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.