Economists and managers have long recognized the importance of productivity in determining anor-ganization’s success. Productivity is the relation between the firm’s output of goods and services and the inputs necessary to produce that output. If a firm is able to produce more output with the same inputs, we say it has improved its productivity. Likewise, if two firms produce the same quantity of goods and services but one firm uses less input, that firm is called more productive. Countries that produce more output per person generate more consumable wealth. Economists keep productivity statistics, and these numbers are reported in the financial press as measuring the competitiveness and well- being of that country.

In the 1970s many of the largest U. S. firms became interested in productivity and better ways to measure and improve their firms’ productivity. Largely driven by foreign competition, these American firms were losing market share to Japanese and European rivals. Japanese auto companies were producing cars with fewer employee hours per car than American companies, thus offering lower-priced and often higher- quality cars than U. S. automakers. Foreign steel producers were more productive than their U. S. counterparts. Concerned about their declining relative productivity in 1977, large U. S. firms financed the formation of the American Productivity Center (later the American Productivity and Quality Center). To become more productive, some firms experimented with various productivity measures.

Required:

a. Critically analyze the productivity calculations in Table 2. Did the managers of the firm perform better this year compared with last year, as the productivity measures indicate?

b. Discuss some plausible reasons why comprehensive productivity systems have not been widely adopted by organizations.

c. Consider the situation of Burk Wheels. Burk Wheels manufactures aluminum automobile wheels (onto which rubber tires are mounted). The owner, Gerry Burk, is worried about increased competition from foreign countries (with lower labor costs) and is seeking to increase the productivity of her workers. She decides to implement a bonus system for direct line supervisors and department managers to reward them for improving labor productivity. In particular, supervisors will receive bonuses if they improve their department’s

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CourseSmart TABLE 2 Inputs/Outputs Last Year This Year Outputs: Small horseshoes Large horseshoes Total outputs $1,000 $1,200 1.500 1,650 $2,500 $2,850 Inputs: Steel Labor $1,000 1,200 $1,200 1,280 Total inputs $2,200 $2,480 $2.500 $2.850 Productivity $2,200 $2,480 = 1.136 = 1.149 1.149 1.136 1.136 Increase in productivity = 1.1%