Production is “the act of producing, making, or creating something.” Productivity is “the state of being productive.” In other words, production is when you actually make something, and productivity is the state or measurement of how much you are making.
In a business sense, production can be defined by four factors: land, labor, capital, and entrepreneurship.
- Land - Resources that are available for production—the raw goods necessary to make something.
- Labor - Human input into the production process—workers who convert the raw goods into products.
- Capital - Goods used in the supply of products—infrastructure, factories, buildings, machinery, and anything that aids labor.
- Entrepreneurship - Individuals who bring the finished products to market—entrepreneurs invest their own capital and take the risk that the whole process will be profitable.
All of these are necessary for production to take place. Entrepreneurs must put forth the money, time, effort, and risk to employ labor and capital and enable them to turn land or raw goods into the products or services they wish to sell.
Productivity, as a business term, is the measure of output per unit of input. An input could be any of the four factors of production, while the output could be revenue or inventory. The overall goal of an efficient, productive company is to maximize output per input. Land, labor, and capital can be limited and scarce, so a highly productive company will be able to make the absolute most out of the resources or inputs it has.