THE PRODUCTIVITY:Responding to the Productivity Challenge, Domestic Productivity

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Introduction to Business MGT 211

Lesson 35

THE PRODUCTIVITY

Productivity is a measure of economic performance. It compares how much is produced with

the resources used to produce it. Quality is a product's fitness for use. However, an emphasis

solely on productivity or solely on quality is not enough. Profitable competition in today's

business world demands high levels of both productivity and quality.

Although the United States is the most productive country in the world, by the early 1970s

other nations had begun catching up with U.S. productivity. In particular, the U.S. growth rate

of productivity slowed from about 1979 into the early 1990s. Moreover, even though U.S.

manufacturing productivity is increasing, the service sector is bringing down overall

productivity growth. Because services now account for 60 percent of national income,

productivity in this area must improve. Finally, certain industries and companies remain less

productive than others.

On the other hand, in the years just before 1994, U.S. firms began regaining significant market

share in such industries as airplanes, computers, construction equipment, and transistors.

Abandoning a long-standing focus on lower wage rates in other countries, U.S. companies

focused instead of revitalizing productivity by becoming more customers oriented. In addition,

quality improvement practices were widely implemented. Recover has results from recognition

of the connection among customers, quality, productivity, and profits.

Total quality management (TQM) is the planning, organizing, directing, and controlling of all

the activities needed to get high-quality goods and services into the marketplace. Managers

must set goals for and implement the processes needed to achieve high quality and reliability

levels. Value added analysis evaluates all work activities, materials flows, and paperwork to

determine what value they add for customers. Statistical process control methods, such as

process variation studies and control charts, can help keep quality consistently high.

Quality/cost studies, which identify potential savings, can help firms improve quality. Quality

improvement teams also can improve operations by more fully involving employees in decision

making. Benchmarking -- studying the firm's own performance and the best practices of other

companies to gather information for improving a company's own goods and services -- has

become an increasingly common TQM tool. Finally, getting closer to the customer provides a

better understanding of what customers want so that firms can satisfy them more efficiently.

Recent trends include ISO 9000, a certification program (originating in Europe) attesting that

an organization has met certain international quality management standards. Business

process reengineering involves the fundamental redesign of business operations in the

interest of gaining improvements in quality, cost, and service. The reengineering process

consists of six steps, starting with the company's vision statement and ending with the

implementation of the reengineered process.

Productivity and quality can be competitive tools only if firms attend to all aspects of their

operations. To increase quality and productivity, businesses must invest in innovation and

technology. They must also adopt a long-run perspective for continuous improvement. In

addition, they should realize that placing greater emphasis on the quality of work life can also

help firms compete. Satisfied, motivated employees are especially important in increasing

productivity in the fast-growing service sector.

The Productivity-Quality Connection

Productivity -- a measure of economic performance, comparing how much we produce with

the resources we use to produce it.

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Introduction to Business MGT 211

Quality -- A product's fitness for use; its success in offering features that consumers want

Responding to the Productivity Challenge

Productivity has both international and domestic ramifications.

A Reality Check for International Business Survival. After declines in

productivity in the 1980s, around 1994 U.S. businesses began to

refocus on understanding the true meaning of productivity and to devise

ways of measuring it. As quality-improvement practices were gradually

implemented, more firms began to realize the payoffs that came from

highlighting four factors: customers, quality, productivity, and profits.

1. Measuring Productivity--Labor productivity Partial productivity

ratio calculated by dividing total output by total labor inputs

2. Productivity among Global Competitors--Differences in

productivity among nations arise from differences in

technologies, human skills, economic policies, natural resources,

and traditions and culture. For example, in the time it takes a

U.S. worker to produce $100 worth of goods, Japanese workers

produce about $68 worth and Belgians about $107 worth.

ii.

Domestic Productivity --- Nations must care about domestic

productivity regardless of their global standing. Additional wealth from

higher productivity can be shared among workers, investors, and

customers.

1. The United States remains one of the most productive nations in

the world. Output per worker hour rose steadily throughout most

of the 1980s and 1990s.

2. Growth Rate of Productivity--annual increase in a nation's

output over the previous year.

3. Uneven Growth in the Manufacturing and Service Sectors.

Throughout most of the 1970s, productivity in manufacturing

trailed behind the service sector, but services averaged zero

improvement from 1978 to 1990, and by 1993 manufacturing

productivity in the United States had grown to more than double

that of services, a margin sustained through 2001. With services

now accounting for about 60 percent of U.S. national income,

productivity must increase more rapidly in this sector for the

United States to maintain its competitive edge in world markets.

4. Industry wide Productivity--various industries differ vastly in

terms of productivity. Some have seen productivity gains

(men's/boy's furnishings) and other have fell (plywood

manufacturing).

5. Companywide Productivity--high productivity gives a

company a competitive edge because its costs are lower than

those of other companies. Increased productivity allows the firm

to pay higher wages without raising prices.

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