Glossary

Labor productivity is the value of goods and services produced in a period of time, divided by the hours of labor used to produce them. Labor productivity measures output produced per unit of labor, usually reported as output per hour worked or output per employed person. Increases in labor productivity are driven by technological change, improvements in efficiency, improvements in the quality of labor, and capital deepening (when more capital is added to a given amount of labor). When the word productivity is used, it is generally means labor productivity unless explicitly stated otherwise.

From the national perspective, the measure of labor productivity is defined as GDP per hour worked. There is a fundamental connection between productivity and economic growth:

Economic growth rate = Growth rate in labor productivity + Growth rate in total employment

An increase in labor productivity fundamentally affects the economic growth rate. Specifically, increasing labor productivity is essential to expanding the scale of an economy without relying on an increase in the number of workers. There is also a relationship between wages and productivity. When the labor distribution rate is constant:

Growth rate in labor productivity = Rate of increase in wages

Thus, as long as there is no change in the labor distribution rate, an increase in labor productivity is tied to an increase in wages. This means that an increase in productivity plays a major role in the prosperity of nations, corporations, and individuals. Productivity is therefore a crucial indicator that has been widely used in measuring economic and corporate well-being.

Two key factors that can affect labor productivity are advances in technology and improvements in education and training. Differences in labor productivity are key determinants of wage differences between industrialized and developing countries. For an economy to make further gains in the material standard of living, workers must continue to invest in education and training, and firms must continue to invest in new technology.
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See also: Introduction

Knowledge management (KM) refers to a range of practices used by organizations to identify, create, capture, and distribute knowledge for reuse, awareness, and learning across the organization. KM programs are usually linked to organizational objectives and are intended to lead to the achievement of specific outcomes, such as shared intelligence, improved performance, competitive advantage, or higher levels of innovation. The objective of KM is to make the best use of the knowledge assets available to an organization, turning them into a powerful driver of competitiveness. The rise of KM coincided with the emergence of the so-called knowledge-based economy. In the new economic era, traditional production factors such as land and capital are being replaced by the intangible asset of knowledge as the critical input for corporate competitiveness.
There are many schools of thought in the area of KM. One of the most popular theories was proposed by Prof. Ikujiro Nonaka. As knowledge is intangible and essentially resides within individuals (as tacit knowledge), the challenge in KM is how to capture and harness individual-based knowledge to make it explicit and common knowledge for use across the entire organization. Prof. Nonaka argued that a successful KM program needs to convert internalized tacit knowledge into explicit (codified) knowledge to share it and make new knowledge and value for the organization.

An organization creates knowledge through the interactions between explicit knowledge and tacit knowledge. This interaction between the two types of knowledge is called knowledge conversion, through which both tacit and explicit knowledge expands in both quality and quantity. The four modes of knowledge conversion are: 1) socialization (from tacit knowledge to tacit knowledge); 2) externalization (from tacit knowledge to explicit knowledge); 3) combination (from explicit knowledge to explicit knowledge); and 4) internalization (from explicit knowledge to tacit knowledge). Prof. Nonaka stated that socialization is the process of converting new tacit knowledge through shared experiences, e.g., through spending time together, apprenticeships, informal social meetings outside the workplace, or beyond organizational boundaries, as often firms often acquire and take advantage of the tacit knowledge embedded in customers or suppliers by interacting with them.
Externalization is the process of articulating tacit knowledge as explicit knowledge, thus allowing it to be shared by others and become the basis for new knowledge. Combination is the process of converting explicit knowledge into a more complex, systematic set of explicit knowledge to create new knowledge. Through internalization, explicit knowledge created is shared throughout an organization and converted into tacit knowledge by individuals. Internalization is closely related to learning by doing. Knowledge creation is a continuous process of dynamic interactions between tacit and explicit knowledge. Organizational knowledge creation is a never-ending process that upgrades itself continuously.

The Most Admired Knowledge Enterprises (MAKE) Award criteria examine eight key knowledge performance dimensions that are visible drivers of world-class knowledge organizations. These are:

• ・ creating an enterprise knowledge-driven culture;
• ・ developing knowledge workers through senior management leadership;
• ・ delivering knowledge-based products/services/solutions;
• ・ maximizing enterprise intellectual capital;
• ・ creating an environment for collaborative knowledge sharing;
• ・ creating a learning organization;
• ・ delivering value based on customer knowledge; and
• ・ transforming enterprise knowledge into shareholder value.

Kaizen is known as the single most important concept in Japanese management and it has been a key to the competitive success of Japanese manufacturing industries. Kaizen means improvement and encompasses the concept of never-ending efforts to improve by all in an organization. Problem solving in the kaizen approach is cross-functional, systematic, and collaborative. It is a strategy that puts every member of the organization, from top management down, continuously on the watch for improvement options. This is done using systematic reviews and auditing procedures, brainstorming, and group decision tools to see where improvement opportunities may occur. All operations of the organization are subject to improvement, and the kaizen approach is that nothing has improved sufficiently to stop improving it.

Kaizen approaches employ various tools including 5S, quality control circles, total quality control, total preventive maintenance, just-in-time inventory, standard work, and automation, among others. These have all been useful in improving the three productivity dimensions of cost, quality, and speed. For example, the core concept of kaizen is to eliminate muri (overloading), muda (waste), and mura (inconsistency) from the worksite through efficient utilization of labor, materials, and equipment.
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See also: 5S or good housekeeping; Toyota production system; Lean production system

Just in time (JIT) is one of important components of the Toyota production system. JIT is a production technology system that promotes economic efficiency, with the central principle of produce appropriately what is necessary, just as much as needed, when needed. The main goal of JIT is to keep the stock at the necessary minimum during the production process for a complete balance between orders and production. Generally, there are various processes between receiving orders and shipment of products, resulting in prolonged lead time and opportunity loss for general mass-produced items. JIT can be also understood as an inventory strategy for improving the return on investment of a business by reducing in-process inventory and its associated costs.
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See also: Toyota production system

Jidoka means autonomation with a human touch.” The term is often used in association with a quality control process of the Toyota production system (TPS), or lean manufacturing. Jidoka is one of the basic concepts of the TPS and its main goal is to eliminate waste in the production process and streamline operations. The concept of jidoka proposes the importance of human elements and labor incentives for workers. Therefore, jidoka is not merely about automation or mechanization, but autonomation, with recognition of human elements. For example, mechanical operations are subject to mistakes due to defects in machines, which lack the intelligence to detect and avoid mistakes. However, a machine is on jidoka if it is equipped with abilities and functions to detect and avoid such mechanical dysfunctions by itself. Hence, jidoka involves the automatic detection of errors or defects in the process of production.
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See also: Just-in-time; Toyota production system