A LABOUR expert contends that most local firms have shown profitability in recent times, but this is fundamentally unsustainable, as they are not efficiently productive. Productivity in simple terms means producing more with fewer resources while maintaining or increasing the quality of products.
In an interview with The Herald Business, Industrial Psychology Consultants (Pvt) Ltd managing consultant Mr Memory Nguwi said production is the not the same as productivity.
"There is a mistaken belief that making a profit means the company is productive. In productivity accounting profit = productivity + price recovery.
"The question that then needs to be answered by every executive is: Is our profit growth productivity driven or it is price driven? A more sustainable business model is where profitability is productivity driven. It is important for captains of industry to note that an increase in capacity utilisation does not mean there is an increase in productivity," he said.
Zimbabwe has recorded significant improvement in terms of the capacity utilisation of its manufacturing industries since the introduction of the multi-currency system in early 2009, and most companies last year recorded improved profitability.
Mr Nguwi is, however, of the opinion that this noted rise in profitability should not be taken at face value.
He believes that most of the noted profitability is resulting from companies upwardly adjusting their prices to recover costs.
Observers note that excessive price recovery may create opportunities for competitors to undercut a business's product prices and thereby reducing the company's market share. The strategy of using price recovery has resulted in the country becoming a high cost location, and it has become cheaper to import than to purchase locally manufactured products.
An analysis of most manufacturing companies' published financial results last year show that although they were profitable, the same results also tended to be blighted by high overheads, reflecting poor productivity.
Says Mr Nguwi: "However, it is the relationship between profitability and productivity which must be explored for the benefits of all stakeholders. Productivity analysis provides key insight into business performance that normally is not shown by the ordinary financial analysis."
Local manufacturers have been facing a number of operational challenges particularly relating to low liquidity levels, antiquated machinery, high overheads and stiff competition from imports.
To the extent that the principle of productivity is premised on the efficient use of resources, the model is relevant to Zimbabwe's business operating environment.