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4 Apr 2011
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Chapter 2: Increased Productivity and Quality
THE PRODUCTIVITY-QUALITY CONNECTION
-productivity: a measure of the efficiency that compares that how much is produced with the
resources used to produce it
-productivity considers both the amounts and the quality of what is produced
-by using resources more efficiently, the quantity of output will be greater
-quality: a products fitness for use in terms of offering the features that consumers want
Responding to the Productivity Challenge
-a nation whose productivity fails to increase as rapidly as that of competitor nations will see its
standard of living falling
-quality is defined in terms of value to the customer, therefore companies must design their
marketing efforts to cultivate a more customer-oriented focus
-four factors interact in this process: customers, quality, productivity, and profits
Measuring Productivity
-labour productivity: partial productivity ratio calculated by dividing gross domestic product by
total number of workers
-the focus on labour rather than on other resources (such as capital) is preferred since most
countries keep accurate records on employment and hours worked
-Canadian producers that had foreign units were just as productive as foreign-owned plants
-firms that compete internationally have more incentive to be more productive
Productivity Among Global Competitors
-there are differences from nation to nation
-the answer lies in many factors: technologies, human skills, economic policies, natural resources
—and even in tradition
-Canadas competitiveness is a concern because we have been living off our rich diet of natural
resources
-Canada will have to start developing a more sophisticated mix of products if it hopes to be
successful in international markets
Domestic Productivity
-nations must be concerned about domestic productivity regardless of their global standing
-a decline in productivity shrinks a nations total wealth
-when that happens, an increase in one persons wealth comes only at the expense of others with
whom he or she shares an economic system
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-when productivity drops, wages can be increased only by reducing profits (penalizing investors)
or by increasing prices (penalizing customers)
-investors, suppliers, managers and workers are all concerned about the productivity of specific
industries and companies
Manufacturing Versus Service Productivity
-manufacturing productivity is higher than service productivity
-for years, it was believed than the service sector suffered fromBaumols disease”
-Baumol believed that since the service sector focussed more on hands-on activity that machines
couldnt replace, it would be more difficult to increase productivity services
-many service sectors have increased their productivity by becoming more like factories, and they
use modern information technology to eliminate inefficiencies
Industry Productivity
-industries within these sectors differ vastly in terms of productivity
-more sophisticated technology and superior nature resources
-a new technology called continuous casting has caused improvement
-new processes have meant immense savings in both labour and energy
-the productivity of specific industries concerns many people for different reasons
-highly productive industries can give raises more easily than can less productive industries
-investors and suppliers consider industry productivity when making loans and buying securities
Company Productivity
-high productivity gives a company a competitive edge because its costs are lower
-it can offer its product at a lower price (and gain more customers), or it can make a greater profit
on each item sold
-increased productivity allows companies to pay workers higher wages without raising prices
-productivity of individual companies is important to investors, workers and managers
-comparing the productivity of several companies in the same industry helps investors in buying
and selling stocks
-managers use information about productivity trends to plan for new products, and funds to stay
competitive in the years ahead
TOTAL QUALITY MANAGEMENT
-must take quality into account
-JuransQuality Trilogy”—quality planning, quality control, and quality improvement—was the
first structured process for managing quality
-indentifies management steps for ensuring quality
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Document Summary

Productivity: a measure of the efficiency that compares that how much is produced with the resources used to produce it. Productivity considers both the amounts and the quality of what is produced. By using resources more efficiently, the quantity of output will be greater. Quality: a product"s fitness for use in terms of offering the features that consumers want. A nation whose productivity fails to increase as rapidly as that of competitor nations will see its standard of living falling. Quality is defined in terms of value to the customer, therefore companies must design their marketing efforts to cultivate a more customer-oriented focus. Four factors interact in this process: customers, quality, productivity, and profits. Labour productivity: partial productivity ratio calculated by dividing gross domestic product by total number of workers. The focus on labour rather than on other resources (such as capital) is preferred since most countries keep accurate records on employment and hours worked.

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