1. Productivity and Efficiency
Efficiency, productivity and competitiveness are linked.
Better productivity means increased efficiency which results in a higher level of competitiveness.

2. Efficiency is about making the best possible use of resources
Efficiency is about making the best possible use of resources. Efficient firms maximise outputs from given inputs, and so minimise their costs. By improving efficiency a business can reduce its costs and improve its competitiveness.

3. Productivity measures how much each an employee makes over a period of time. There is a difference between production and productivity.
Production is the total amount made by a business in a given time period. It is calculated by dividing total output by the number of workers.

4. 1,000 tables/50 staff = 20 tables / worker
If a factory employing 50 staff produces 1000 tables a day, then the productivity of each worker is:
1,000 tables/50 staff = 20 tables / worker
Productivity = Outputs
Inputs
An increase in productivity from 20 tables to 25 tables,
without any increase in costs, means the firm has improved efficiency. The resultant lower unit costs increase profit margins.

5. Efficiency Graph.

6. So what influences our productivity and efficiency?
Who remembers Economies of Scale ???

7. Bulk-buying / purchasing economies
As businesses grow they need to order larger quantities of production inputs.
As the order value increases, a business obtains more bargaining power with suppliers.
It may be able to obtain discounts and lower prices for the raw materials.

8. Technical economies of scale
Businesses with large-scale production can use more advanced machinery (or use existing machinery more efficiently).
This may include using mass production techniques, which are a more efficient form of production. Fixed costs of purchasing machinery spread over higher levels of output.
A larger firm can also afford to invest more in research and development.

9. Specialisation / managerial
Greater potential for managers to specialise in particular tasks
E.g. Employing a full time accountant
In small firms the owners have to make lots of decisions, some he/she have little knowledge of.
And so quality of decision making could be better in a larger firm.

10. Financial economies of scale
Small businesses find it hard to obtain finance or the cost of the finance is often quite high.
Small businesses are perceived as being riskier than larger businesses that have developed a good track record.
Larger firms therefore find it easier to find potential lenders and to raise money at lower interest rates.

11. Marketing economies of scale
Every part of marketing has a cost.
As a business gets larger, it is able to spread the cost of marketing over a wider range of products and sales – cutting the average marketing cost per unit.

12. Risk bearing
Bigger companies can spread their risk by investing in more products and more markets
This is called diversification

13. Overview Financial Economies of Scale Marketing Economies of Scale
Type of Economies of Scale
Explanation
Financial Economies of Scale
Large firms can benefit from cheaper loans and wider sources of cheap finance (investment from shareholders)
Marketing Economies of Scale
The advantages that large firms get in relation to buying and selling. Large firms can attract specialist buyers who don’t waste money buying stock that will not sell. They also have specialist sellers/marketing staff who ensure that goods will sell. Big firms benefit significantly from being able to “buy in bulk”
Technical Economies of Scale
These are the advantages that large firms have when it comes to the production process. Large firms can employ specialist labour and capital which stimulates productivity and reduces average costs
Managerial Economies of Scale
Large firms have the money/resources to attract the most productive/efficient/specialist managers who make the most effective business decisions and increase efficiency over time
Risk- Bearing Economies of Scale
Large firms benefit from having wider, more diversified product range. This means that they are better able to withstand the risk of a fall in demand for one good or service

14. Minimum efficient scale
This is the most efficient point of production
Bottom of the average cost curve

15. Capital Intensive Vs. Labour Intensive
A business is capital intensive if it requires heavy capital investment in buying assets relative to the level of sales or profits that those assets can generate.
A capital intensive business will typically have some mixture of the following characteristics:
high depreciation costs
high barriers to entry
large amounts of fixed assets on the balance sheet.
A labour intensive business is one in which the main cost is that of labour, and it is high compared to sales or value added.
Just a capital intensive business may attempt to reduce operational gearing by, for example, leasing or renting assets, a labour intensive one may try to reduce operational gearing by outsourcing or automation.

16. So… factors that affect efficiency
New Technology
Labour (Capital Intensive Vs Labour Intensive)
Outsourcing: Using other businesses that can do things more efficiently than its own employees. Note: This is called “Offshoring” if this is done in a different country.
Read Pg. 60… Theme 2,
Lets “perfect answer this thing” !!!