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MGTA01H3 (583)
Chapter 2

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

 Productivity: a measure of efficiency that compares how much is produced with the resources used to produce it (the more we are able to produce which using fewer resources, the more productivity grows and everyone—the economy, businesses and workers) -productivity considers both the amounts and the quality of what is produced  Quality: a product's fitness for use in terms of offering the features that consumers want  Most countries use labour productivity to measure their level or productivity: labor productivity of a country= GDP/ total number of workers o A decline in productivity shrinks a nation's total wealth. When that happens, an increase in one person's wealth comes only at the expense of others with whom he/she shares an economic system. For example, additional wealth from higher productivity can be shared among workers (as higher wages), investors (as higher profits), and customers (as stable prices). When productivity drops however, wages can be increased only by reducing profits (penalizing investors) or by increasing prices (penalizing customers) o Manufacturing productivity is higher than service productivity. For many years, it was widely believed that the service sector suffered from "Baumol's disease," named after economist William Baumol who argued that since the service sector focussed more on hands-on activity that machines couldn't replace, it would be more difficult to increase productivity in services o The productivity of specific industries concerns many people for different reasons. Labour unions need to take it into account in negotiating contracts, since highly productive industries can give raises more easily than can less productive industries. Investors and suppliers consider industry productivity when making loans, buying securities, and planning their own future production o High productivity gives a company a competitive edge because its costs are lower. As a result, it can offer its product at a lower price ( and gain more customers), or it can make a greater profit on each item sold. Increase productivity also allows companies to pay workers higher wages without raising prices. -the productivity of individual companies is also important to investors, workers, managers. Comparing the productivity of several companies in the same industry helps investors in buying and selling stocks. Employee profit-sharing plans are often based on the company's productivity improvements each year. And managers use information about productivity trends to plan for new products, factories, and funds to stay competitive in the years ahead. o It is no longer enough for businesses to simply measure productivity in terms of the number of items produced. They must also take quality into account  Total quality management (TQM): (sometimes called quality assurance) a concept that emphasizes that no defects are tolerable and that all employees are responsible for maintaining quality standards -the strategic approach to TQM begins with leadership and the desire for TQM o To bring the interests of all these stakeholders (customers, employees, and suppliers) together, TQM involves planning, organizing, directing, and controlling o 1. Planning for quality should begin before products are designed or redesigned. Managers need to set goals for both quality levels and quality reliability in the beginning  Performance quality: the overall degree of quality; how well the features of a product meet consumers' needs and how well the product performs o Performance quality may or may not be related to quality reliability in a product  Quality reliability: the consistency of quality or repeatability of performance -ex. Toyota's small cars may not equal the overall quality level or have the luxury features of Rolls Royce; thus, Toyota's prices are much lower. But Toyotas have high quality reliability. o 2. Perhaps most important to the quality concept is the belief that producing quality goods and
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