18 January 2026

A-Level Business – How Firms Increase Efficiency and Labour Productivity

Efficiency and labour productivity sit at the heart of A-Level Business. They link directly to costs, competitiveness, profits, and long-term survival. Many exam questions ask how productivity can be improved and why this matters, so it’s worth being very clear on both the methods and the consequences.

What do we mean by labour productivity?

Labour productivity measures how much output is produced per worker (or per hour worked).

Labour productivity = Output ÷ Number of workers (or hours worked)

Improving productivity means getting more output from the same inputs, or the same output from fewer inputs – in other words, becoming more efficient.

Key ways businesses increase efficiency and productivity

1. Training and upskilling staff

Well-trained workers:

Make fewer mistakes
Work faster and more accurately
Can use new technology effectively

Although training has an upfront cost, it often reduces unit costs in the long run.

2. Investment in capital (machinery and technology)

Replacing labour-intensive processes with:

Automation
Robotics
Computer-aided design (CAD)
AI-driven scheduling

…can massively raise output per worker. This is common in manufacturing, logistics, and increasingly in offices.

Exam tip: Link this to capital–labour substitution.

3. Improving motivation and incentives

Motivated employees tend to work harder and smarter. Firms may use:

Performance-related pay
Bonuses
Promotion opportunities
Profit sharing

However, excessive pressure can backfire, reducing morale or increasing staff turnover.

4. Better organisation and management

Efficiency gains don’t always require new machines. They can come from:

Improved workflow design
Clearer job roles
Better communication
Lean management techniques

Small changes in organisation can lead to large productivity gains.

5. Specialisation and division of labour

When workers focus on a narrow range of tasks:

Speed increases
Skill levels improve
Output per worker rises

This works best in large-scale production, but can reduce job satisfaction if work becomes repetitive.

6. Reducing waste and downtime

Firms improve efficiency by:

Cutting excess stock
Reducing defects
Minimising machine downtime
Improving maintenance schedules

This links directly to lean production and quality management.

Why productivity matters

Higher productivity can lead to:

Lower average costs
Lower prices for consumers
Higher profits
Higher wages (in some cases)
Improved international competitiveness

At a national level, productivity growth is crucial for economic growth and rising living standards.

Evaluation points for exam answers

To reach the top bands, always evaluate:

Costs vs benefits of investment
Short-run vs long-run effects
Impact on workers (motivation, job security)
Differences between labour-intensive and capital-intensive industries

One-sentence exam summary

Businesses increase efficiency and labour productivity through training, investment in capital, improved motivation, and better organisation, but the effectiveness of each method depends on costs, industry type, and workforce response.

18 January 2026