrics. With efficiency, you can see if equipment and labor maintain optimal levels of efficiency over time or if there's a decline, you might pursue process or equipment updates.

Evaluate resources

While productivity focuses on producing the most with your current resources, you might still explore tools that can improve these numbers. Consider researching upgraded equipment and market standards to ensure your levels match the competition. If you hope to improve efficiency, you can identify specific problems and investigate other resources. For example, you might read customer reviews for equipment to see what the success rate is for tools similar to those you use.

Improve focus

For individual productivity and efficiency, you can try to improve focus throughout the day. This might mean eliminating distractions like your phone or television or setting strict schedules when you hope to complete work. You might also consider segmenting your tasks so that you focus on completing one responsibility at a time. This can increase your overall output of work and the quality of your output.

Related: 10 Simple Ways To Be More Productive at Work

Request feedback

Soliciting feedback from employees or management can help you identify factors influencing productivity and efficiency. As productivity simply measures output, you might ask others how they could perform their tasks faster. If you hope to see an improvement in the quality of employee output, you can ask what factors might cause defective outputs. Consider creating and sharing a survey so employees can evaluate their processes and resources. Sharing this responsibility can also contribute to a positive and trusting work environment, which can also improve productivity.

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