Total Factor Productivity: The Competitive Key of Vinatex
In the context of business operations, a critical question arises: With the same equipment, resources, and personnel, why do some companies excel while others struggle? Economists have identified three key factors contributing to the development of a business: Capital, Labor, and TFP (Total Factor Productivity). But what exactly is TFP, and what does it mean for the development of Vinatex’s companies?
The importance of TFP
Total Factor Productivity (TFP) is a measure that reflects the results of production derived from improving the efficiency of capital and labor use, influenced by factors such as technological innovation, production streamlining, management improvements, and labor skill enhancement. In essence, TFP represents the progress in science, technology, labor skills, and management within a company.
TFP consists of four key components:
Technical Productivity: This involves optimizing the use of input resources to produce the maximum amount of output.
Technological Productivity: This refers to the application of modern technology to maximize output or minimize input costs, including:
+ Advanced technology: Using machines with modern software to increase productivity and control quality.
+ Increased automation, Reducing human dependency
+ Innovation: Streamlining complex production processes, for example, by using jigs and fixtures in garments.
+ Human resource development: Training staff to effectively utilize equipment and technology.
+ Information and data management: Using information to optimize processes and decision-making.
Management Productivity: This involves the effective use of inputs such as business operations, personnel, finance, and information technology to achieve the best outcomes, including:
+ Productivity from business process and management system optimization. Supply chain management capabilities.
+ Data analysis and management: Facilitating quick decision-making.
+ Risk prevention: Managing potential external and internal risks.
+ General management skills and training.
Innovation Productivity: This entails generating and implementing new product ideas and processes to enhance operational efficiency and improve competitive ability, including:
+ Rapid product development, research and development (R&D).
+ High productivity in non-traditional products.
+ Leveraging big data: Utilizing historical data to develop new products and absorb new technologies.
+ Centralized management: Ensuring a user-friendly interface across the entire supply chain.
Evaluation of 4 TFP’s components in Vinatex
In the operations, it is evident that technical and technological productivity have been maximized. However, it is needed to find solutions for better applying management productivity and innovation productivity in governance and operation.
Recommendations for Digital Transformation to Improve TFP
For large-scale enterprises with complex revenue structures, extensive management interactions, and intricate supply chains, especially those with clear quality management requirements, it is crucial to consider advanced ERP solutions after a certain period of self-developing systems. This shift is necessary to keep pace with growth demands.
In addition, these businesses should explore new management solutions that align with global management standards. It is also essential to assess the digital skill absorption capacity of employees and continuously update their digital skills. Identifying a dedicated digital transformation leader who plays a crucial role in business operations and technological digitalization is vital.
For companies that are unable to develop their system, it is recommended to share the ecosystem with the Group. This approach has the cost advantage while leveraging available technological and business management resources.
This strategy offers the quickest way to capitalize on existing capabilities among units for digital transformation efforts. A leader in digital transformation, who plays a significant role in the business’ operations, is essential. Utilizing software through the SAAS (Software as a Service) model which software applications are delivered as a service over the Internet can also be an effective approach. In this model, applications run on the cloud and are accessed by end-users via web browsers or mobile applications.
To enhance operational coordination and effectively manage both business operations and digital transformation, businesses should explore new operational models in combination with their current structures.
The functional model, which is widely used today, has revealed both pros and cons.
Advantages:
Specialization, with a focus on specialized skills;
Efficiency and productivity have been improved;
Easier management with a clear, structured, and controllable framework.
Disadvantages:
Lack of flexibility, rigidity, and difficulty adapting to market and customer changes;
Poor communication, lack of coordination, and many barriers;
Slow innovation, due to overemphasis on specific specialties;
Conflicts of interest between departments due to different goals and priorities.
Vinatex considers training and developing the management structure as crucial for adapting to new solutions and operational models. The focus is on training in both professional skills and essential digital skills, such as project management, teamwork, and the application of management software solutions. The training will be aligned with the new management methods, specific to job positions and industries.
The training program will emphasize new specialized skills, soft skills, and new technologies like Agile Scrum, and OKR (Objectives and Key Results), using flexible teaching methods such as online courses, YouTube videos, live sessions, mentoring, and on-the-job guidance to optimize time. The employee development program will include mentoring, in which new employees are paired with experienced ones to share knowledge and skills, and personal development plans that empower young staff to build projects and teams, potentially including external members.
Approaching TFP (Total Factor Productivity)
TFP is considered a competitive key for businesses. To improve TFP, it is recommended that companies:
+ Review, and assess the current status, readiness, and measurement indicators of the four TFP components to develop appropriate action plans.
+ Prioritize technology application and innovation by reviewing the workforce and implementing relevant solutions.
+ Evaluate the complexity and prioritize digital transformation for specific activities.
+ Allocate adequate solutions and investment in personnel for innovation and digital transformation.
+ Explore additional management solutions to integrate with the current model for innovations.
+ Establish performance measurement and evaluation criteria for each TFP component
Pham Van Tan
Deputy General Director of Vinatex