PRODUCTIVITY IMPROVEMENT - EFFICIENCY APPROACH VS EFFECTIVENESS APPROACH

Traditionally, raising the level of technology is considered the most effective way to improve productivity. Nevertheless, without the suppo rt of sound management systems, the contribution of technology to prod uctivity is limited. In a sample of fifteen machinery firms, this pape r calculates three indices for automation technology, production manag ement, and productivity, respectively, to represent their levels of ac hievement. By using technology and management as the explanatory varia bles, a piecewise linear productivity frontier is constructed by apply ing a data envelopment analysis approach. At a given combination of th e levels of technology and management, a firm may not be able to achie ve the expected maximum productivity due to inefficient utilization of the input factors. One approach, the efficiency approach, for improvi ng productivity which does not require the consumption of extra resour ces is to efficiently utilize the input factors. Another approach, the effectiveness approach, is to adjust the levels of technology and man agement toward the best combination to accomplish the highest producti vity. Based on the productivity frontier constructed from the surveyed firms, the two approaches for improving productivity ate discussed.