Productivity, Wages and Prices - What's This About?
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Free Download - Quick Checklist-Is Your Firm Ready For Success In The Coming Economic Rebound? By Leonard Scott |
At any time, but especially in the current recession, the importance of understanding the relationship between productivity, wages, and profits is of the utmost importance. The following chart clearly outlines this relationship:
Effect of an Increase in Productivity on Wages and Prices
Year 1 Year 2 % Change
1. Total Output 1000 1100 +10
2. Total Labor Input 500 500 —
3. Output per Labor Unit (1 divided by 2) 2.00 2.2 +10
4. Wage Rate (+ fringes) $ 1.00 $ 1.10 +10
5. Total Wage Cost (2 x 4) $500.00 $550.00 +10
6. Other Cost $400.00 $440.00 +10
7. Total Cost (5 + 6) $900.00 $990.00 +10
8. Price of Product or Service $ 1.00 $ 1.00 —
9. Total Sales Revenue $1000.00 $1100.00 +10
10. Profit (9 — 7) $ 100.00 $ 110.00 +10
This chart tells the company that if it has to raise wages to stay competitive in the labor market, but can't raise prices because of competition in the product market, it has to increase productivity and control costs in order to maintain or increase profits.
How can a company increase productivity and conrol costs? First, it can invest in the most modern equipment available. Second, it can review all indirect labor sources to see if any area can be cut back, eliminated, or outsourced or offshored at a lower cost. Third, output standards and manning schedules can be checked to see if they are correct. Fourth, overtime and other premium payments can be reviewed to determine if they are justified. Fifth, the causes of errors, waste, and poor scheduling and quality should be reviewed closely. Sixth, a general tightening up should take place throughout the company. Seventh, any additional operations that can be automated or eliminated should be. Eight, standards of performance should be established for all positions. Ninth, suggestions for improvements, innovations, and ways to increase sales should be soliticed from employees in a communications program telling them that all employees should consider themselves sales persons, customer service persons, operations persons, engineering persons, public relations persons, accounting and collections persons, recruiting persons, production persons, quality persons, IT persons, and strategic planning persons. Ideas for improvements and innovations in all these functions comming from all employees in the organization can result in major productivity improvements and increases in quality, customer satisfaction, employee motivation, pride in employment, company loyalty, and job staisfaction.
An organization that is motivated, well paid, lean, and characterized by new idea generation will always outperform competitive organizations without these qualities. Keeping a close eye on productivity and the elements that enable a company to keep productivity consistently rising is one certain approach to insuring the long term success of the organization.
Productivity Wages and Prices Whats This About - To learn more about this author, visit Leonard Scott's Website.
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George LudwigGeorge Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance. Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson. His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more. George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
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