RSM100Y Chapter 12 Increasing Productivity and Quality
The Productivity-Quality Connection
-Productivity and Quality are watchwords in today’s business. Companies are not only
measuring productivity and insisting on improvements but also insisting on quality so they
can bring to market products that satisfy customers, improve sales, and boost profits.
-Productivity: a measure of economic performance that measures how much is produced
relative to the resources used to produce it.
♦The more we are able to produce the right things while using fewer resources the more
productivity grows and the economy, businesses, and workers benefit.
-Productivity considers both the amounts and the quality of what is produced.
-By using 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 product’s fitness for use in terms of offering the features that consumers want.
Responding to the Productivity Challenge
-Productivity has both international and domestic ramifications. when one country is more
productive than another, it will accumulate more wealth; a nation whose productivity fails to increase sa
rapidly as that of competitor nations will see its standard of living fall.
-Since quality must be defined in terms of value to the customer, companies must design
their marketing efforts to cultivate a more customer-oriented focus.
-As quality-improvement practices are implemented, more and more firms will receive
payoffs from these efforts.
-Four factors interact in this process customer, quality, productivity, and profits.
-Most countries use Labour Productivity to measure their level of productivity.
♦Labour productivity of a country = GDP ÷ total number of workers
-It compares a country’s total annual output of goods and services with the resources used
to produce that output.
-The focus on labour is preferred because most countries keep accurate records on
employment and hours worked.
-Usually, firms that compete internationally have more incentive to be more productive.
Productivity Among Global Competitors
-The productivity levels different from nation to nation, and the reason lies in many factors
such as technologies, human skills, economic policies, natural resources, and traditions.
-According to Michael Porter, Canada’s competitiveness is a concern because Canadians have been living off
the diet of natural resources, and Canada will have to start emphasizing innovation and develop a more
sophisticated mix of products if it hopes to be successful in international markets.
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-Nations must be concerned about domestic productivity regardless of their global
-A country that improves its ability to make something out of its existing resources can
increase the wealth of all its inhabitants, and conversely, a decline in productivity shrinks
a nation’s total wealth.
♦E.g. Additional wealth from higher productivity can be shared among workers (as higher wages),
investors (as higher profit), and customers (as stable prices). When productivity drops, wages can be
increased only by reducing profits (penalizing investors) or by increasing prices (penalizing customers).
Then the investor, suppliers, managers, and workers are all concerned about the productivity of specific
industries and companies.
Manufacturing vs. Service Productivity
-Manufacturing productivity is higher than service productivity.
-“Service sector focussed more on hands-on activity that machines couldn’t replace, so it
would be more difficult to increase productivity in services” is a theory by William
Baumol and was believed for many years.
-However, productivity gains are starting to appear among a wide array of service providers
such as airlines, package delivery companies, providers of financial services, and retail
-Many service organizations have increased their productivity by becoming more like
factories, and they use modern information technology to eliminate inefficiencies.
♦E.g. Automated check-in kiosks in airports.
-Industries within manufacturing and service sectors are different in terms of productivity
♦Technological advances gave the computer industry a productivity edge in many areas.
-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.
-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.
-Increased productivity also allows companies to pay workers higher wages without raising
-The productivity of individual companies is also important to investors, workers, and
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♦Comparing the productivity of several companies in the same industry helps investors in buying and
♦Employee profit-sharing plans are often based on the company’s productivity improvements each year.
♦Managers use information about productivity trends to plan for new products, factories, and finds to stay
competitive in the years ahead.
Total Quality Management
-“Quality Trilogy” Quality Planning, Quality Control, and Quality Improvement
♦The first structured process for managing quality, and it identifies several management steps.
-Idea of company-wide employee participation developed quality tools for day-to-day
work activities because without employee participation, real quality improvement would
♦developed by Kaoru Ishikawa
♦also known as “cause-and-effect” diagrams that help teams of employees investigate and track down
causes of quality problems in their work areas.
♦Focussing on five major categories of possible causes, then noted several potential causes of problem in
Managing for Quality
-Top Quality Management (TQM): “quality assurance”, includes all the activities
necessary for getting high-quality goods and services into the marketplace.
-Must consider all parts of the business, including customers, suppliers, and employees.
-Emphasizes that no defects are tolerable and that employees are responsible for
maintaining quality standards.
♦E.g. At Toyota’s Cambridge Ontario plant, workers can bush a button or pull a rope to stop the
production line when something is not up to standard.
-The strategic approach to TQM begins with leadership and the desire for TQM.
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