Chapter 2: Increasing Productivity and Quality
THE PRODUCTIVITY – QUALITY CONNECTION
Productivity – a measure of efficiency that compares how much is produced relative
to the resources used to produce it. It considers both the amounts and the quality of
what is produced using more resources more efficiently, the quantity of output will
be greater. If the quality of the outputs is not satisfactory, the consumers will not
purchase them. Therefore, quality is a product’s fitness for use in terms of offering
the features that consumers want.
Responding to the Productivity Challenge
• As quality-improvement practices are implemented, more and more
firms will receive payoffs from these efforts. Four factors interact in this
process: customers, quality, productivity and profits.
o Measuring Productivity:
• Labour productivity – partial productivity ratio calculated
by dividing gross domestic product by total number of
workers. To calculate this: labour productivity of a country
= (GDP/total number of workers)
• 2005 Stats Canada report showed that foreign-controlled
manufacturing plants in Canada accounted for 2/3 of the
growth in labour productivity during the period 1980-
1999b/c Canadian producers that had foreign units were
just as productive as foreign-owned plants. Firms that
compete internationally have more incentive to be more
o Productivity Among Global Competitors:
• Read this paragraph
o Domestic Productivity:
• A country that improves its abilities to make something out
of its existing resources can increase the wealth of all its
• Additional wealth from higher productivity can be shared
among works (as higher wages), investors (as higher
profits) and customers (as stable prices).
o Manufacturing vs. Service Productivity:
• Manufacturing productivity is higher than service
• Read the rest from the book
o Industry Productivity:
• Agriculture is more productive in Canada than in many
other nations because we use more sophisticated
technology and superior natural resources. (read on)
• One reason for the improvement is a new technology called
• Productivity of specific industries concerns many people for
different reasons. Labour unions take it into account in
negotiating contracts, since highly productive industries
can give raises. Investors & suppliers consider industry productivity when making loans, buying securities, and
planning their own future.
o Company Productivity:
• Read it. It’s mostly common sense. If you don’t understand
that paragraph, then just sign up for community college.
THE TOTAL QUALITY MANAGEMENT
• It is no longer enough for business to simply measure productivity in
terms of numbers of items produced. They must also take into account
the quality of the product.
• Quality advocates such as Joseph Juran and Kaoru Ishikawa introduced
methods and tools for implementing quality. Juran’s “Quality Trilogy”—
quality planning, quality control and quality improvement –was the first
structured process for managing quality.
• Ishikawa developed the “Ishikawa diagrams” that help teams of
employees investigate and track down causes of quality problems in
their work areas.
o Managing for Quality
• Total quality management (TQM) – 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
w/leadership and the desire for TQM.
• Customer focus is the starting point. Companies must
develop methods for determining what customers want
and then direct all their resources towards fulfilling these
needs. Therefore total participation is mandatory.