Int J Adv Manuf Technol (2005) 25: 1020–1028
DOI 10.1007/s00170-003-1936-z
ORIGINAL ARTICLE
A. Rathore · R.P. Mohanty · A.C. Lyons · N. Barlow
Performance management through strategic total productivity optimisation
Received: 19 April 2003 / Accepted: 3 September 2003 / Published online: 20 February 2004
 Springer-Verlag London Limited 2004
Abstract This paper presents that performance management of
contemporary companies has to be oriented towards optimisation
of total productivity as it has a very strong impact on compet-
itiveness. Four contingent performance management strategies
for total productivity optimisation have been modelled using the
non-linear mathematical programming approach. A case study
is presented to demonstrate the applications. Some significant
learning points have been highlighted to provide direction for the
managerial practice community.
Keywords Optimisation · Performance management systems ·
Strategic total productivity management
1 Total productivity as an important measure of
performance
Only during the past few years, an extraordinarily predomi-
nant socio-economic-political phenomenon; known as globali-
sation has changed the structural configuration of the business
world and operational paradigms of the manufacturing indus-
tries. All organisations across the globe are now being com-
pelled to develop their performance management systems in line
with the increasingly complex external environment and im-
peratives of competition, regardless of their size and location.
Historically, financial performance indicators, such as Return on
Investment, Return on Assets, Operating Profit Margin, Profit
after Tax, Earning Per Share etc. have been used. Traditional
financial measures are criticised because they encourage short-
termism [3, 16]; lack strategic focus and fail to provide data on
A. Rathore
Department Of Mechanical Eng., National Institute Of Technology,
Jaipur, India
R.P. Mohanty
The Associated Cement Companies Ltd., Mumbai, India
A.C. Lyons
Department Of Engineering, University Of Liverpool, UK
N. Barlow
Liverpool Business School, John Moores University, UK
quality, responsiveness and flexibility [32]; encourage local opti-
misation [10, 12]; encourage managers to minimise the variances
from standard rather than seek to improve continually [30, 37];
and fail to provide information on what customers want and how
competitors are performing [5, 18, 38]. However, financial per-
formance measures are necessary for the purpose of accounting
and audit; but are definitely not sufficient if viewed from the
ever-emancipating platform of competition. Primarily, they are
the ends from the stockholders’ sustainability point of view but
are not entirely capable of providing either diagnostic mech-
anisms to critically examine the means that achieve the ends
or prescriptive solutions in the context of dynamic competition.
Furthermore, these are both too simplistic and historically fo-
cused [8] to formulate strategic pathways. If a company’s ex-
isting performance management system is largely financial, it
may not be possible to make optimal decisions in relation to
resource allocation and control the organisational innumerable
complex work processes. They may undercut a company’s op-
erational strategy, if the company is positioned in a competi-
tive space. Kaplan and Norton [18] proposed an integrated ap-
proach known as ‘balanced scorecard’ to objectively view per-
formance in terms of customer and stakeholder satisfaction, in-
ternal processes and the organisation’s ability to learn and im-
prove. Stainer [34] suggested six fundamental inter-linking areas
in performance management: profitability to money, productiv-
ity to output/input relationship, quality to customer satisfac-
tion, innovation to adapting to change, co-operation to employee
satisfaction and business ethics to impact on society and the
environment.
Ashton [2] and Sanger [29] have mentioned that productiv-
ity is the most important performance indicator in the pursuit of
organisational excellence. The world competitiveness report [36]
suggests that:
Competitiveness = (competitive assets)
× (competitive processes) (1)
Competitive assets = f [technology, human resources, regulatory
assets, functional assets, positional assets, cultural assets] (2)

Competitive process = f [quality, quantity, timeliness and
resource utilization] (3)
In order to attain the twin objectives of growth and survival, it has
become an imperative that performance management strategies
are in alignment with productivity of assets and processes. Com-
panies have been measuring costs, quality, outputs, cycle time,
resource utilisation efficiency etc. of assets, processes, products
and services.
Total productivity measures are increasingly being recog-
nised and utilised for organisational restructuring of assets and
continuous improvement of business processes [13]. Productiv-
ity is concerned with establishing congruency between organi-
sational goals and societal aspirations through input-output rela-
tionships. Productivity is the culminating result of interactions of
the organisational management systems with the external envi-
ronmental factors [23].
Productivity, as the discipline propounded by academics, and
used in industry, commerce, and government throughout the
world, is the broadest of all the modern management functions.
Although, the very functional nature of the discipline has un-
dergone changes historically, fundamentally the concepts have
surrounded “speeding up actions to improve performance in mul-
tiple dimensions”. The discipline has been made rich by synthe-
sising knowledge from other disciplines and, at the same time,
many sub-disciplines such as TQM, JIT, BPR, CIMS etc. have
emerged. Today, all these in conjunction represent a very wide
umbrella embedding the generic discipline.
Managers directing the efforts of an organisation have a re-
sponsibility to know how, when, and where to institute a wide
range of changes to optimise productivity of assets and pro-
cesses. These changes cannot be sensibly implemented with-
out knowledge of the appropriate information upon which they
are based. Performance productivity measures quantitatively tell
something about products, services, and the processes that pro-
duce them. They enable organisations to know:
• How well the organisation is doing.
• Is the organisation meeting its envisioned goals?
• Are the resources optimally being utilised?
• Is there the scope for improvement?
• If and where improvements are necessary.
Enhanced competitiveness depends on factors such as: identify-
ing the important measures of performance for a given strategy,
understanding the inter-relationships of these measures, focusing
on measures which truly predict the long-term financial success
of the business.
We view here like Miller [20]; Belcher and John [4]; Al-
Darrab [1]; Mohanty and Rastogi [22]; that profitability of a firm
is directly proportional to productivity of operational processes.
There have been a number of recent studies [9, 11, 26, 39–41] un-
dertaken to address the concept of total productivity [7] at an or-
ganisational level. Mohanty [24] discussed the issues of consen-
sus and conflicts in understanding productivity from a strategic
perspective. Literature on productivity models can be classified
into two distinct classes [28]. One class deals with productivity
1021
measurement and evaluation; the other is related to productivity
planning and improvement. Most organisations focus their efforts
on applying productivity measurement and evaluation models.
Singh et al. [31] also mentioned that the improvements in method-
ology of productivity measurement have been diverse and piece-
meal at best. It has been observed that very seldom companies
prepare for optimising productivity by way of strategic planning
exercises. Hoque and Falk [17] have expressed that greater envi-
ronmental uncertainty in future organisations will call for strate-
gic considerations in total productivity management.
2 The objective and scope of the paper
In this paper, we intend to develop a set of mathematical models
for optimisation of total productivity and use these models as
strategy support rather than mere operational decision support.
We submit that strategy support models are intended to influence
managerial actions across the organisation for total productivity
planning, execution, monitoring and improvement.
The mathematical programming procedure generally esti-
mates a multi-surface production frontier based on different
combinations of input/output ratios. Sumanth [35] provided an
approach for optimising productivity within a feasible output
range, but it deals with aggregate terms and does not consider the
specific levels of input variables. Though Hawaleshka and Mo-
hammed [14] proposed to have constraints for the values of input
variables, their model does not consider any relationship between
output and inputs. The model considers both to be independent of
each other. In another model, Hawaleshka and Mohammed [15]
did consider a relationship between input (although only labour
and capital) and output using the Cobb-Douglas production func-
tion, but they ignored all internal and external constraints. Land
et al. [19] and Cooper et al. [6] introduced stochastic consid-
erations in inputs and outputs. However, all these mathematical
models do suffer from lack of strategy support. Further, if man-
agers are interested in making some intervention to deduce con-
sequences of a strategy, these models are not prescriptive.
Rastogi and Mohanty [28] constructed a set of strategic total
productivity optimisation models. Their propositions relate to
the investigation of four possible strategies positioned in four
clusters in relation to degree of competition in the business envi-
ronment and growth in market demand as shown in Fig. 1 below:
Fig. 1. Clustering productivity optimisation strategy
1022
Overall Growth Oriented Strategy
This strategy looks for the overall significant growth by enhanc-
ing outputs as much as possible, even if it calls for additional
inputs. This strategy may be suitable:
• Where the market position is very comfortable, e.g., there is
a growing demand for the product.
• When socio-economic conditions are favourable.
• When there is not much competition in the market.
• The company has an excellent reputation in the market so far
as quality of products and services are concerned, i.e., excel-
lent brand image.
• Whatever quantities of outputs are generated is easily sold
and the company can earn a premium in price also; i.e., the
demand is more than the supply.
Total Cost Management Strategy
This strategy directs the management to significantly decrease
the gross inputs (reduce the gross input costs), even at the ex-
pense of marginally reducing the gross output. This strategy may
be suitable where and when:
• There is tough competition and any increase in the price has
an unfavourable response in the market.
• There are many manufacturers in the market and product de-
mand is limited.
• The company has to win over a demand on the basis of lower
price, but still wants to achieve reasonable profitability even
at the expense of marginally reducing total production.
Technical Efficiency Oriented Strategy
This strategy focuses upon the efforts of management to re-
duce the gross total inputs through improved efficiency, in-
creased resource utilisation, alternate reallocation or redeploy-
ment, marginally reducing the total outputs from the existing
level. This strategy may be suitable when:
• The company is facing decline in product demand because of
product obsolescence.
• The company is phasing out some of its product lines over
a period.
• There is recession in the economy.
• There is severe crunch or rationalisation in resource use.
• The company is undertaking reengineering exercises to criti-
cally examine the various business processes.
Organisational Effectiveness Strategy
This strategy aims at enhancing the gross total outputs without
spending extra inputs in any form. Although the gross total in-
puts are to be maintained at the existing level, redeployment/real-
location/substitution within a given class of input or inputs is
possible. This strategy may be suitable:
• In an environment where improved socio-economic condi-
tions are resulting in improved market demand, but compe-
tition in the market prohibits increase in the prices.
• When competition is demanding innovations in products and
services so as to significantly enhance value/utility to cus-
tomers without increasing the cost of production.
• When a company is undertaking reengineering projects for
bringing in innovations in terms of systems and procedures
to meet the market challenges [25].
Each strategy has its own basic governing principles and requires
the understanding of various complexities and non-linearity in-
volved with several variables. We submit here that good business
sense dictates that performance is more likely to be improved
upon when strategic directions are oriented towards total produc-
tivity optimisation. The strategies that we have postulated here
will facilitate:
• To define the company’s scope of business.
• To enable top management formulate business plans and key
performance/result areas.
• To provide a basis for the allocation of resources.
• To create standards of managerial behaviour towards re-
source use.
In this paper, we have formulated a non-linear production fron-
tier function for a manufacturing plant by using a statistically
significant relationship between output and key input variables.
The statistical significance of the function is suitably checked
for normality, independence, linearity and equality of variance
by various distributions and residual plots. A set of non-linear
mathematical optimisation models involving the four strategies
is formulated for managing total productivity that gives optimum
levels of the key input variables such as raw material, labour etc.
The optimisation models for each strategy are presented in the
Appendix.
3 The case study
This study concerns a UK-based limited company, but hav-
ing worldwide operations. The data for the purpose of this
case study have been taken from a plant situated in Liverpool,
UK. The Company manufactures elevators. It is a well-known
name in the elevator business and makes elevators of various
sizes, shapes and models. Although the company manufactures
some standard models, its main business is concerned with the
manufacture of custom-made products. The company purchases
raw materials as well as semi-finished goods and components
from its vendors. Various plants of the company also supply
the parts and components to each other. These are billed at
a standard profit margin. The manufacturing process is mainly
divided into three parts, namely; fabrication, assembly, and fin-
ishing. At each stage, the operators check quality against stated
standards. The quality assurance department is brought into
the picture only when line staffs are unable to handle quality
problems.

3.1 Some significant observations
• The company often faces varying market conditions in dif-
ferent countries in which it does business. The products
are highly custom-made and customers demand a high de-
gree of quality and reliability. But, sometimes, for doing
business, some trade-offs are desirable between price and
quality.
• The quality of incoming materials is controlled through what
is known as the traffic light system. A defective lot gives an
amber light to the vendor. With the next defective lot, the
light for that vendor is turned red indicating termination of
relationship with the vendor. Despite having this stringent re-
quirement for quality, the cost of rework has gone up by 88%
against the planned value for the study period. A comparison
of January–June 97 and January–June 98 figures also shows
an increase in the value of rework by 7.1%. Often the suppli-
ers trace the fault to changed specifications.
• The company occasionally finds itself not meeting delivery
schedule. On average, it takes five months to process an
order, which is considered to be high by industry standards.
Late delivery forces customers to delay picking up the mate-
rial as they shift their resources to other areas of operations.
This results in a large inventory of finished goods that ties up
precious working capital.
• The off-balance delivery schedule can be attributed to the
way elevators are fabricated. On the assembly lines, it was
found that few machines were idle most of the time (under-
utilised capacities) whereas one or two resources were hav-
ing piles of inventories in front of them (bottleneck).
• Producing less and consuming from the existing stockpile on
inventory can increase inventory turnover. Moreover, it does-
n’t tell anything about the way resources are utilised.
• Inventory control of incoming material is done through the
Kanban system. However, no such system is used for the in-
process inventory.
• At present, the company measures inventory turnover, manu-
facturing variance, material burden variance, shipping vari-
ance, transport variance, purchase price variance, net profit
margin, factory overtime and direct labour productivity on
a monthly basis. Variance (Manufacturing, Material burden,
Shipping, Transport) analysis is done to check how much de-
viation there is between the predicted value and actual value.
It is basically a budgeting control tool rather than a perform-
ance management system.
• Factory overtime analysis is another budgeting tool to control
funds allocated for overtime. For the analysis period, it has
exceeded the target by 66%.
• Net profit margin is an ‘after the fact’ analysis that can’t be
used as a diagnostic tool.
• Direct labour productivity analysis measures output per man-
hour against standard output per man-hour. It’s a partial
measure and not very effective in the absence of other mea-
sures. A high labour productivity does not necessarily mean
high profit. Use of automation/outsourcing improves labour
productivity but may increase total cost of product. Against
1023
the planned value of 72% for the study period, the firm could
achieve 68.5% labour productivity.
• A comparison of the first half of the year 1998 with the cor-
responding figures in 1997 indicates that despite having a
huge backlog of the orders (equal to 5 months sale), the com-
pany could increase its sales by 1.65%. Labour productivity
has gone up to 68.6% from 67.8% in terms of standard hours
but the manufacturing payroll has also gone up by 7.12%.
This is primarily due to increase in head count from 188
to 198 in 1998. Against the planned sales of £ 9 881 923 for
the first half of 1998,the company could achieve sales of
£ 9 545 510 a shortfall of around 3.5%.
• As can be seen from above, the company establishes ef-
fectiveness of the operation by measuring a host of partial
measures. A close analysis of these measures indicates that
at present the company focuses only on budgetary control
apart from measuring partial productivity, i.e., labour. At best
these measures can be used to control the cost but provide no
strategic direction to the management. The data are primarily
collected to satisfy the needs of the corporate office that does
the analysis and tells the company which efficiency to im-
prove upon. No attempt has so far been made by the company
to quantify overall performance in terms of total productivity.
3.2 Data collection
Data were collected on a monthly basis for a period of 18 months,
from January 97 to June 98, under the headings of purchased ma-
terial, direct labour hours (regular and overtime) total payroll, cap-
ital, energy, burden, shipping expenses, transportation expenses,
other expenses and output. All inputs were recorded in terms of
their monetary value except labour, which was recorded in terms
of costs and labour hours. Monetary value of labour included both
direct and indirect costs. Burden is the material handling costs
involved in the transportation of materials to the shop floor. The
collected data are shown in Tables 1 and 2.
3.3 Developing the production frontier equation
Multiple regression analysis using the SPSS software package
was used to develop a production frontier equation. The regres-
sion process was undertaken using five input variables, namely:
material, capital, labour hours, energy and burden, as these were
the five major variables affecting the output of the process. Man-
agement regarded shipping, transportation and the remaining
inputs to be sufficiently insignificant to be excluded from the re-
gression process.
In the first iteration, three variables, burden, capital and en-
ergy, were eliminated and an equation was obtained in two in-
dependent variables Mat and labour. A high-adjusted R squared
value coupled with very small values of Signif F and Sig T
were obtained. This indicated a good fit of this model to the
sample but the histogram of the frequencies of regression-stand-
ardised residuals was not normal, indicating that this particular
regression equation was not applicable to the population. Cook’s
1024

Table 1. Data for the case company

No. Month Output Purchased Total Direct Energy Capital Burden Shipping Transport Others
Material Payroll Labour-Hrs Expenses Expenses

1 Jan-97 1712 948 394 21 29 56 33 139 38 128

2 Feb-97 1784 1199 341 19 30 41 29 121 44 109
3 Mar-97 2310 1494 396 21 28 56 36 152 50 121
4 Apr-97 1855 1373 313 17 22 41 27 112 27 106
5 May-97 1623 1156 312 17 18 41 26 115 36 95
6 Jun-97 2600 2044 320 17 14 45 27 119 51 124
7 Jul-97 1731 1063 299 19 17 35 22 139 78 115
8 Aug-97 1418 880 327 17 12 40 25 116 42 98
9 Sep-97 2659 1457 374 18 13 23 29 126 72 104
10 Oct-97 2354 1403 372 20 23 40 25 133 69 91
11 Nov-97 2035 1249 446 27 15 17 22 173 87 194
12 Dec-97 1432 751 311 17 12 40 15 102 53 125
13 Jan-98 911 432 306 15 21 40 23 97 63 82
14 Feb-98 1324 647 367 20 25 40 35 120 62 131
15 Mar-98 1964 1236 437 24 11 40 40 129 65 118
16 Apr-98 1252 887 365 16 16 40 31 93 33 88
17 May-98 1538 919 361 17 14 40 30 121 22 117
18 Jun-98 1989 1362 386 19 20 43 25 117 36 134

All figures are expressed in £ 000’s except labour, which is expressed in thousands of hours

Table 2. Limits of the input variables independent variable direct labour hours (referred to as dir_hrs)
was not linear. It tapered downward at higher values of dir_hrs.
Variable Lower limit Upper limit Present value This indicated that a power term of dir_hrs should be included in
(000’s) (000’s) (000’s)
the model.
In the fourth iteration a new variable Rthrs (the reciprocal
Mat 832 2044 1362
Dir_hrs 15 27 19 of the root of dir_hrs) was created and introduced in the regres-
Cap 17 56 43 sion process in the place of dir_hrs. The variable burden was also
Burden 15 40 25 re-introduced. The results were satisfactory for this iteration: an
equation containing four parameters, indicating the goodness of
fit of this model to the sample and the population were also sat-
distance and Mahalanobis distance were recorded in this itera- isfactory and almost comparable to that of the previous iteration;
tion. A relatively high value of Cook’s distance for the June 97, but the partial residual plot of capital was not linear but similar
September 97 and November 97 indicated that these were influ- to that of dir_hrs in the previous iteration. This indicated that one
ential cases, the presence of which may have distorted the model. should use a power term for the capital variable.
The three influential cases detected in the first iteration were In the fifth iteration a new variable Rtcap (the reciprocal of
removed and an equation containing four independent variables, the root of capital) was created and introduced in the regression
material, labour capital and burden was then obtained. The ad- process in the place of the capital variable. The model produced
justed R squared value improved considerably and Signif F and an equation between the dependent variable output and four in-
Sig T values were very small. The histogram of the frequencies dependent variables material, Rthrs, Rtcap and burden. The ad-
was also slightly better than the previous one but it was not sat- justed R squaredvalue was 0.96244, which was high enough to
isfactory. A close look at the Sig T values revealed that the Sig T indicate a very good fit of this model to the sample data. Sig F
value was highest for the burden variable. value was 0 and all Sig T values were very small which sup-
Burden was deliberately removed from the regression pro- ported the conformance of the fit to the sample data.
cess to see the effect in the third iteration. Although this time The following points provide the evidences of the goodness
the equation had two variables, material and labour, the over- of the fit of this model to the population:
all results were satisfactory. The adjusted R squared value was
slightly less than that of the previous iteration yet it was high • The histogram of the frequencies of the regression-standard-
enough to be considered as satisfactory. Sig F and Sig T values ised residuals is normal. Also the plot between output and
were very low. These indices indicated that this model fitted the regression-standardised predicted value gives a linear trend.
sample. However, the most important result of this iteration was • The scatter plots of regression-standardised residuals with
an approximately normal histogram of the frequencies of the regression-standardised predicted values and dependent vari-
regression-standardised residuals, which confirmed the fit. able output is random.
In the next step, the partial residual plots were examined. The • The partial residual plots of the dependent variable output
partial residual plot between the dependent variable output and with various independent variables shows a linear trend.
 1025

Thus, the following equation was regarded as a suitable expres- As per this strategy, increasing both output and input but
sion of output in terms of key input factors: increasing the output relatively more, that is, can improve pro-
ductivity:
Output = 0.978(mat) + 510.760(dir_hrs)0.5 + 142.063(cap)0.5
−13.506(burden) − 2090.078 (4) Maximise: P = O/I (7)

The following constraints, in addition to the limiting values of

The input equation is given as:
the variables were considered:
Input = mat + 8.00 ∗ (dir_hrs) + cap + burden (5) Input constraint: Input ≥ 1582 (8)
Here, the coefficients represent the costs associated with each in- Output constraint: Output ≥ 1989 (9)
put factor. Mat, cap and burden are expressed in monetary terms; Capacity constraint: Output ≤ 3500 (10)
hence their coefficients are 1. The coefficient of dir_hrs is the
average wage rate for direct labour. The standard non-linear programming (NLP) model can be writ-
Now, Productivity, P = Output/Input ten as:
Min:


0.978(Mat) + 510.760(Dir_hrs)0.5
+142.063(Cap)0.5 − 13.506(Burden) − 2090.078 Z = 1/P
⇒P= Mat + 8.00(Dir_hrs) + Cap + Burden
Mat + 8.00(Dir_hrs) + Cap + Burden =
 (11)
(6) 0.978(Mat) + 510.760(Dir_hrs)0.5
+142.063(Cap)0.5 − 13.506(Burden) − 2090.078)
The input calculated by this equation for the 18 months sample
period constitutes a major part of total input (more than 70% on Subject to:
average), so any improvement achieved in the ratio P will lead to
an improvement in productivity. The limiting values of the vari- − Mat − 8.00 ∗ (Dir_hrs) − Cap − Burden + 1582 < 0 (12)
ables were identified after having detailed discussions with com- − 0.978(Mat) − 510.760(Dir_hrs) 0.5
− 142.063(Cap) 0.5

pany management. These are the values of the variables within + 13.506(Burden) + 4079.078 < 0 (13)
which they are expected to operate in the next planning period
(one-year). Table 1 lists the input data for the case study. 0.978(Mat) + 510.760(Dir_hrs) 0.5
+ 142.063(Cap) 0.5

− 13.506(Burden) − 5590.078 < 0 (14)

Last month’s output = £ 1 989 000 − Mat + 432 < 0 (15)
Last month’s input = 1 582 000 (as calculated from input − Dir_hrs + 15 < 0 (16)
equation) − Cap + 17 < 0 (17)
Last month’s Productivity = 1.257 − Burden + 15 < 0 (18)
Plant’s capacity = £ 3 500 000(at average price) Mat − 2044 < 0 (19)
Dir_hrs − 27 < 0 (20)
3.4 The model application Cap − 56 < 0 (21)
Burden − 40 < 0 (22)
Only as a sample case, the actual non-linear programming model
for the overall growth strategy is given below. Similarly, appropriate models were also constructed for the re-
maining three strategies. The Appendix outlines the formula-
tion for all the 4 strategies. Each model had a non-linear ob-
jective function with non-linear constraints. A computer pro-
Table 3. Optimal values gram was written in C++ to solve the non-linear optimisa-
Last Technical Management Growth Cost
tion problem. The program used the internal penalty function
Month Efficiency Effectiveness Strategy Reduction method [27] to convert the constraint optimisation problem into
Strategy Strategy Strategy an unconstraint optimisation problem. The Davidson–Fletcher–
Powell method [27] was then used to solve the converted uncon-
Mat. 1362 972.77 1287.66 1314.51 1099.69 straint optimisation problem. This method is the best general-
Dir_hrs 19 23.99 26.06 25.97 21.29
Cap. 43 50.65 54.00 53.63 42.09
purpose unconstrained optimisation technique [27]. It is very
Burden 25 27.78 15.74 15.78 21.00 stable and reliable even in the case of a highly distorted and
Output 1989 1998.87 2608.10 2625.70 1980.04 eccentric function because the information of the previous iter-
Input 1582 1243.14 1566.00 1591.71 1333.11 ation is carried forward through a positive definite symmetric
Productivity 1.26 1.61 1.67 1.65 1.49
matrix.
1026
3.5 Results and discussion
The optimum levels of productivity and input variables under the
four strategies as obtained by solving the NLP models are shown
in Table 3. By using any of the strategy, the company can im-
prove the total productivity to a significant extent. The following
observations are worth mentioning:
• The variable burden has a negative coefficient in the output/
input(s) relationship. Burden expenditure is the cost incurred
in materials handling. It does not add any value to the prod-
uct. Efforts should be made to minimize it.
• Material consumption has been reduced in almost all the
strategies from the existing level.
• Capacity utilisation has improved in the cases of techni-
cal efficiency, management effectiveness and overall growth
strategy. However, there is a marginal reduction in capacity
utilization in the case of the cost reduction strategy. Solu-
tions to all but the cost reduction strategy suggest that the
organisation should increase its capital investment in adding
capacity. In physical terms that would mean higher utiliza-
tion of capacity with increased working capital to sustain
increased output levels.
• Solutions to each of the strategies suggest that the organi-
sation should reduce its raw material cost and increase its
expenditure on labour.
• If one carries out an intensive analysis of Table 3, one can ob-
serve that there is a trade-off between the extent of increase in
output and the maximum value of total productivity attained.
Depending upon the market position, the management can
make a compromise choice between the two.
• The company is in a strong competitive position but in a sec-
tor with a relatively low growth rate. Management believes
that a reduction in plant output is likely in future years. Cost
reduction strategy is being recommended for the next plan-
ning year after which time depending upon external factors
the strategy can be reviewed and a more appropriate strategy
for the next planning period be selected.
3.6 Some learning points
1. Many companies develop plans to help guide what they hope
to achieve in their manufacturing process. The problem is
that many companies believe having a plan is the same as
having a strategy. Just having a business plan is not enough to
ensure success; it is necessary that the business plan be linked
to performance productivity management.
2. One of the reasons why many companies have fallen be-
hind Japanese competitors is that manufacturing has taken
a subordinate role to marketing and finance functions. This
means manufacturing is always reacting to decisions by other
units of the company and is always concerned with short-
term issues. To be proactive, companies must anticipate the
potential of performance productivity management practices
and systems and make sure that manufacturing is involved in
major engineering and marketing decisions.
3. While it’s important to have a plan, what counts is the real-
life actions and decisions made by management towards op-
timisation of total productivity. These actions will determine
whether a business strategy is successful or not. The pattern
of actions derived out of such optimisation studies reveals
the real performance management strategy of the company
as well as the portfolio of manufacturing capabilities. These
are the special abilities that a company has in manufacturing.
Some examples of manufacturing capabilities include cost,
quality, quantity and timeliness, which have a very strong
bearing on marketing and financial performances. Managers
should emphasise those capabilities at which the company
excels. For example, if a company has the ability to make
products more cheaply than competitors, that ability should
be exploited. A company needs to develop programmes to
improve manufacturing capabilities needed to succeed in the
marketplace. For example, a company may need to find ways
to cut costs in manufacturing if competitors can offer less ex-
pensive products in the marketplace. Managers need to find
ways to evaluate how their company is doing at meeting its
strategic goals. For example, a business that stresses rapid de-
livery of products needs to find ways to measure and reward
delivery performance within the company.
4. Total productivity optimisation helps an organisation to
achieve superior performance (in terms of financial as well
as non-financial measures). Strategic business objectives
can only be achieved as a cumulative result of continuous
improvement and renewal of organisational capabilities fos-
tered through optimisation of assets and processes.
4 Conclusions
Total productivity has a very strong impact on the drivers of fu-
ture competition, but has largely been ignored in contemporary
performance management systems. An attempt was made in this
study to establish some strategic directions towards total pro-
ductivity management, as maximisation of total productivity is
the only means for enhancing profitability of a globally com-
peting enterprise. To attain this end, four appropriate strategies
were selected and mathematically modelled. In order to opera-
tionalise these strategies into implementable action imperatives,
the models were validated in the case of an elevator manufac-
turing company in the UK. These models and results allow the
management to make a normative choice of appropriate total
productivity optimisation strategy as well as fixing targets for
the various resource inputs. It is hoped that such models will
enable strategy support in a general sense and will make the
most important tasks of productivity planning and improvements
more objective oriented. For an economy, a nation or a com-
pany to achieve pre-eminent position and superior status, there is
an emergent need to pioneer the culture of measuring perform-
ance through total productivity and to promote the discipline.
Our thesis is that society’s collective vision of enterprise man-
agement is undergoing a fundamental shift. Such a profound shift

requires a transformational approach to critically scrutinise our
assumptions about how successful companies must work. It af-
fects values, structures, roles, processes, competencies and the
nature of interactions. This emerging new age of competition is
as radical a development for business enterprises as the refor-
mulation of productivity engineering theory and practice. It has
always been the concern of many researchers and practitioners
that the theory be revitalised, in order to provide proactive chal-
lenges and motivation to the world of practice. Towards this goal,
this paper is merely oriented.
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5 Appendix: The mathematical formulation of
different strategies
Organisational Effectiveness Oriented Strategy. In this strategy,
the objective function is to maximise the output at the current
level of inputs. Let Tot be the output in the planned period t
and ai be the coefficient of the input variable Xi as given by
the regression equation. Let ao be the value of the constant at-
tached to the regression equation, then the output is expressed as:
Tot = ao + Σi ai · Xit . If bi is the cost coefficient of the input vari-
able Xi , then the total input = Tio = bo + Σi bi · Xit , where bo is
the fixed cost associated with the organisation.
The model can be written as:
Maximise Tot = ao +
i ai ·Xit
Subject to:
bo +
i bi · Xit = Tio
Xit ≤ Xi max
Xit ≥ Xi min
Xit ≥ 0
1028

Xit is the ith key input variable in time period t. Xi max and can be written as:
Xi min refers to the maximum and minimum value of the vari-
ables in the planned period. Tot ≤ C
Or ao + Σi ai Xit ≤ C
Technical Efficiency Oriented Strategy. In this strategy, the ob- Or Σi ai · Xit ≤ Co, which is a constant.
jective function is to minimise the value of the total input at the
current level of the output. If Tit is the value of total input in the Productivity Constraint: The total productivity measure of a
planned period t then mathematically the model is expressed as: planned period ‘t’ should be more than or equal to the total pro-
ductivity measure of the current period ‘t − 1’, i.e.:
Minimise Tit = bo +
i bi Xit
Subject to : TPMt ≥ TPMt−1
ao +
i ai .Xit = Tot or [ao + Σi ai Xit ]/[bo + Σi bi Xit ] ≥ TPMt−1
Xit ≤ Xi max Since bo + Σi bi Xit ≥ 0
Xit ≥ Xi min ao + Σi ai Xit ≥ (TPMt−1 )(bo + Σi bi Xit )
Xit ≥ 0 Σi ai Xit − (TPMt−1 )(Σi bi Xit ) ≥ (TPMt−1 )(bo) − ao
Σi (ai − TPMt−1 · bi ) · Xit ≥ (TPMt−1 )(bo) − ao
Growth oriented strategy and cost reduction strategy aim to max-
imise the total productivity measure (TPM), which is defined as Σi di Xit ≥ D
the ratio of output to input. As it attempts to maximise a ratio,
Where di = ai − TPMt−1 · bi and D = (TPMt−1 · bo) − ao
the model cannot be treated as a simple Non-linear Programming
Other Constraints: Other constraints pertaining to upper and
problem. Two Fractional Programming models are developed for
lower limits of the input variables are the same as in the case of
these strategies.
strategies 1 and 2.
After considering all the above constraints, the Growth Strat-
Growth Oriented Strategy. The strategy guides the management
egy can be written as:
to maximise TPM in such a way that the major focus is on in-
creasing output. This can be written as: Maximise TPMt = [ao + Σi ai Xit ]/[bo + Σi bi Xit ]
Maximise TPMt = [ao + Σi ai Xit ]/[bo + Σi bi Xit ] Subject to : Σi ai · Xit ≥ Too Output Constraint
Σbi · Xit ≥ Tio Input Constraint
Subject to: Σai · Xit ≤ Co Capacity Constraint
Output Constraint: The total output in the planned period ‘t’ Σdi · Xit ≥ D Productivity Constraint
is greater than the total output in the current period ‘t − 1’; Xit ≤ Xi max
Tot ≥ βTot−1 , Where β ≥ 1 is the level of efficiency. Xit ≥ Xi min Other Constraints
Xit ≥ 0
ao + Σi ai Xit ≥ βTot−1
or Σi ai Xit ≥ βTot−1 − ao
Total Cost Management Strategy. The aim here is to reduce the
or Σi ai Xit ≥ Too; where, Too = [βTot−1 − ao] = A constant output but the reduction in input is more than the reduction in
output. Mathematically, it can be stated as:
Input Constraint: Input in the planned period ‘t’ has to be more
than or equal to the input in period ‘t − 1’. Therefore, it can be Maximise TPMt = [ao + Σi ai Xit ]/[bo + Σi bi Xit ]
written as: bo + Σi bi Xit ≥ Tit−1
Subject to : Σi ai · Xit ≤ Too
or Σi bi Xit ≥ Tit−1 − bo Σbi · Xit ≤ Tio
Σdi · Xit ≥ D
or Σbi Xit ≥ Tio where, [Tit−1 − bo] = Tio = A Constant
Xit ≤ Xi max
Capacity Constraint: The planned output in period ‘t’ cannot ex- Xit ≥ Xi min
ceed the capacity ‘C’ of the plant. Therefore mathematically it Xit ≥ 0