Productivity, Quality, Profitability and the Role of Managers

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Five Principles of Total Quality Management (TQM)

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:05 Productivity and Quality
  • 1:40 How Do Productivty and…
  • 2:28 The Managers
  • 5:30 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Timeline
Autoplay
Autoplay

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

Top-, mid- and low-level managers play a significant role in how productivity and quality affects profitability in an organization. Each level of management makes different decisions about productivity and quality that impact an organization's profitability.

Productivity and Quality

In order to better understand the connection between productivity, quality and overall organizational profitability, let's first find out what each term means.

Productivity

Productivity is the relationship between the amount of outputs and amount of inputs needed to produce a product. In other words, management measures productivity by comparing the amount of a product produced to the amount of raw materials and manpower needed to produce a product. If less raw materials and manpower are used to produce more of a product, then productivity is considered high.

Let's take a look at the Chicken Valley Poultry Company, a large producer of chicken products. Chicken Valley Poultry Company produces chicken nuggets in its manufacturing plant. In order for management to determine whether the plant has high productivity rates, management will look at a few things:

  • The amount of raw materials, like chicken, eggs, bread crumbs and food additives, used to make the nuggets
  • The amount of time and labor involved in running the machinery and production lines to process and package the nuggets
  • The amount of chicken nuggets produced in a standard timeframe, like every hour

Quality

Quality is the measure of a product's flawlessness and excellence. In other words, when compared to a similar product, it possesses characteristics that separate it apart based on things like inherent traits.

Chicken Valley uses only organic chicken in its nugget recipe. The company also uses artisan breadcrumbs and free-range eggs. Similar chicken nuggets are made with ordinary chicken, eggs and crumbs. Chicken Valley Nuggets are considered by most people to be a quality product.

How Do Productivity and Quality Affect Profitability?

Profitability is the revenue left over after all expenses and taxes have been paid. A company is profitable by simply producing more finished product and paying less for raw materials and labor.

Productivity and quality affect profitability when:

  • Production is lower than projected
  • Cost of raw materials is higher than the budgeted cost
  • Cost of labor is higher than expected
  • Quality is lower than the quality standard

Factors that affect profitability can be both external and internal to the organization. A severe drought is an external factor that may cause wheat crops to die. As a result, the cost of breadcrumbs may rise. The breadcrumbs are a raw material used to make the nuggets. The rise in cost for one raw material will lower the profitability of the final product.

The Managers

Internal factors that affect profitability can often be attributed to management decisions. There are three management levels that make decisions in an organization. Each level of management plays a different role in the decisions about productivity and quality.

Top level managers

Top-level managers are responsible for the overall strategic vision for the organization and rank highest in the organizational hierarchy. These managers are responsible for the entire organization. Decisions made by top-level managers affect all areas of the organization.

Decisions top-level management make at Chicken Valley Poultry may include:

  • Policies and procedures
  • Resource allocation (like suppliers)
  • Quality standards
  • Budgeting

These decisions significantly affect profitability. When Chicken Valley's top management made a change in suppliers, it meant a change in the quality of chicken used to make the nuggets. Customers did not like the change. Mid-level managers must now make important decisions because production changed based on the lower demand for the nuggets.

Mid level managers

Mid-level managers carry out the plans made by top-level managers in areas like planning and coordinating the work activities of lower-level managers. These managers make decisions that involve production and quality.

Chicken Valley Poultry allows mid-level managers to make decisions about:

  • Tactical plans (or action plans)
  • Short-term goal attainment
  • Marketing

These decisions also affect profitability. Tactical plans are the action steps needed to achieve the strategic goals set by top-level management. When Chicken Valley Poultry management decided to change the quality of the chicken for the nuggets, low demand decreased production. Mid-level management may decide to market the product differently to increase demand and in turn, production. A change in the way a product is marketed means spending money on marketing campaigns. This rise in input costs lowers profitability until demand for the nuggets increases.

Lower level managers

Lower-level managers are responsible for day -to-day supervision of workers and take their directives from mid-level managers. Their decisions are limited to assigning tasks to employees.

To unlock this lesson you must be a Study.com Member.
Create your account

Register for a free trial

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Free 5-day trial

Earning College Credit

Did you know… We have over 160 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it free for 5 days!
Create an account
Support