Question

Productivity is an important indicator of a country’s development. Canada, and indeed much of the world, has been described as a knowledge society. How does this label affect the productivity measurement and the comparison of productivity between Canada and other countries? What are the measurement problems that occur when you attempt to measure Canadian productivity? Based on your findings, what do you think are the reasons productivity is difficult to improve in the service sector?

Answer 1

Before going to the actual answer, let me explain you the concepts of productivity and knowledge society in brief.

Productivity is a measure of efficiency in economics. It measures how much output and industry or an economy can produce per unit of input. Here inputs mean mainly labor and capital. Output means mainly revenues in case of industries, and in case of an economy output means mainly components of gross domestic product (GDP). Productivity can be measured at sectoral level as well as at economy level. The level of productivity is one of the indicators of the level of economic development of a country.

Now, let me explain what a knowledge society means.

The term knowledge society has several definitions. However, most of these definitions mean that, knowledge society denotes to a society in which the generation or creation of information, dissemination and application/utilization of knowledge and information has become the most crucial factor of production. In knowledge society, the knowledge assets (also called as intellectual capital or human capital) play very crucial role in creation of wealth and it has become more important than the conventional factors of production like, land, labor and physical and financial capital.

Measurement of productivity in knowledge society:

Measurement productivity has become very complex with the emergence of the knowledge society or knowledge based economy. Prior to the emergence of knowledge society, the main emphasis and focus had been on output. However, the scenario has been changing in recent days, as the emphasis has shifted to the performance that produces better outcomes or results and there has been more stress on the quality of the results as well. A shift from agricultural work and industrial work to knowledge work poses a lot of challenges with respect to measurement of productivity.

The measurement of productivity varies among industries and organizations. However, the most significant and crucial factor that contributes to the measurement of the productivity in the knowledge society is related to factors which are more of qualitative in nature like, employees attitude towards their work at any given point of time and also their overall commitment. The productivity of the employees (also called as knowledge workers) depends on factors that were not taken into consideration earlier. The factors like the employees’ state of mind and wellbeing, the work culture and work environment. Earlier, the measurement of productivity depended on the quantitative metrics but now the scenario has changed and the qualitative metrics also must be considered for measuring the productivity.

For example, if a marketing manager makes hundreds of campaigns for marketing the products and the sales manager writes hundreds of plans and executes them, but none of them are successful in increasing the business and generating more revenues for a company, then there is no improvement in productivity. So we cannot decide by just quantitative metrics.

The substantial work that drives or moves the individual employee’s goals and corporate goals forward requires lot of intellectual knowledgeable capabilities like creativity, motivation and new insights and innovation. High quality of work requires full commitment of the knowledge workers and dedication for longer periods of time. In this type of work it is very tough to measure productivity.

It is very difficult task to compare different countries based on the productivity in the knowledge society. Because, there are no standard measures all over the world to measure the productivity in the knowledge economies. The factors to be considered to measure the productivity may differ from a country to country. So it is a tough task to compare Canada with other countries in the world. Even if we compare, it will not reflect the actual position of an economy, because the factors that affect the productivity measurement in an economy might be different from the other.

Difficulties to improve productivity in service sector:

Three of the major difficulties to improve productivity in service sector are:

Mismatch between the quality and quantity of the services: For example, more number of customers getting services from an organization does not mean that the quality of services has increased.

Difficulties in measurement of productivity: It is very difficult to measure the productivity in services sector. This is the major problem in improving productivity in service sector. With lot of complexity in measuring the productivity in service sector, it is difficult to make out actual amount of increase or decrease in productivity.

In case of non-service sector company/organization, the productivity can be increased by producing more products or goods with same or lesser amounts of inputs. However, in case of service sector company/organization it is not possible to raise output, with same number of inputs, mainly because the inputs are usually people.