New equipment, new machinery, and new software are always shiny and all hold the promise of productivity improvements. It is readily believed that if money is spent on new equipment or systems this investment will have a pay back on the bottom line. This is frequently naïve thinking but it is very easy to argue and is all too prevalent. This position supports the status quo, excuses the existing management for not achieving productivity gains, and suggests that without any major expenditures productivity cannot be increased. This can be foolish thinking.

Investments to improve productivity all too frequently do not do not result in any 'bottom line' improvements. This can be understood when looking at a theoretical business, Great Door manufacturing. This theoretical business had been operating for forty years and there exists only one large manufacturing plane.

The foreman in the door edging department has arguing at budget meetings for years that a new, and improved, edging machine is required for his department. He argues forcefully and elegantly that this investment would significantly improve the throughput in his area. The budget process proceeds and after these many years it is decided to purchase the requested new edging equipment for the edging department. The budget decision being made the equipment is purchased and installed in the manufacturing plant. After making this investment, and operating the new machine for 6 months, there has been no productivity improvement that can be measured. The same numbers of employees are producing the same value of goods at the same gross margin. It is virtually certain that the foreman of the edging department is still very loyal to his new machine for after arguing strenuously for it what other position could he take. I can also be assumed that the new machine is working better, being new and shiny machine. Still productivity is only productivity if it contributes to increasing throughput, and decreases costs, and increases profit.

In this example the company still has the same number of people producing the same units of output with the only obvious change being to increase company assets and add probably add debt to the company balance sheet.

Productivity investments must be viewed as contributing to the profitability of the entire business and not just within one specific area. Without a contribution to the 'bottom line' of the business there is no productivity improvement. Too frequently an emotional arguments concerning productivity are made. In this example the edging department foreman may argue, “he knows there has been a productivity improvement”. Maybe, but if it cannot be measured and quantified this becomes a doubtful argument.

Productivity must be measured, and once measured, improvements or deterioration can be tracked. Companies that continually track their productivity over time improve their productivity. It may be that the Great Door manufacturing company has not tracked its productivity over the years at either an overall company level or at a department level. If this situation exists the company may not realize that the large capital expenditure for the edging department is not improving productivity for the company. In the absence of accurate and formal tracking the Great Door Company may simply be pleased with their new, shiny machine and just accept that it improved productivity.



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