Every organization is a world. In an increasingly complex context, it is vital to know in detail some fundamental parameters that make companies work, that is, that they last over time and that (of course) are profitable and competitive. The future of each of them will depend, to a large extent, on the strategy adopted. In particular, there are three very important concepts that must be taken into account when analyzing the performance of an organization: quality, productivity and costs. Before defining what we mean by each concept, the easy answer appears almost by common sense: every company seeks to provide quality products with high productivity and low costs. But is this possible? Is there any incompatibility between them?

It is usual to suppose that increasing productivity values ​​worsens average quality with an increase in the percentage of non-conforming products. We can also assume that improving quality, with the minimization of non-conforming products and waste, implies reducing productivity since, for example, inspection and controls increase. And the costs? Does not the quality cost? Any improvement that has to do with aspects of quality has an associated cost, but (as we will see later) produces a benefit that more than covers the money invested. It always ends up being more expensive not doing things the right way. According to Crosby (1987):
«Quality does not cost. It is not a gift, but it is free. What costs money are the things that do not have quality, all the actions that result from not doing things right the first time. ”
The three concepts are critical for any organization, and we can not neglect any of them because we will surely be doomed to failure. As we will see, the quality, productivity and costs of any activity are completely interdependent. The main question we must ask ourselves is: where do we start? Do we increase productivity, try to reduce costs or seek to improve quality indexes? Let’s briefly define what we mean by each of the terms. Roughly:
– Quality means delivering products (services) that meet customer expectations, that meet specifications and, if possible, exceed them.
– Productivity, being very synthetic, is the ability of an organization, a process or a particular machine to produce.

It is usually measured through indicators. Generally, aspects such as the number of products manufactured in a period of time are taken into account. It is also usually taken into account how much labor was required, which gives us a sense of the effectiveness and efficiency of the processes. Although they are related to the concept of productivity, efficiency and effectiveness, as well as effectiveness, are terms that alone mean a lot and must be analyzed to interpret the performance of the processes.

According to Peter Drucker, undisputed reference of management, efficiency is “doing the right things” (what should be done), efficiency is “doing things right” (seeking the best results with the least resources) and effectiveness is a combination of both: “doing the right things well”, that is, doing what is due and in the right way.
Costs (or costs) are all those money disbursements that are related to the activity that is being carried out. For example, production costs, labor costs or financial costs. We must differentiate the costs of expenditures and investments.


How are they interrelated?

For decades, covering the second half of the 20th century, the vision of western organizations was based on an incompatibility between quality and productivity. Deming (1986) suggested that managers in the United States thought that companies could pursue one of them, but not both. Bringing productivity to high values ​​would be to the detriment of quality, would increase waste, reprocessing, non-conforming products. If, on the other hand, the aim was to improve quality, productivity would be reduced since the fluidity with which operations are carried out would be reduced. Nothing more wrong. If we increase the quality, less reprocessing will be done and we will have less waste. Productivity will inevitably improve.

Under the same criteria as the previous one, an increase in quality will reduce costs. Minimize reprocessing is reduce waste: unnecessary time, unnecessary labor, additional raw material, delays in delivery, etc. Anyway, a substantial reduction in costs should not only come from an improvement in quality issues, but there should be an aggressive cost reduction policy (as long as it does not negatively affect quality).


On the other hand, increasing productivity minimizes costs, since that resources are better used (raw material, time, labor). As we saw, each organization can take different paths, but only one will lead to the right place. Some cases: If we seek to increase productivity, neglecting quality, we can temporarily reduce costs but quality problems will be so high that we run the risk of becoming profitable and competitive. If we reduce productivity, costs will increase and we will not necessarily improve the quality if there is not a strategy in that sense. If we maintain low productivity, but with high quality, the costs will rise too. The best way, always, is to look for improvement in quality.

Improve quality, increase productivity and reduce costs. As simple as that. It is a chain reaction, as Deming defines it: “For the operator, quality means that his performance satisfies him, makes him proud of his work. By improving the quality, man-hours and waste-machine hours are transferred to the production of good products and to a better service. The result is a chain reaction-costs are reduced, people are more competitive, people are more happy with their work, there is work, and more work.

“It should be noted that any improvement in quality is possible with the intervention and commitment on the part of Senior Management. If not, it will not work. There is not much more to add in this regard. Any attempt to improve will fail if the Directorate is not actively involved, if it is not convinced of what it is doing.

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