Productivity and profitability at the firm level

Abstract

This paper analyzes the effect of productivity on profitability at the firm level through the construction of a framework/model, based on Gold's model. It is a Total Productivity Measurement (TPM) model, which directly measures and relates productivity with long-term profitability (defined as the Shareholder Value Added-SVA) and uses dynamic productivity ratios and their effects on profitability in value terms. The proposed model could support management at the business unit level in their strategic decision making process (the formulation and evaluation of proposed future strategies), and the evaluation of current strategies (the
performance measurement and improvement process), and could close the gap between strategy development and its implementation.

JEL Classification: L1, M10