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University of Toronto St. George
Rotman Commerce
John Oesch

Chapter 12  Productivity and quality are watchwords in today’s business  Productivity: a measure of economic performance that measures how much is produced relative to the resources used to produce it o The greater the productivity, the more economy, businesses and workers benefit  Productivity considers both the quantity and quality of what is produced  Quality: a product’s fitness for use in terms of offering the features that consumers want  When one country is more productive than another, it will accumulate more wealth  Since quality must be defined in terms of value to the customer, companies must design their marketing efforts to cultivate a more customer-oriented focus  4 factors that are involved in the process of quality improvement are o Customers o Quality o Productivity o Profits  Labour productivity: most countries use this to measure their level of productivity o Labour productivity of a country= GDP divided by total number of workers o The focus on labour rather than on other resources like capital is preferred because most counties keep accurate record on employment and hours worked  Firms that compete internationally are generally more productive as they have more incentive to stay competitive  Productivity among nations can differ as a result of difference in technologies, human skills, economic policies, natural resources and traditions  Michael Porter stated that Canada will have to start emphasizing innovation and develop a more sophisticated mix of products (as opposed to living off the abundant supply of natural resources) in order to be successful in international markets  Nations must be concerned about domestic productivity regardless of their global standing  With decrease in productivity, increase in one person’s wealth can only come at the expense of others (not everyone can benefit) o i.e. With higher productivity, workers can receive higher wages, investors receive higher profits and customers face more stable prices. With decrease in productivity, wages can be increased only by reducing profits (penalizing investors) or by increasing prices (penalizing customers)  Manufacturing productivity is higher than service productivity  Baumol’s disease: argues that since service sector focuses more on hand-on activity that machines can’t replace, it’s more difficult to increase productivity  Service sector is increasing their productivity by becoming more like factories and they use modern information technology to eliminate inefficiencies (i.e. automated check-in kiosks in airports)  Industries within each sectors can differ vastly in terms of productivity  Agriculture is more productive in Canada than in many other nations due to sophisticated t4echnology and superior natural resources  Higher productivity gives a company a competitive edge because its costs are lower  Joseph Juran’s Quality Trilogy—quality planning, quality control, and quality improvement---was the first structured process for managing quality and it identifies several management steps  You need employee participation to make real quality improvements  Total quality management (TQM) or quality assurance: all the activities necessary for getting high quality goods and services into the marketplace o It emphasizes that no defects are tolerable and that employees are responsible for maintaining quality standards o Strategic approach to TQM begins with leadership and the desire for TQM o Customer focus is the starting point of TQM where companies develop methods for determining what customers want and then direct all the resources toward fulfillment of those needs to gain greater customer satisfaction o Total participation is mandatory (employees must participate too) o TQM requires unending and continuous improvement of products, after sales services and all the of the company’s internal processes o TQM involves planning, organizing, directing, and controlling  Planning for quality should begin before products are designed or redesigned by setting goals for both quality levels and quality reliability  Performance quality: the features of a product and how well it performs  Quality reliability: the consistency or repeatability of performance  Performance quality and quality reliability may or may not be related to each other  Most important to quality concept is that belief that producing quality goods and services requires an effort from all parts of the organization (it is no longer enough to just have “quality control” department)  Although everyone in a company contributes to product quality, specific aspects of TQM is often assigned to specific departments and jobs  Managers must inspire and motivate employees throughout the company to achieve quality goals  Quality ownership: the idea that quality belongs to each person who creates or destroys it while performing a job (this occurs when managers succeed in inspiring and motivating employees to achieve quality goals)  Managers must establish specific quality standards and measurements when monitoring the products and services so that the company can detect mistakes and make corrections  Competitive product analysis: process by which a company analyzes a competitor’s products to identify desirable improvements  Value-added analysis: evaluation of all work activities, material flows, and paperwork to determine the value that they add for customers  Statistical process control (SPC): statistical analysis techniques that allow managers to analyze variations in production data and to detect when adjustments are needed to create products with high-quality reliability (i.e. process variation and control charts) o Process variation: any change in employees, materials, work methods, or equipment that affects output quality (output level must be contained within the lower and upper specification limit) o Control chart: a st
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