It is usually calculated by dividing the output for defined periods by the total costs (capital, energy, material, personnel).
That has served well for businesses involved in manufacture of a defined product and, to an extent, for those in the service sector.
The productivity calculation is changing thanks to technology
While it was straightforward to assign a value to the inputs of labour when production relied on people doing the work the equation needs to be adjusted with the increasing use of automation for all or part of the manufacturing process.
While capital, energy and material may still have a quantifiable cost that can be measured the role of personnel changes significantly.
While, of course, efficiency and optimising output are still essential to maximising productivity, how does labour fit into the calculation, when human beings are no longer performing those repetitive tasks on the production line?
The manufacturing model is changing where by the traditional manual role has largely been replaced by the management of equipment and systems. This may involve programming equipment to set up the process, monitoring it while running and intervening only when something is wrong or in the event of a breakdown.
The new manufacturing roles require technical knowledge, materials management skills, quality control, administration and planning production. The blue collar worker is now a skilled and often highly trained engineer who no longer needs supervising by a traditional manager.
Even such basic jobs as road sweeping are no longer about a person with a sweeping brush and dustcart. They are now more likely to involve someone operating a mechanised sweeper, which may need more training and skill. Modern tractors and farm equipment take technology to a new level.
While automation can eliminate back-breaking labour and improve productivity in manufacturing, it still needs people with the training and knowledge to operate machines, maintain and fix them and to understand how to get the best performance out of them.
This may result in the need for fewer employees in a business, but with a higher level of skill and education and therefore higher levels of pay. A consequence is less need for middle management.
Therefore, when calculating business productivity where automation is playing a part, the costs of the various inputs, including personnel, and their relative importance will need to be rebalanced.