Reference no: EM133145955

The Impact of Efficiency on Business Operations

Objectives

To encourage students to think critically about the idea of productivity and its effects business operations.

The Situation

A friend to a member of your business group, named Jason, argues that increased efficiency in the use of resources would not lead to less consumption of your product (as most people would think). He gave the following examples to support this seemingly counterintuitive argument. If some technological improvement allowed more products to be made with less resources, than previously, your company's profits would increase and new investment dollars would flow into your company. The company's reduce cost would allow it to reduce the price of its products. The price reduction, in turn would cause increases demand from customers. Over time, as more and more companies efficiently produced more and more, the total consumption of your product needed to make all that would be greater than it was before the increase in efficiency occurred.

The most general point that Jason made was that increase economy in the use of fuel would actually lead to increased consumption of that fuel. Thus, is because increasing energy efficiency really means increasing the productivity of energy. And when you increase the productivity of something its price goes down.

Our unit's discussions contain many examples of how Jason's basic idea works in modern society. We note, for example, that improving roads (i.e., making them more efficient) does not reduce traffic congestion, but makes it worse over time. Why? Because better roads attract more drivers, and this increases congestion. All of these extra cars also produce a large amount of air pollution. If governments want to reduce air pollution by attracting more people to public transit, they must increase the cost of driving. That can be accomplished by providing poor (i.e., congested) roads for drivers, who will then get so fed up with driving that they will be motivated to use public transit.

Your Group's Activity

Review unit's discussions relevant to Jason's assertion of the idea that increased efficiency actually results in increased use, rather than decreased use of some resource.

Your Group Report

Write a brief report summarizing your group's conclusions. Consider the following points:

1. Is Jason's idea sound? Defend your answer in light of your business.

2. Assume for a moment that you agree with the argument that increased efficiency means more consumption rather than less. If you wanted to decrease consumption, give a specific example of the actions you would take.