As a business support company, we recognise the critical role that multi-factor productivity (MFP) plays in the success of an SME. Reviewing MFP, and our own learnings from over 100 SME productivity improvement plans, we look at how productivity is able to transform local businesses within a region.
What is Multi-factor Productivity?
MFP goes beyond the traditional single-factor productivity metrics. It’s a holistic approach that evaluates how efficiently an organisation combines various inputs to create value. The key components being:
- Labour – Workforce and Skills.
- Capital – Infrastructure, machinery, and equipment.
- Technology – in the form of Innovations and processes that enhance production.
- Raw Materials – Inputs required for manufacturing.
- Energy- Fuel used in production.
Measuring Efficiency:
MFP assesses how effectively these multiple factors are combined to generate output. It looks at both, technical efficiency (using inputs optimally) and technological progress (innovations to improve productivity).
Why is MFP important for SMEs:
- SMEs often operate with limited resources. MFP helps them identify areas where they can optimise resource utilisation.
- Efficiently using available resources enhances competitiveness. MFP allows SMEs to benchmark against industry standards.
- SMEs can improve MFP by innovating and adopting new technologies, streamlining processes, and investing wisely.
- Balancing factors like labour, capital, and technology ensures sustainable growth.
Challenges an SME faces when looking at MFP:
Lack of data: SMEs may lack comprehensive data for accurate MFP calculations, which is where our Productivity diagnostic comes in, and bridges this gap, providing a baseline and actionable insights. We review 30 different measures of productivity and then prioritise which measure to address for the greatest impact.
Complexity: Considering multiple factors requires sophisticated analysis, which is why Exemplas working with Leeds Beckett University can translate this academic research into practical business insights and a productivity improvement plan.
Sector Variations: MFP differs across industries due to unique production processes – working with over 185 SMEs across a wide variety of sectors has allowed Exemplas to understand the unique impacts that our Productivity diagnostic has unearthed.
Our MFP insights for SMEs:
Using an MFP diagnostic, we can identify inefficiencies in an SME, allowing them to allocate resources more effectively.
What our new diagnostic has shown, is that our SMEs need to work upon a basic framework of productivity measures before we can take them through productivity programmes that looks at capital investment, and investment in technology.
Our findings show that the SME needs to fully understand what productivity factors affect them in their business, in their region , in their industry, and improve some of the more fundamental areas, such as training and skills before they move onto investing in new technologies and capital equipment.
Once they have improved their base level of productivity, then they can enhance their productivity further by adopting innovative practices and embracing new technology. Looking at implementing digital tools, automation, and more efficient supply chains.
Multi factor productivity through the Exemplas/Leeds Beckett University diagnostic is a powerful tool for SMEs to enhance productivity, to become competitive, and achieve sustainable growth.
https://www.emerald.com/insight/content/doi/10.1108/IJPPM-03-2022-0157/full/html
https://link.springer.com/article/10.1007/s11187-021-00450-3