Business Principles

Not only must firms do the right things, such as offering high-quality products, but they must also produce their products efficiently. Efficiency is measured by output—the quantity produced within a given time.

Productivity, on the other hand, refers to producing the largest quantity in the least amount of time by using efficient methods and modern equipment. Workers are more productive when they are well equipped, well trained, and well managed.

Employee productivity in the United States has grown over the years in manufacturing firms, but the growth has not been as rapid as in a few other industrialized nations.

Efficiency—including improved productivity—can be achieved in three ways:

1. Specialization of effort
2. Better technology and innovation
3. Reorganization of work activities

SPECIALIZATION In any business with more than a few employees, work can be performed more efficiently by having workers become specialists. In a large automobile repair shop, for example, not all workers are general mechanics. Rather, some workers specialize in body repair work whereas others specialize in repairing transmissions or engines. When workers specialize, they become expert at their assigned tasks. As a result, specialization improves quality while increasing the amount produced. Because specialization improves efficiency, it is no wonder that businesses hire or train employees for many specialized jobs.

Efficiency can also be improved through mass production. Mass production is a manufacturing procedure actually started in the early 1900s. It combines the use of technology, specialized equipment, and an assembly line. Employees perform efficient repetitive assembly methods to produce large quantities of identical goods. Through mass production, the cost of goods manufactured decreases because it is possible to produce more items in less time. Today, computer-driven equipment and robots make it possible to mass-produce large numbers of items with fewer workers.

TECHNOLOGY AND INNOVATION Efficiency can also be improved through the application of advanced technology. Technology includes equipment, manufacturing processes, and materials from which products are made. Because of new discoveries and inventions, better-quality goods and services are built at a faster pace and often at a lower cost. Improved materials, for example, may weigh less, last longer, and permit faster product assembly. Examples of new technology are found in everyday items such as cars, clothing, computers, and electronic appliances.

Advanced technology helps companies stay ahead of competitors. And because technology has a significant impact on productivity, businesses spend billions of dollars annually on inventing, buying, and using new technology.

REORGANIZATION OF WORK The third and quite challenging way to increase efficiency is through reorganizing the way work gets done. From the late 1970s through the early 1990s, companies experienced slow growth, for reasons related to the U.S. and worldwide economy. However, one key reason for the slow growth arose from the competition from other industrialized nations. The typical reaction to slow growth caused by global competition was to try to cut back on production costs by laying off workers. A business would downsize by reducing the amount and variety of goods and services produced and the number of employees needed to produce them. By laying off workers, dropping unprofitable products, or even increasing the use of technology, firms were able to cut their costs. But the problem of producing the right products inexpensively still existed. Better ways were needed to compete with foreign firms, many of which had lower labor costs and equal or better quality and productivity. Some firms boldly decided to move in a direction that was similar to tearing down the business and rebuilding it.

Many firms arrived at the conclusion that employees were their most important resource. Further, managers learned that by empowering workers, the firm could  become more productive. Empowerment is letting workers participate in determining how to perform their work tasks and offer ideas on how to improve the work process of the company. Empowerment dramatically changed the role of the worker.

In the past, workers performed narrow tasks on assembly lines and had little decision-making power. After empowering workers, firms found that the quality of work often improved, as did the efficiency of production. Although better-trained and highly skilled workers were required, fewer managers were needed.
Companies were able to reduce the number of levels of management by pushing down the day-to-day decisions directly to workers rather than to managers. Workers were taught to use computers, to work in teams, and to be responsible for quality.

While practicing empowerment, some managers were also redesigning the work flow throughout their organizations—a concept sometimes called re-engineering.

Instead of typical assembly lines found in factories and offices, production steps were eliminated, abbreviated, or placed entirely in the hands of a team of employ- ees. Customer complaints dropped. Fewer well-trained workers, with the help of advanced technology and streamlined work processes, could better satisfy customers than could more workers using outdated methods and equipment. Most major firms—and many smaller ones—adopted these newer practices and are finding that customer satisfaction has risen along with productivity.

American firms are renewing their position as strong competitors in world business as a result of restructuring their work processes and a more intensive focus on quality and customers’ needs. Empowering workers has contributed a great deal to the rebuilding of the image of American business. U.S. businesses are now doing
the right things well. Furthermore, both large and small businesses are no longer thinking only about customers in their own countries. They see prospective customers located all around the country and around the world. American factories operate in other countries, and businesses in other countries make and sell products in this country. Business today is complex, challenging, and very exciting.