Chapter 2 Textbook notes

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10 Nov 2010
MGTA04 / 01
Chapter 2: Increasing Productivity and Quality
- Companies are not only measuring productivity but also quality because it will satisfy customers,
improve sales, and boost profits
- Productivity is a measure of efficiency that compares how much is produced with the resources
used to produce it
- By producing more of the right things while using fewer resources, this will lead to a growth of
productivity which will benefit the economy, business, and workers
Responding to the Productivity Challenge
- A country that is more productive than another will accumulate more wealth
- A country whose productivity fails to increase as rapidly as competitor nations will see its
standard of living fall
- Four factors interact in the process of quality-improvement practices: customers, quality,
productivity, and profits
Measuring Productivity
- Most countries use labour productivity (partial productivity ration calculated by dividing gross
domestic product by total number of workers) to measure their level of productivity
- The focus on labour as an output rather than resources used (e.g. capital) is preferred because
most countries keep accurate records on employment and hours worked
- Firms that compete internationally have more incentive to be more productive (labour in
Productivity Among Global Competitors
- Productivity may vary from nation to nation (highest ± Belgium; lowest ± New Zealand)
- Some factors may include: technologies, human skills, economic policies, natural resources and
even in tradition
- Michael Porter, a Harvard University expert on international competitiveness is concern for
Canada because we live off our rich diet of natural resources. Porter criticizes Canadian business,
government, and labour for failing to start emphasizing on new innovation and productivity
Domestic Productivity
- A country improves its ability to make something out of its existing resources can increase the
- When productivity declines, one peUVRQ¶VZHDOWKFRPHVDWWKHH[SHQVHRIRWKHUVZLWKZKRPKHRU
she shares an economic system (e.g. higher wages = less profit for firm)
Manufacturing Versus Service Productivity
- Manufacturing productivity is higher than service productivity because for many years, it was
William Baumol who argued that since the service industry focussed more on hands-on activity
WKDWPDFKLQHVFRXOGQ¶WUHSODFHLWZRXOGEHPRUHGLIILFXlt to increase productivity in services
- Baumol noted that it would always require four musicians to play a Mozart quartet but an Opera
The Productivity ± Quality Connection
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