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Chapter 2

Chapter two


Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird
Chapter
2

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Chapter 2: Increasing Productivity and Quality
The ProductivityQuality Connection
Productivity is a measure of economic performance
oMeasures how much is produced related to the resources we use to produce it
oThe more we are able to produce the right things by using the fewest resources the
more productivity grows and the economy, the business and the workers benefit
oConsiders both the amounts and the quality what will be produced
Using more resources more efficiently,, the quantity of output will be greater.
BUT, unless the resulting goods and services are of satisfactory quality,
consumers will not want them
Quality A products fitness for use in terms of offering the features that consumers want
Responding to the Productivity Challenge
When one country is more productive than another, it will incur more wealth
Companies must design their marketing efforts to cultivate a more customer-oriented focus
A quality-improvement practices are implemented more and more firms will receive payoffs
from these efforts
For factors interact in this process: Customers, Quality, Productivity and Profit
Measuring Productivity:
Labour productivity Partial productivity ration calculated by dividing gross domestic product
by total number of workers
Ie. Labour productivity of a country = (gross domestic product)/ (total number of workers)
oEquation reflects the general idea of productivity
oIt compares a countrys total annual output of goods and services with resources used
to produce that output
oThe focus on labour rather than resources such as capital or energy is preferredmost
countries keep accurate records of employment and hours worked
oNote: firms that compete internationally have more incentive to be more productive
Productivity among Global Competitors
oWhy are there such differences in productivity levels between the different countries?
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The answer lies in many factors ie. Technologies, human skills, economic
policies, natural resources and even in traditions
oCanadas competitiveness is a concern because we have been living off our rich diet of
natural resources... we have to start emphasizing innovation and develop a more
sophisticated mix of products if it hopes to be successful in international markets.
oCanadian businesses, government and labour fail to abandon outdated ways of
thinking regarding productivity and innovation
Domestic Productivity
oNations must be concerned about domestic productivity regardless of their global
standing
oA country that improves its ability to make something out of its existing resources can
increase the wealth of all its inhabitants
oConversely, a decline in productivity shrinks a nations total wealth
When this happens, an increase in one persons wealth comes only at the
expense of others with whom he/she shares an economic system
oAdditional wealth from higher productivity can be shared among workers (as higher
wages), investors (as higher profits), and customers (as stable prices)
When productivity drops wages can be increased only by reducing profits
(penalizing investors), or increasing prices (penalizing customers)
oTherefore, investors, suppliers, managers, and workers are all concerned about the
productivity of specific industries and companies
Manufacturing Versus Service Productivity
oManufacturing productivity is higher than service productivity
oService sector suffered from Baumols Disease (named after economist William
Baumolargued that since service sector focussed on hands-on activity that machines
couldnt replace, it would be more difficult to increase productivity in services)
oProductivity gains are starting to appear among a wide array of service providers such
as airlines, pet stores, package delivery companies, providers of financial services, and
retail establishments
Many of the above mentioned have increased their productivity by becoming
more like factories and they use modern information technology to eliminate
inefficiencies
Industry Productivity
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