Efficiency, Productivity & Sustainability (Cambridge International AS Business)

The importance of efficiency, effectiveness, productivity and sustainability

Efficiency, effectiveness, productivity and sustainability

• Efficiency means producing goods or services with the minimum amount of waste, time or resources
• Effectiveness means achieving the business’s objectives by doing the right things to satisfy customer needs and meet goals
• Productivity is the volume of output produced per worker (or per hour, machine, etc.) that shows how well available resources are used to generate output

Why are these factors important?

Lower costs

• Efficient use of resources helps reduce waste and cut production costs

Higher profit margins

• Improved productivity and lower costs can increase the amount of profit made per sale

Better use of resources

• Efficient businesses make the most of time, money, staff and materials

Improved competitiveness

• Businesses that are productive and effective can offer competitive prices or higher-quality products

Customer satisfaction

• Being effective means meeting customer needs, which leads to loyalty and repeat purchases

Faster response to demand

• Productive operations allow quicker production and delivery, keeping up with customer demand

Supports business growth

• Efficient and productive businesses can expand more easily and take on larger orders

Measurement of labour productivity

• The labour productivity of a business is measure of the output per worker during a specified period of time
• Businesses aim to increase the level of labour productivity to improve competitiveness
• Labour productivity is calculated using the formula

$\mathrm{Labour} \mathrm{productivity}=\frac{\mathrm{Output}}{\mathrm{Number} \mathrm{of} \mathrm{workers}}$

Worked Example The table shows the number of pairs of luxury wool socks produced by Scotty Socks Ltd in 2023 and 2024.

Year	Units produced
2023	46,000
2024	69,000

In 2023 *Scotty Socks *employed 50 staff. In 2024 the number of staff employed by the business increased by 20%.

Calculate the percentage change in labour productivity between 2023 and 2024.

(4)

Step 1:Calculate the labour productivity for 2023

$\frac{=46,000\mathrm{units}}{50\mathrm{workers}}\,\,=920\mathrm{units} \mathrm{per} \mathrm{worker}$ (1)

Step 2: Calculate the labour productivity for 2024

$=\frac{69,000\mathrm{units}}{60\mathrm{workers}}\,\,=1,150\mathrm{units} \mathrm{per} \mathrm{worker}$****(1)**

Step 3: Calculate the percentage difference between the two years ((new-old) / old)

$= \frac{ 1 , 150 - 920 units}{920 units} \times 100

= 25 %$** (1)

Step 4: Identify whether the percentage difference is an increase or decrease

• 25% percentage increase (1)

The link between high labour productivity and competitive edge

• Businesses aim to increase the level of labour productivity to improve competitiveness

Higher labour productivity improves businesses' competitiveness

• High labour productivity reduces the labour cost per unit, leading to improved efficiency and the potential for a meaningful competitive edge

The impact of improved sustainability

• Sustainability means meeting our current needs without compromising the ability of future generations to meet their own needs
• Businesses can contribute to sustainability by changing their operations in a variety of ways

Businesses can contribute to sustainability in a range of ways

Improving sustainability

1. Using renewables in production

• More than 99% of the wood used in IKEA's furniture products is either sourced from sustainable sources or recycled

2. Reducing water use in industrial processes

• Introduced in 2011, Levi's Water<Less programme reduces the use of water in the manufacture of the company's denim products, so far saving over 4.2 billion litres of water in shortage areas

3. Using green transportation, such as electric vans

• Almost 40% of delivery company Evri’s London vehicles are zero-emission and the company operates e-cargo bikes across four UK cities

4. Avoiding the use of toxic substances

• Home accessories brand Parachute uses organically-grown textiles, with no harmful chemicals used at any stage of production

5. Using renewable energy, such as solar

• Unilever uses 100% renewable electricity across all its factories, offices, R&D facilities, data centres, warehouses and distribution centres. They also generate their own solar power at production facilities in 23 countries.

6. Implementing recycling

• Revive Innovations Ltd recycles compact discs, turning them into beautiful items of furniture and home accessories

The benefits of improving sustainability