International Journal of General Systems

ISSN: 0308-1079 (Print) 1563-5104 (Online) Journal homepage: http://www.tandfonline.com/loi/ggen20

A GENERAL SYSTEMS THEORY OF PRODUCTIVITY

RICHARD O. MASON

To cite this article: RICHARD O. MASON (1979) A GENERAL SYSTEMS THEORY

OF PRODUCTIVITY, International Journal of General Systems, 5:1, 17-30, DOI:
10.1080/03081077908960885

To link to this article: http://dx.doi.org/10.1080/03081077908960885

Published online: 30 May 2007.

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 Inr. I. Ccmral S).srcms Q Gordon and Brtach Scimee htbluhen Ltd.
1979. Vol. 5. pp. 17-30 Printed in Great Britain

A GENERAL SYSTEMS m O R Y OF. .

PRODUCTIVFTYt
RICHARD 0.MASON
Asoeiarc Professor, Graduate School of Management, Uniuersiry of California, Los Angeles,
Catfortvia U.S.A. 90024
( R t c a I d September 25, 1977: infinal form Februory 6. 1978)
Productivity b treated m a systems concept. 11 i s wped that the causal tcxtvrt o i the syslem's cnvironmen~dinam
the rtltvant prodvniwity construct and rneasurtmtnt. Based on Emery and Trist's taxonomy of environmcn& three
conaprs OF prductivily arc ddned: P r o w s ptoductivzry, bunded productivity and systems product~v~ry. Each
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eompr irnplics a different m w u r e or productivity. Current economic and managerial literature k teratcd to rhesc
concepts.
INDEX f ERMS Productivity, environmenk p c r a l systems theory,

SYSTEMS CONCEPTS AND engages in processes which yidd outputs.

PRODUrnIVITY
Productivity b a systems concept. It measures the
level of output a system has generated in relation
to the input resources consumed during the pro-
duction process. In the narrow sense, produc-
tivity is a ration of outputs over inputs, out-
putlinput. la a broader sense, however, it con-
cerns the overroll eficiency of a system; and. i t is
this broader aspect which we shall explore in this
paper. The rational system's manager generally
achieves efic~ency by following three steps: (1)
Calculating the productivity of the existing pru-
ductive processes; (2) Comparing the result with
alternative processes and; (3) Re-allocating re-
sources to change thost processes which are less
cficient or are wasteful. The route to efficiency,
therefore, starts with the calculation of produc-
tivity. Query: On what 'basis are thae calcu-
lations to be made?
Thett art a staggering number of possible
productivity calculations. In order to establish a
rationale for selecting appropriate calculations, it
is useful to look at rhe properties of systems
~hernselvesand see what these properties imply in
the way oi a meaningful basis for productivity
calculations.
Generally speaking, a system is a set of ca-.
ordinated camponcnts, It accepts inputs and
TTht author is indebted l o [he Editor, the Referees and to
E.Burton Swanson for valuable commtnt$ on an earlier
vmlon of this paper.
According to Churchman3+"the study or systems
involves five basic considerations.
1) The total system objectives, purposes and
measures OF performance.
2) The system's resources: the means used Tor
performing the system's tasks and yielding its
outputs.
3) The system's tnvitonmmr : the fixed
constraints.
4) The components (elements) of the system
including their acrivizies, goals and measures or
perhormanct,
5) The system's management which acquires
the resourccs and alloeatcs [hem in order to
achieve the system's objectives. Managerntnt en-
compasses the system's decision promscs.
An undctstanding of the system's goals and
objectives reveals which of the system's outputs
are imponant for productivity analysis.
EssentialEy the system's goals and objectives dc.
fine the "functional dass" of outputs which it IS
the purpose ofthe system to produce.E.'
This specifies the numerator of the produc-
t i v i ~ yratio. A thorough recording of the system's
rtsouroes describes the means which may be
employed in producing the output. The catalog-
ing or resources influences the specification of the
denominator in the productivity ratio; however,
the basis upon which resources are evaluated
depends on the nature of the system's tnriron-
ment. The more dynamic the environment the
 1s R. 0.MASON
mole relevant opportunity concepts arc to the
evaluation of resources.
In order to develop a systems concepts or
productivity it is necessary to draw on a theory
or systems' environments. For this purpose I have
chosen the causal texture theory of Emery and
Tris!." In the rollowing section each of their four
"ideal type" environments is summarized together
with implications for productivity measurement.
ENVIRONMENTAL TYPE AND
PRODUCTIVITY
Type 1: Placid. Randomized Environment
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In the sirnplnt typc, gonls and noxiants am relatively
unchanging in tbcmselvu and randomly distributed. A
critical property from the organization's viewpg~nt is that
therc is no difTcrence bttwten tactim and strategy. and
organiwtions can erist adrplivtly u sing!< and indeed
quite sm321, units.
The implication or this environment for a
system is thal it makes it stable and lrelat~vely
unchanging. The productive function may be
characterized as a stable channel through which
'
inputs and outputs flow. An appropriate measurc
of productivity is a measure or the eficiency of
the system for converting inputs into outputs.
Thus. lthe traditional measure, output/input, is
applicable 1 call this a measure of process orJcrw
productivity,
Type 2: Placid. Cluvtcml Envitonmenls
The nexi type is nlso static, bul goals and noxiants arc not
randomly distribuicd: they hnng togcther in cerraia ways.
Now the nccd lor slnlegy as d~stinct[corn tactlu.
Under these conditions organizations grow in size. b o r n -
ing hiernrchical and rend~ngtowards centralized control
nnd coordinntion.
The clustering aspects OF this type ob environ-
ment give rise to a concentration of resources
and the development of a "distinctive com-
petence" which limits the system's output pro-
ductive capacity. Yet, the placid nature of the
environment means that the constraints on the
system are not changing rapidly. What a system
cauld do with its resource rather than what it is
doing is the relevant concern. Failure to utilize
the system's tull or moot etTcient capacity results
in waste and inctficiency. 1t represents a loss of
the system's opportuniltits and is indicative of an
improper concen~ration of resources. The re-
levant measure becomes a comparison of actual
with potential output. k a u s e it focuses on the
constraints imposed by the system's particular
concentration of resources, I call this measure
bounded producriviry, Bounded productivity is
similar to Stafford Beer's2 concept of "produc-
tivity" which he defines as thc ratio oh a system's
actual output ('actuality") to its achievable out-
put ("capability").
The third type is d p m k tarhcr than static, I t consis~sof a
c l u s t e d environment in which there is more than ant
system or the same kind. i.c, the o b j m of orre organi-
zation a r t thc a m c m, or relevant to, others likc it. Such
compni~on~ a tok improve their own c h a n a j 'by hinder*
ing each other. each knowhng the others are playing the
5 a m game. &twetn strategy and tactia rhcrc emerges an
intcrmcdinte type aT organizational mponsc-what m~litary
theorists refer 10 as optralions. Control k o m a more
defentralized to allow thcsc to be conducttd. On the other
hand, stabthty m3y require a reriain corning-to-term bt-
The reactive nature or this third type OF en-
vironment means that therc are competi~orsand
that the system must consider that its knowledge
and production capacity can be acquired by
others. The Tact that thc environment is disturbed
and changing mtnns that there always ure new
opportunities being created in the system's cn-
vironment which permit it to restructure itself
and to respond to the actions or competitors and
others. The critical facility Tor long-run survival is
the system's manager's ability 10 reach out into
the environment, acquire new resources, alter the
productive function, revise the flow of inputs and
outputs and to re-configure a new systcm with
new capacity. Failure to configure the best po-
ssible system results in lost opportunities and in
waste and incRciency. The relevant measure bc-
comes a comparison ktween the existing sysrern
and the best possible system. Since i t involves the
concepts OF investment and the re-configuring of
the system, I call this a measure or sysrcmic
productiuiry. Systemic productivity is related to
Beer"' concept of "performance" which he de-
fines as the ratio of actual output ("actuality"') to
what the system ought to bt doing by developing
its resources and removing constraints
["potentiality").
Typt 4: Turbulent Fkl&
The kurth ~ y p e is dynamic in a m o n d rtspcFt. the
dynam~cpmpcrtia arising not simply from the intcnction
of identifiable component sys1ern.r but lrom the field itsclr
 A GENERAL SYSTEMS THEORY OF PRODUCTIVITY
(the 'ground'). The turbulence rtsulu trom the cornplcxity
and mul~iplt chaructcr o i the causal intemnntctions.
Lndividual orgsnizar~ons.however large. cannot adapt suc-
o d u l l y simply through thrir d!mt inreractions. An exam-
ination is made of the enhanced importanlr a l ralucr.
regarded as a bnsic mponsc ro penbring are= of relevant
uncenamty, m providing a control mtchan~grn,when com-
monly held by all members in a field.
At this r o ~ r t hlevel or environment the concept
or eficiency is suptrcedtd by the concepts of
survival and eflcctivcncss. The functional class of
outputs is no longer well dQned. Thus, the
relevant managerial issue becomes the choosing
of the 'domains"'15 in which the system will
optrate. I n this context resources may be tadi-
cally rc-oriented to produce new outputs; and,
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indeed, many resources may be kept idle, in
reserve for some yet to be identified new domain,
The value of eficiency is important; but, a stable
measure OF productivity cannot be dtlintd.
Thus, there are three idealized environments in
which productivity measures are relevant.
'Generally as the system becomes more open and
dynamic with respect ro its environment, the
appropriate productivity measure chanscs from a
purely internal measure to a comparatively txttr-
nal measure. I n highly complex environments the
measures appropriate for a more stable environ-
ment may be usefully calculated. However. they
must be interpreted in the context of thc pro-
ductivity measure defined for the environment in
which the system finds itself.
With rhis buckground on the role of systems
t hcory for defining productivity measures. we
turn next to an cxplication of process. bounded
and systemic productivity,
PROCESS PRODUCTIVITY
Process productivity is the concept of prtlduc-
tivity most generally usdl in economic theory. It
is measured by catculnting the ratio of what is
produced by the system (output) to what the
system consumes in producing it (resource ~nput).
This notion of productivity leads to a deceptively
simple formula Tor process productivity, 011.
DiKcultits in applying this formula result when
units of output and input must be defined and
units of measure specified. This has led to much
confusion in the cconornic literature. T o sort
t h ~ eproblems out it is usciu! to view process
productivity by means of a systems model such
as shown in Figure 1.
19
The system's manager seeks to maintain both
the technical eficiency of the system and the
market and environmental viability of the system.
For the Iormer the manager is concerned with
the physical: reiationships between input and out-
put. The latter is concerned with the monetary
relationship between cxptnscs (outgo) and sales
(income or revenue).
a. Physical Process Produn[u[ty
To measure physical process productivity out-
puts are expressed in physical, tangible units of
goods or services. Number or items, tons,
kilowatt hours, gallons, square rut, ctc. art typical
units of measure used. Inputs a r t expressed in
lerms of actual amount of resources consumed in
producing the output and are usually classified
into labor, materials, energy, capital and other
Gastors of production.
From a system's point or view the relevant
measure ob productivity is a ratio or output to all
associated inpurs. This is generally rcFerred to as
n "total factor productivity" measure and it re-
flects the ovcrall cficiency or the systems pro-
cesses for converting inputs into outputs. The
association of inputs to outputs is accomplished
by means of an activity analysis. A bull scale
activity analysis of a multiple technology would
yield an activity matrix A. The A matrix takes
the lorm:
A total factor productivilty measure reflects
input as a function a[ the amounts or the nth
input resources consumed in producing a parti-
cular output. Consequently, prmss praductivity
measures deal with only the rows of this A
matrix. As will be discussed in a subsequent
sect ion, bounded productivity measures petmi t
comparisons to be made among the rows.
It is important to point out that many changes
in the system's conversion processes may exptain
the changes observed in a total factor produc-
tivity measure. N e w technology, re-organization,
new management, new materials, changes in la-
bor skills and many other iactors may account
for increases or decreases in the ratio.
 Demsnd
Product Market
Sye tern
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Expenses Sales

I <- Phyeical h a d u c t i v i t y \
I
I< F i n a n c i d Productivity
I-

FIGURE 1
 A GENERAL SYSTEMS THEORY OF PRODUrnlY'ITY
Panial productivity measures help identify
some of the source of productivity change and
arc easier than total measures to operationalize.
A partial productivity measure is the ratio of
output to a single or limited set of elements of
input. It takes the form,
for a base year, where 1: represents the ith
element(s) of input. An index,of,I he form
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can also be calculated for any comparativt per-
iod r.
Output per man hour is the most frequently
used partial measure. In Fact it is so common
place that many people define "productivity"
exelusive!y as output per man hour. For many
systems this is a reasonable measure to use since
labor is a major input factor and because labor
eficitncy hx k e n an historical focal point Tot
managerial concern. A partial measure such as
output per man hour also reflects changes in the
performance of the system as a whole including
the overall eficiency with which resources are
used. the average quality of labor, the quality and
availability of materials and the rne~hodsof orga-
nization and work flow.
There is a deep social value underlying the use
of a physical process productivity. In cssence it is
a measure of swiety's ability to overcome the
rorces of nature. M o r t output or use-value per
unit or input is a measure of a system's (and,
hence, man's) increasing ability to create "plenty"
and abundance. This is the concern of the pro-
ducer, the engineer, the technologist, and the
manager. There is a long history in economic
Iiterature far this concern. The primary focus of
this concern has been on labor input.
Adam Smith3' argued that "every man is rich
or poor accordirlg t o the degree in which he can
afford to enjoy the necessaries, conveniencts, and
amusements of human life." This led him to place
the value of a commodity as "equal to the
quantity of labour which it enables him to pur-
chase or command," Outputs and inputs in this
view should be measured in terms oi their ex-
31
change or market value not in'physical terns. In
this view a system's outputs and inputs arc
valued in terms of their "scarcity" value.
David Ricardo, however, disagreed with Adam
Smith. The fundamental system's problm was to
.
secure abundance from nature. The p r o p value
is "use" value. The value of, an output is not
inherent in the quantity of. labor purchasad or
commanded from others in terms of its scarcity;
but, rather in the physical quantity of. labor
which was consumed in the process of. produnng
the output. Ricardo thereby gave rise to thc
labor theory of value, a theory in which output
per man-hour is a central notion. Karl Mnrx was
to extend this notion.
The labor and use theories of, value arc also
the basis of much of contemporary industrial
engineering. Time and morion study and scien-
tific management, as dewcloptd by Frcdcrick W.
Taylor, are notable examples. Taylor sought to
reduce the gap between what workers actually
turned out and what they might comfortably turn
out. His approach was ro srudy the processes aT
work in detail. The amount of time requtrcd to
accomplish a task using one method was corn-
pared to the amount required using other me-
thods until the most eficient method was found.
In his studies Taylor identified three forms or
measurement which were essential to scientific
management: a measure ol the quantity of physi-
cal output (e.g., pounds, tons, bushels), a measure
of the quality or physical output (e-g., grad-,
errors), and the producrivity measure of man-
hours ptr unit of output required to produce t h t
output, faylor's objec~ive was to solve the
engineering problem ot improving a worker's'
capacity by discovering better methods. He also
sought to solve the psychological problem of
improving his willingness to work by developing
incentive systems. The goat of these solutions was
to increase output per man hour. This tradition,
frequently called Taylorism, has continued th-
rough much of industrial engineering and
management science.
Physical process productivity measures do ig-
nose scarcity, however. A system's manager is
also concerned with the financial: viability or the
system in a market and monetary economy. In a
monetarized economy, prices are a measure or
the relative scarcity of goods and factors. Indeed.
since John Stuart Mill fits[ formulated the mo-
netary measure of value, most of the focus ot
economics has been on the monerary . or price
 MASON
side of systems. Most system art compared in
tctms of their relative financial perrormance.
Productivity analysts have used monetary data
extensively for their studies. There are several
reasons Tor this. One is that some analysts firmly
believe that a measure which relates salts or
incomt to expenses is the relevant measure o l
eficiency For a system. Another prevalent reason
is the availability of dollar data Tor most ele-
ments of production. Sincc thc dollar is a com-
mon unit o i measure among goods and factors,
prices art often used as a surrogate for physical
relationships. A third explanation, of course, is
that they have confused the use vnlue premises,
which underly physical relationships, with the
scarcity and exchange vatue premises, which
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underly price-market relationships.
6. Financial Process PruJuctivitg
For a business enterprise, profit is the purest
measure 01 management" ability to operate ef-
ficiently in the markc[ place. I I is gcncrally
calcutntsd as Stllcs (Income or Revenue] minus
Expenses, t h i l ~ is, Income- Outgo, Sales or
Income are normally used as the output measure
in the private stitor. Revenue is notmnlly used in
the public and not-for-profit sectors. This relation
may be expressed as a ratio Sb/Eb. The ratio is
greater than onc when the firm is profitable or
the non-profit organhalion has an cxccss or
revenue over expenses. The ratio is less than one
whe'n outgo exceeds income. Trends can then be
established by comparing a base period ratio
with subsequent periods by means or an index.
While a prductiviry type measure of the form
S/E can be calculated, the more ~ypica!measure
is the profitability rate, S- E/S. This is just one
of several financial ratios which arc used to,
measure the financial: prductirity of an organi-
zation. Return on investment or return on assets,
Investment A '
and the capital turnover ratio,
Revenue S or revenue for a product a r t divided by lthe
lnvestrnent =X'
and other variations of inveslment based ratios
arc also frequently employed for financial
analysis,
These financis! measurn-profit rate, return on
investment and capital turnover-art the purest
reflection of the organizationmsability to c o p
with probltms of scarcity in a monctarizcd and
market economy in which a monetary unit (such
as dollars) is employed as a med~umof exchange.
Thcsc financial measures are not normally con-
sidered to k productivity measures, but rather
measures or financial performance, Howcvcr, they
form one end of a continuum of measures run-
ning from pure financial measures on one end to
pure physical measures of productivity on the
other end. The middle of this continuum contains
many "rnixcd" measures in which prices and
financial inputs and outputs are co-rningled with
measures of physical inputs and ou~puts.
Two frequently used measures which mix fin-
ancial and physical dimensions are cost per unit
ol output and revenue per man-hour. Cost per
unit or output is the Fundamental notion of cost
accounting. It is the result of dividing 311 relevant
financial input costs by the number of units OF
physical output.
P I !, *Pill.. .P"i"
0
P,=the factor price for the irh input, !,=the
quantity of [he ith input, and O=thc physical
quantity o i outpul. Cost per unit is influenced
not only by the technical cniciency of the
organization's eonversion processes but also by
the supply l o r n anecting its input factors and
the organ~zalion'sskills and relative power in the
factor input market. Consequently, cost per u n ~ t
1s a measure or how well the organization has
been able to acquire scarce resources trom its
environment and convert them to physical
output.
Sales or Rcvcnue gcr man-hour is the converse
of cost per unit. 11 is calculated by dividing sales
by man hours S / I , = O . MJI, (where M -the pro-
duct market price of output 0 and I, is tht
physical amount or labor input). (Actunlly, n
measure of sales pcr total factor input can be
calculated, but its use is rare. Some firms use a
related measure. however, in whreh the total sales
direct, tractable costs of producing rhe product.)
Many industrial firms use the measure salts (or
revenue) per man-hour as indication of their
overall productivity. One reason given for its use
is that most employees and managers understand
 A GENERAL SYSTEMS THEORY OF PRODUCllVITY
it and because its behavior is klieved to k
correlated with purer hnancial and physical mea-
sures in the range in which the firm is opztating.
The partial financial measure Sales (or Revenue)
per dollar of labor expense (or, sometimes, just
direct labor expcnse) is used for the same pur-
pose. Sales per man-hour is a measure of the
organization's ability to employ its physical in-
puts to satisfy demand and scarcity requirements
in its product market. It is influenced not only by
the technical eficiency of the organization, but
also by the social demand for its output, the
relative scarcity oh the output, and the
organization's skill and relative power in the
output product market.
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Some productivity analysts have attempted to
reduce some of the effects of,scarcity factors on
financial rneasurw by using "value added" rather
than sales as a financial output measure. YaEue
added is the market price of the output minus
the cost d materials purchased rrom others.
Gross valve added reflects the cost of labor.
taxes, profit, interest, rent and capital depre-
ciation. Net value added exct udes capital depre-
ciation. Value added per man-hour has the ad-
varllage of not being distorted substantially by
the extent to which a system processes its output
through all stages of production from basic raw
materials to finished product. Hence, it is uselul
lor comparing productivity between organi-
zations with different degrees oF plant integration.
Value added per man-hour is a measure of the
organization's ability to apply its physical labor
to the raw and semi-processed materials it ac-
quires and to add scarcity or market value to
them. I t is frequently used in industry level
productivity studies to compare one firm with
another.
One method for moving financial measures
closer to physical measures is to employ price
dellators. Constant dollar sales and expense fi-
gures may be obtained by applying a price index
which reflects the prices of the particular outputs
and inputs the system handles. Value added
figures require a "double deflation" for both the
value of output and also for the cost of materials.
Constant-dollar values may also be obtained di-
rectly by multiplying the number or units of
output or of input by a unit price calculated for a
base period.
The use of price deflators reduces the effect of
price changes on productivity measures.
However, it is not without problems. There is a
23
technical dificulty in estimating constant dollars
because the appropriate or ideal price index for a
g v e n system usually is not available. There is
also a conceptual problem in their use as physi-
cal measures. Under ideal circumstances they still
reflect the relative finmcial scarcity in the
system's market environment during the base
period. Despite these problem, price adjusted
data is commonly used. For many systems the
requisite financial data is more readily available
than the physical data and, especially Tor large
and highly compIex systems, constantdollar pro-
ductivity is most likely the closest appsoximation
to physical producrivity that can be obtained.
A recent paper by Craig and Harrisd develops
one of the most comprehensive approaches to
constant-dollar financial productivity in the
literature. The unique Feature or the Craig and
Harris model is the treatment of capitat inputs.
The authors reject measures of the physical input.
o l capital (such as depreciation which is, adrnit-
tedly, a poor measure of physical contribution) in
laver or a service value of capital concept. They
then turn to the financial market to estimate the
service value input. The mode! assumes that the
firm has a leasing subsidiary which purchnses its
land, buildings, equipment, cash and othcr assets.
The capital input defined to be the payment
made by the firm ta the leasing subsidiary. The
payment is calculated as an annuity on the h i s
of the bnse year cost of the asset, its assumed
productive lire and on the desired rate of return
to the lessor. The desired rate of return is con-
sidered to be the relevant cost or capital to the
lirrn.l6 A weighted a v e r a g of the prcentage
elements or the firm's ~ a p i l a lstructure multiplied
by each source's cost factor is suggested for
estimalting the cost of capitaI.
The Craig and Harris model has much to
commend it; but, it is nevertheless a mixture of
physical and IinanciaI measures. In addition to
the problems o l applying price leveI deflators its
treatment or capital is specifically financial in
nature. Cost of capita1 is a monetary measure of
the relative scarcity of financial resources.
Consequently, it reflects the firm's skills and
power in the capital markets and investor exptc-
tations about the firm" earning power.
It is not surprising that financial and physical
measures become intermixed in measuring pro-
ductivity performance. They are inherently
dialectical in nature. Scarcity considerations or
supply and demand occur as man exchanges
 34 R. 0. MASON
goods and services with his fellow *a. Eficiency
considerations occur as man w o ~ k sagainst na-
ture to inciease tht abundance of goods and
services, Thus, the concepts are at once distin-
ctively different and deeply interwoven. Scarcity
is reduced by eflicieney. Eficiency is directed and
motivated by scarcity. And, hence, our tinancral
measures of scarciry and our physical measures
of eficiency in the end are bound to be
interrelated, .
In constructing a measurement system for the
process productivity of a producing system w t
need not resolve this dialectic. We need only to
understand it. In practice both financial and
physical measures and their composites should be
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uscd. They each tell us something ditferent about
the productivi~yof thc system and its ability to
survive in its environment, Also, lor seasons
discussed above, both partial and total measlrrcs
are appropriate. Constquently, process produc-
tivity is probably best measured by a "family" of
product i r i t y measures. Such a fzmily of measures,
blf course, can bc quite large, I n the case of a
simple production system with one oulpul and n
inpurs lherc arc 2" - l total and partial measures
or physical praductivity. Since there is an equal
number of measures of financial productivity, of
physical output to financial input and of financial
ourput to physicnl input, a total or 4(?- 1 )
measures nre possible for each output.
As we have seek productivity analysis oRen
mquires that w t distinguish outputs by the dif-
feten I technological processes which produce
them end that inputs l x categorized into classes
nccording to their contribution to tlie productive
process, Consequently, For any but the most
macro analysis a substantial n u m k r of thtoreti-
cal mezures is possible. I t bthovts the systems
manager, thedore, to develop a strategy for
choosing the subset of measures which will t x which would have occurred with the "irontier
most useful; in dealing with scarcity and efliciency
issues.
There is substantial literature on [he subject of
what is here called process productivity. An
introduction lo the topic is found in Fabricantms
A Primer on ~ r o d u c t i u i ~ ~Application
,'~ to in-
dustrial firms is round in Kendrick and
Creamer,'' Greenberg,'' and Eilon, Gold and
Soesan." Mtlmanz'-I' has done related studies.
Process type productivity measures for industry
and the national economy are given in
Kendricklz and in Denis~n.~.'- '* Btla Golct"~ L 8
has dealt explicitly with the diflerence 'between
financial and physical measures or producrivity.
With a few exceptions (to be discussed in the
next section), the measures in this literamre arc
all process productivity measures as defined at
the beginning of this section. The ourput to input
ratios they contain renect the system's abrIity to
rope with scarcity and eficiency. As the ratio of
output per unit of input increases, the syslem's
power over nature and over other systems is
improving. But, process productivity only tells
the system manager how welt the system is doing
not how well it could do, A system which has
accumulated resources in a placid, clustered en-
vironment must be concerned with how well it
could do. Bounded productivity addresses this
question or potential and deals explicitly with the
system's ptrformance in relation to i ts capacity
and capability.
BOUNDED PRODUCTIVlTY
Bounded productivity describes how wcll I he
syslcm is doing compared with its potential,
given its exrsrir~g resources and technological
canfigurazions, 1 I is measured both in relation to
aulput and to input.
Boundrd orrtpst prodlictiuiry is the ratio: actual
output divided by ltbc maximal output that a
syslern with its particular concentration and con-
figuration or resources (capital, labor, supplies,
knowledge, etc.) could produce.
Bounded inprrt productivity is the ratio: mi-
nimal input resources that should k mquircd by
a system of this configuration la produce a given
level of output divitled by the actual input re-
sources consumed to produce that output.
In traditional economic analysis bounded pro-
ductivity ,reIa tcs productive performance to that
production function." A system's frontier pro-
duction function expresses the maximal output
obtainable from rht system's particular combi-
nation oi fac~orsof production (resource inputs)
at the existing state of technical knowledge.
There are several approaches to est~matingn
system's frontier production function output so
t h a ~it may be used as 'the denominator in ?he
boundary productivity ratio. These include: (a]
determining the "engineered" production fun-
ction; (b) estimating relationships on [he basis of
historical input and ou~putflows; and (c) cs-
 k GENERAL SY!XEMS THEORY OF PRODUCTIVITY 211

timating relationships on the basis of external
influencing or modifying factors.
The most natural method is to use the
theoretical function specified by the system's de-
signers and engneets. It is to define such by M. J. Farrell." FasreU's method estimates the
an "engineered" production iunction by consull-
ing costent catalogue information and technical
analysis of the now oh work to determine the
sysrem"sachievable output rate.
As an jllustrati~nof this approach, consider a
system consisting of a typist, a manual type-
writer, papr, etc., the purpose of which is to
produa correctly typed pages as output. Suppose
the systtm is currently producing at a rate or
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multiple regression methods to yield an average
production function.
An alternative, but related, approach for deriv-
ing an empirical production function is that used
lower bound or the systemVsproduction function.
The method essentially involves estimating a unit
isoquant (points representing the minimum quan-
tities or the resource factors or. production re-
quired to produce one unit of output with vary-
ing factor proportions), An envclopc is fit to the
data fro m below where each data element con-
sists of. resource input data divided by the total
output. The production function is then found by

3,000 words per man-hour. Three thousand wo- solvrng a series of simultaneous equations. A
rds per man-hour is its "partial" rate or p r w s s similar result can be achieved, however, with
productivity. Suppose that. according to technical regression techniques by forcing the residuals to
specifications oT khe equipment and analysis of be positive.
standard labor times, the system is designed to Farrell's approach and also the "best practice"
produce at a rate 01 7,200 words per man-hour. methods suggested by Anne Grosse1 are based
Then its bounded productivity would bc or on relations bctwttn internal factors and output.
0,4167. Alternatively, since the world record (per- Sometimes these rclalionships are dillicult to es-
formed on nn Underwood Standard manual ma- . tablish. This is especially true in information
chine) is about 8,820 words per man-hour, one producing and adrn~nistrativearcas. This dific-
might calculate the lower level bounded pro- ulty has led some organizations ro locus on
ductivity asw or 0.3401. Increases in ei~herof
these ratios indicate that the system's resources
estimating resource input standards as a function
o l some environmental parameters ot the system.
are being more fully utilized and, hence, the IBM, Tor example, has found that standard input
system is more productive. resource levels for secretaries art more reliably
For many systems, especially in complex orga-
estimared as a function of the number or per-
nizations, it is difticult to arrive at an agrced sonnel in the plant, than as a function of the
nurnhr of reior~s, amount of correspondcncc,
upon designed, standard or maximal output. This
is particularty true in systems which involve etc. produced. ( I S M currently estimates some 110
administrative input standards a n the basis of
substantial administrative or indirect inputs,
some 28 external environmental variables they
learning behavior, or which require GO-ordinated
inter-personal relations. When this is the case a call ''modifitrs" in thcir system.)
maximum ran be estimated empirically. Such an
Standards, whether derived empirically or th-
empirical production function has zhc advantage rough engineering analyses, form the basis of a'
that a[ least some of its points have been obser- popular Form of bounded productivity measure.
ved as outputs of rcal systems. T h ~ sis the relation between standard hours or
"earned" hours and the actual hours of labor
One approach for deriving an empirical pro- input. Many organizations have calcvlatcd a
duction function for a system is to collect statis- standard for hours (and also for materials) per
tics on inputs and outputs for a group of similar unit of output. They subsequently calculate thc
systems (say, all of the firms in an industry). This ratio:
data is used to infer an average production
function. Normally, this will k an appropriately
weighted mean of the production Function as. Standard input ptr unit of output xunits ofoutput
sociatcd with each of the various technologits input actually consumed
used by the group of comparable systems, If the
system's analyst is willing to assume a linear, This ratio is a bounded input productivity
homogenous production lunction. then the input measure.
and output data can be processed using ordinary Systems theory aho suggests an approach for
 26
improving productivity as measured by the boun-
ded concept. AI: any point in time the system's
output is limited by just those constraints which
nre "binding." In the event that a system is
achieving less than its maximum, that is, whcne-
vtr a system's bounded output productivity,
actual output
or its bounded input productivity,
minimum input
actual input '
is Icss, than one, then same unspecified con-
straints must be operat ing. Discovering these
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phantom constraints and releasing them wiIl aid
the system's management in increasing the
system's productivity.
The institutional economist, John R.
Commons,' refers to these binding constraints as
"limiting lactors* and relates them to "corn-
plernentary hctors." Complementary factors are
similar to resources in systems terms.
Commons' words:
The timitifig bctor is r k onc whox conrrol, in the right lorrn.
nt the righr place and time. will set the complcmenlory fnclor~
at w r k to br~ngabout the muln intended. A very little
potash. i f lhnl IS the limiting hctoe, will multiply the gmin
yield (ram pcrbnpr five bushels ro twenty bushek pcr acre.
The sagacious rnehznic is the one who busics; hrmselt w ~ l h
control of the limiting Incroc, knowing that rht mmplemcn-
lary tacton will work out the results inrmdd, The Rut-
itrbudgei wastes his time on the complementary Ianon.'
Ipp. 628629)'
In the typing example discussed earlier, it is
possible that the factor limiting a typing system
to 3000 words pcr hour when its achievable rate
is 7200 words per hour is the skill of the typist.
Hence, additional training may improve this
lim~tingfactor. Of course, rhtrt are many other
possibilities. The output could be limited by the
motivation or the typist or the implied or ne-
gotiated work rules which control the pace of
work. The repair or the machine or the kind of
paper, or the organization or the Row of work
may constitute or contribute to the limiting bc-
tor. Or, it is also possible that the typist is not as
productive as possible because some eflotz is
devoted to complying with government regu-
lations. Whatever their source, idenfifying the
limiting lactors is important in productivity
analysis.
R. 0.MASON
. John Commons correctly points out that in a
dynamic or on-going system the limiting and
campltmentary factors art continually changing
place, Thus, an eflective management is one that
pays attention, xqucnzially, to the active limiting
factors. In the language of management plannink
releasing fix., converting to complementary) a
limiting factor becomes a management objective.
Consequently, the sequential attention to objcc-
tives which Cyert and March7 claim describes
managerial behavior is also rational as a means
of securing improved productivity in a plactd,
clustered environment. Thc vast literature on
management by objectives is also relevant in this
regard.
Some s m t work by Charlcs Kritbel and
colleague^'^ contains an analytical method for
starching for limiting factors, tspccially those of a
technical nature. Using a form or activity ana-
lysis, Kritbtl relates a vector of output sates, Y;s
for services j to a constraint vector X of xis,
Each x,'s represents the capacity service rate of
input resource category i measured in rcsouscc
Fn
processing units per unit time. For a given sys-
tem technology, A, a standard product output
mix yo= ( y , , jz ym)can be specified as:
,...?
Jhe ufillzation of resourns when the inputs
trnployed are xo can be evaluated using this
model. A* is defined as the maximal factor by
which the amount employed of all resources For
the product mix yo can be increased without
violating the capacity constraints. The scalar A*
is the solution to:
A* = Max i
subject to RSx*S X '
If at least one of the rcsourccs (the limiting
lactor) is fully utilized A* = 1 otherwise A* 2 1.
i*- I then becomes a bounded productivity mea-
sure indicating the level of resource utilization in
the system. The method appears to be sound
whenever the A'S and X's refer to technical
production systems. The method could be cxten-
ded however to deal with less tangible resources
and constraints such as motivational and rc-
gulatory factors.
The search for the maximal output or minimal
input For a system may also be faciiitated by
 A GENERAL SYSTEMS THEORY OF PRODVCFlVtTY
linear programming. There is a dose connection
between the activity analysis developed by
Kooprnans and the simplex method Tor linear
programming developed by George B. Dantzig.
As described briefly in the preceding section, the
technical knowlcdge about a system may be
represented in an activity analysis model and
summarized by a matrix A. When this model is
confronted with a given stock of factors of pro-
duction and a specific objecrive to be maximized
(e.g., output) or minimized (e.g., input), a linear
program may be used to determine the system's
optimal output or input levels.
Bounded productivity as described here is irn-
potlaat because it serves as a guide to manage-
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ment. It tells the manager how far actual pro-
duction is from what is achievable with the
system's given resources. It spurs rhe search for
limiring factors. Hence, it provides valuable infor-
mation for the practical and rational decision-
maker. M ensures similar to the bounded pro-
ductivity measures developed here are found in
various paris OF the literature. Beer' has de-
veloped a series of measures of achievement in
which his measure or "productivity" is similar to
the bounded measure developed here. In ad-
dition, the rare of return on investment analysis
or DuPont and General ~ o t o r s "relates output
to capacity as one oi the explanatory variables.
Btla GoldY"aas linked ROI to more traditional
productivity analysis through the equation:
Output Output
Total Investment =capacity
Gapacit y Fixed Investment
X X
Fixed Investment Total Investment
Several studies of productive systems hare used a
bounded measure as their effectircness criterion.
For example in the Ahmedabad Experiments, A.
K. RicelB employed engineering techniques to
estimate productivity as actual output divided by
engineered potential output. M, J. Farrell's orig-
inal work has been extended by Farrcll and
Fieldhause" and Wesley S ~ i t z ~ ' . ~ Annc
' design standard (7200) and a world record (8820)
Gram's "best practices" method'' is an alter-
native to that of Farrell.
Both process productivity and bounded pro-
ductivity take the existing system as given, They
are measures or how well thc system is doing
with the resources available to it. But has the
27
system acquired all of the resources it might?
Systemic prduaivity dcak with this query.
SYSTEMIC BRODZICTTWTY
Systemic productivity questions the design of the
system itself: "Is it living up to its maximum
feasible potential'?' "Is it doing what it ought to
do to develop its resources and to pursue oppor-
tunities?" En a disturbed, reactive environment
these art the salient questions. Strategic planning
is the information base ror answering these q u a -
tions. Systemic productivity is lthc measure.
Investment is the action orientation.
Systemic productivity describes how well the
system is doing compnred with its potential as
measured by the performance of any feasible,
designable system of the same functions! class. A
system o i the same tunctional class is a system
whose actual or polcntial output will achieve the
same end or purpose in the system's environ-
ment. Presumably, the system's manager could
have re-configured the system into any of those
of the same lunctional class that were reason-
ably available in the system's environment.
Consequently. systemic productivity is a measure
o l opportunities lost because o l a failure to invest
and to engage in systems evolution and redesign.
As with boundcd productivity ~t is measured
both in relation to output and to input.
Syslemic ourput producriviry is the ratio:
Actual output diuided $4. the maximal output
thnt could be produced by the best alternative,
feasible, designable and importable system of the
same functional class.
Systemic inpur psducriviry is the ratio:
Miminal input resources that are required to
produce a given level or output by the best
alternative, feasible, designable and importable
system of the same functional class divided by the
actual input resources consumed to produce that
level of output.
To return to the illustration or the typing .. .
system, the actual ratt of 3000 words per man-
hour using a manual typewriter was related to a
for manual machines, in order to obtain the
bounded productivi~y measure. The system, hw
werer, could be redesigned using an electric type-
writer. Electric typewritten pages arc of the same
functional class [and, in this case, also of the
same rnorphologicaP class) as manually typewrit-
 28 R. 0. MASON
'Len pages. However, the oficial world accord on
an electric machine is 9316 words per man-hour,
recorded using an IBM electric. Actually, rates
approaching 12,960 have been observed. This
would suggest that one basis for calculating
systemic productivity would be to relate the
actual rate to this potential rate, 7hc systemic
productivity then would h
The investment decision to exchange a manual
typwriter for an electric typcwriltcr is a relatively
minor system's redesign. Computerized word pro-
cessing represents a more dramatic he-
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configuration within the same functional class.
Whilc it is still limited to some form of riianual
key entry tor original data, a word processing
system can store, format and organize data so
that the net effective output rates can be much
higher. For example. it may be possible on
current IBM equipment, to achieve as high as
45,000 words per man-hour. The systemic pro-
ductivity of the manual typing system then would
' k
Systemic productivity is an indicator or the
long-run survival and viability or the system. t t
may be applied to work stations, organizations,
industries and entire economies, alike. It's appli-
cation raises qucskions the other measures miss.
For example, it is possible that an industry, such
as the U.S.steel industry, has process and boun-
ded productivity measures which arc: within his-
torically acceptable levels. That b, the industry
may be relatively efieiena given the turn-of-the-
century technology many firms employ. However,
in light of the development or new technology
and methods in Europe and Japan. the industry's
systemic productivity may be quite low. This low
ratio is a signal to the industry's management
that irs long-range plans and its investment po-
licy ought to be re-evaluattd. The firm is in a
disturbed environment and eventually its corn-
petitors nay out-perform it.
Low rates (i.e., Mow one) of bounded or
systemic praductivity do not necessarily imply
that immediate action should be taken to close
the gap. The measure is a signal. It alerts
management to conditions which should b
understood and explained. For example, a low
bounded productivity measure calculated on ~the
basis of machine specifications may also k the
result of a previously uncoasidtrtd constraint
such as work rules ncgotiattd in collective bar-
gaining or work conditions imposed by com-
pliance with an OSHA safety rule. Scveral judg-
ments are possible in this case: (a) accept the
imposed r a m as binding and scale down the rest
of the system to match; (b) attempt to negotiate
a new standard; (c) continue to operate the
system as is; or I d ) seek ways to reconfigure the
system within the confines or these constraints.
The appropriate action would be determined by
the mult of a thorough productivity review.
Low sysremic productivity measures suggest
other options. Options for improvement include
total redesign or the system, acquisitions or new
zquipmenk, and substantial retraining or hiring
programs. In short, low systemic productivity is
a n indication that new investment is required, In
terms a l managerial action, there is a swial
relationship between bounded and systemic pro-
ductivity. Bounded produclivi~yfocws at tcntion
within the system to look for solutions; systemic
productivity focuses attention without. Howcvcr,
ib bounded productivity is low, then the system's
management must be very careful in adopting
systemic change such as new equipment or new
designs as a solution, unlcss these new solutions
deal specifically with the limiting factor.
This is not unlike the story af the farmer who
t d d the agriculture extension agent, "Sucks, I'm
not [arming as well as I know how now!" He
was essent~ally saying, "Don't bother mc with
systemic changes. I'm not working up to my
bounded productivity level yet." Consquently,
the first order oh business for the sysrem's ma-
nager is t o see that the system's available physi-
cal, physiological and psychic cnergy is freed ro
do work and that this cnergy is appropriately
directed. This requires the manager ta employ a
wide range of skills, including organizational dt-
vcloprnent skills.
The diflerence between bounded and systemic
ptodluctivizy is still relevant however. I t is a guide
lor new investment and the importing of new
energy lor the system, Ih a manuaI typing system
has a bounded output rate of 7200 words per
man-hour and a systemic output rate of 9316, or
or 45,000 words per man-hour, then n potential
of 'between 21 16 or 37,800 additional words per
 A GENERAL SYSTEMS THEORY OF PRQDUCnVITY 19

man-hour could be realized bv an investment in 3. C. W. Churchman. The Smttrm's Apuroach.

an electric typwriter or a new word processing
system. Of course, the system would have to be
redesigned so that its energies would be chan-
neled to secute the higher rate, This decision is
the primary rresponsibility of a system's manager,
as is any investment or re-configuration or the
system.
~ e e r 'suggtsts that diflertncts of this type can
be tracked by means or a ratio which he calls the
"latency" ratio. For example, a ratio or a system's
systemic output productivity to its bounded out-
put productivity reveals how closely t hc systcm's
existing capability approaches ias potential with
new Investment. I t is also a measure or the
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.. [kH
hblirhing Cn..New Yark, 196*
4. C. W. Churchman. The Design qf l w f r i n g Sysiemr.
Buic Books, New York, 1971.
5. J. R . Commons. Iruritvrioml Economics. Thc Univtmity
or Wisfonsin Prrss, Madison, W i n s i n , 1962, pp. 62%
#.
6. C. E. C r i g and R C. Harris, Told productivity
measurement at the firm evel.* Slwn Mona~rmcnr
Reuiou, 14, NO.3. Spring 1973.
7. R. M. Cytrt and J. G . March, A Behaciorul Theory athe
Firm Prentice HalL Englewoad Clills, Ncw J a y , 1963.
8. E. F. Dcnisoo, T h e sources OF cconamtc growth in the
United States and the altcmalivn belore us." Comrnitrcc
for Economic Development, New York. 1962.
9. E. F. Den~son. Why Growth Ratcs Differ. Brookinp
Institulc. Washingron, 1974.
10. E. F. Denison, Actaunllng for united Sratcs' Ecaaomic

Growth 19294969. Brooking Institute, Washin~ton,

resource stewardship of the system's manager. A
manager may raise process or bounded pro- 11. S. Eillon, B. Gold and J. Souon. Appllcd Prducrlulry
ductivity by depleting and "squandering his la-
tent rcsourm." Pcoplt and equipment may be
overworked, "let go," under-maintained or re- 12. F. E. Emery and E. L. Trist, "The uuml
assigned in an effort to reduce costs. But the
result wilt bt a reduction oi the capacity and 13,
capability of the sys1em (LC., a lower dennrni-
nator in the bounded oulput productiv~ly For- 14.
mula). This depletion results in a reduction in the
, ratio of systemic to bounded productivity and IS.
serves as tl signal that short term improvements
have bccn gained a1 the cost or losing fu~ure
performance. That is, the ratio would reveal that
16.
rht munaser had dis-invested during the period.
17.
18.
SUMMARY
Productivity has k n defined in systems terms. It 19,
was argued that depending on the assumptions
made about the system's environment and
management's perceived relation 10 it, three dif- 20.
ferent concepts or productivity can be identified.
Based on a theory or system's environments,
notions or (1) process productivity, (2) bounded 21.
productivity, and (3) systemic ptoducrivity were
22.
developed and appropriatc measures suggested.
The result is a general systems theory of pro- 33.
ductivity which should aid the system's manager
in measuring and improving [he eficiency of any 24
productive system.
25.
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31 A. Smlth. A n Inquiry Ilrro rhr N a r u r r u d CUUKIflf thr
IC'tnlrh of ,Var~on%Great Books of thc Wcrtcrn World.
VoI 39,
Dr. RlCHARD 0 MASOY was born In Mcmph15.
Ttfintucc Hc r c r r i t d h15 B 5 . lrom Orcgun Skrtc U n ~ v c r w ~ v
and hit Ph n. lrnm I-'nlvcrs~~y of C a l l l o r n ~ qBcikclty IFc 15
currcn:ly Assarale Profclror o l Mannpcmcnt and
Infurmalion Syslcrnr and C'hamnan. Puhl~c and Not-lor-
Prnfit 5Tanapcmtnr ar the Graduate k h w l uf \!~napcmcnt,
Unrvcnriy ol Calblorn~n. Lor Angcla. Previously hc u r t c d ar
Assl<!znt R a n . PIO~CIIIOR;L~M L ~ L Propam
C I C ~ nk thc Graduate
khool. U.C.L.A.
Dr. Mmnn a r v d tlpht y e a n as a Corn pure Spccnl~rrfnr
Burroughs Carporatlon and t w o yean. on Icn>c lrnm
U C.L.A.. with the Na~ronal h e n c e Foundarlon In
Wa*htnylon. I 3 C.
Dr h l m n w x * rhc Edjtor or thc Manapcmcnt and
k h a v i o r a l k i e n c c Department for Hunu~rmrnr .Ci.rrwe and
lr currently Prtsrdcnt-Eltct of the W&rern Acadcm) ai
Manapcrncn t
T)r Mxson 13 a r n c m h r ul ~ h cInrtltu~co l Management
Snenm. the hcadern) of %lanapcmcnr, dmcnmn Atrrluntrnp
Skrncly ant! r\ssmh3i~on01 Cornyut~n)lSl.~c.h!nerv