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Why Might One Argue that the Use of Labour is the Main Component of a Firm’s Profit Strategy?

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Since time in memorial, man has been working to provide for his needs and improve his way of living. Needs are hard to satisfy without labour and human effort that leads to a favourable production. For survival, the forefathers had to hunt, gather, and  farm. They gathered and shared collectively as necessitated by the customs. Labour is a term used to refer to productive human work (Ashenfelter & Card, (Eds) 2010). In the past, the term was not considered as a term that need to be paid for. For instance, the farmers cultivated land and reared livestock, which they later traded for other goods and services using the barter trade system. With the passage of time, society grew bigger and consequently, became more and more complex, this inevitably meant that labour had to become more specialized. Individual had to be an expert in whatever they did. Specialization was like a coin that has two sides, on one side, it was a blessing in that individuals could improve their standard of living by having a share of the wealth they had played a part to produce, and on the other side,  it was a curse in the sense that specialization meant that an individual were coerced into repetitive tasks. Therefore this would become boring with time due to monotony and as a result, workers became more dependent on others for services and goods they wanted, but did not produce.

This paper focuses on labour and a firm’s profit strategy. In particular, it discusses the question why the use of labour is the key component of a firm’s profit strategy. Labour is a major factor of production in all companies (Ashenfelter & Card, (Eds) 2010). It is the effort needed to bring a specific good or service into existence. In order to realize the objectives set by a firm, labour should be put into consideration. Workforce provides labour, and their motivation to work influences many factors including quality of service or product, customer service, and customer satisfaction amongst other factors, all of which contribute to increased sales. In order to understand how the use of labour contributes to a firm’s profitability, all these factors will be put into account.

In the contemporary time, where quality is the main distinguishing factor among the product in the market, the importance of labour cannot be ignored. Training and maintaining a highly motivated and enthusiastic workforce  has become common phenomena in all sectors of the economy. It has become clear that any firm that aims at increasing their sales and consumer loyalty must invest heavily in maintaining a very c0ompetent and motivated workforce.

Research shows that firms that comparatively have more labour consequently register higher sales (Gospel & Pendleton, 2005). Many firms are predisposed to  have insufficient labour  by the inherent costs associated with such a strategy. Though the higher wage rate has made the situation no better, especially for firms that have not been in the market for long enough to boost any meaningful consumer loyalty, having more labour in an organization has been identified as a profit driver. Additionally, some scholars have been of the opinion that the benefits greatly surpasses the costs. Adding more labour has been associated with improved service quality and conformance quality. For instance, more labour would mean that the workers have more time to interact with customers and that they have less workload. As a result, workers have an opportunity to use their skills in a conducive environment where they have less pressure. This means that employees are less likely to make errors when performing their task and that the quality is not compromised. From the aforementioned, it is important to mention that labour would be viewed as having a positive relationship with quality, which dictates the level of sales and profit level a given firm can achieve within a given operational context.

In order to understand the importance of labour in a firm with regard to profitability, it is essential to describe how labour influences others factors that contribute to a firms’ profits. As aforesaid, labour is linked to improved service quality, which results in increased firm’s profitability. The association between the two is best illustrated by various links in the profit chain. For instance, loyal customers stimulate profitability; clientele satisfaction leads to customer loyalty; whilst the quality of services offered to the customers leads to customer satisfaction.  In order to achieve customer loyalty, satisfaction, and offer quality services, labour is a key component. The quality of services offered to clients is a function of service quality. According to Fisher et al. (2006), the positive linkage between service quality, client loyalty, customer satisfaction, and amplified sales, which results in higher profitability has been established.

Studies conducted in the industry and firm levels show mixed findings regarding the impact of labour and service quality on profitability (Fisher et al., 2006). These include studies carried out in the United States firms, which showed a positive linkage between client satisfaction and labour quality. Nevertheless, there were variations in the results obtained. Some studies showed a negative relationship whilst others revealed a positive relationship. Another study carried out in the Swedish firms revealed that the levels of profitability, return on investment, and a firm’s labour differ across industries. This was evidenced in such industries as supermarkets, gas stations and departmental stores where low customer satisfaction is linked with increased returns on investment (Fisher et al., 2006). For companies manufacturing goods, high labour productivity is linked to high customer satisfaction resulting in increased sales, thus in higher profits.

Research suggests that there is a direct correlation between quality and labour levels (Gospel & Pendleton, 2005). It also suggests that quality and profitability have a positive relationship, though they indicate that the context also matters, for it is not in all firms that such a strategy would yield higher profits. Technology has also made standardization possible eliminating the need in order to maintain more workers to achieve higher profits. For instance, in the retail industry the effect of more labour on quality and profit levels is profound. Higher labour level is associated with increased service and conformance quality. In such an industry stores with more labour have been found to perform better than their rivals with less labour. Accordingly, employees have more time to interact with customers, meaning consumers can access help on location and other relevant information regarding the products being offered, more time to shelve products with the right price tags and are less likely to make errors that might impact negatively on the performance of the firm. Firms with more sales people have more sales. Conformance plays a major role in determining future sales and profits in this industry. Therefore, increasing the amount of labour has potential of increasing profits through an indirect effect of service and conformance quality improvement.

Studies indicate that labour as a factor of production has the greatest potential of increasing a firm's value (Fisher et al., 2006). Making an assumption that all labour is equal, then it would be expected that firms that are primarily labour intensive should realize higher profits than those that are less labour intensive. Though, critics of this theory suggest that labour alone cannot improve the value, but a combination of factor inputs. Proponents of this notion argue that labour is an important element in the building of a commodity. Other input may have varying degrees of value and importance in building a commodity, but the production of any commodity would be impossible without labour.

According to Marx, labour is common to all commodities. He argues that for commodities to be produced, firms must make use of labour. Although, other requirements including tools are important, as a matter of fact, they cannot be appropriately aggregated in value for the reason that they are dissimilar and specialized in nature (Gospel & Pendleton, 2005). Their values in relation to labour rely on prices that consecutively rely on value. In this case, labour is a main component of value that contributes to a firm’s profit strategy. In order to maximize profits, some firms tend to cut on payroll expenses by making use of too little labour. This is linked to the fact that the negative impacts of little labour is hard to quantify and has reduced effects in the short-run. On the other hand, the negative impacts of employing much labour is felt instantaneously due to the low profits realized, although, appropriate in the long-run. Some firms reduce spending labour by altering workforce schedule and lessening working hours. However, this has had negative impacts in terms of achieving  the desired profits. Workforce provides labour, and if they are not satisfied, they will offer low quality services affecting customer satisfaction. If, on the other hand, customers are not satisfied, there will be reduced sales and thus, reduced profits. This implies that, for a firm’s profit strategy to be attained, labour is a major component.

Some scholars argue that labour is exceptional, a factor of production that is not sold, but rather provided by workforce themselves at minimal income, while the surpluses are retained by firms (Gospel & Pendleton, 2005). The cost of labour is separately determined with reference to its ability to bring returns to a firm. This implies that if the labour costs are high, the returns obtained are high too, and if low returns are expected then the cost of labour will be low. This is the explanation as to why firms make profits.

During the 1960’s, auto firms did not employ black employees until the Second World War when there was labour shortages. This resulted in the employment of many black workers including women. The General Motors Building and Ford hired these workers until they decentralized almost all of their operations. The result was numerous workers who in turn were employed by Chrysler, a company that gave them dangerous and worst jobs. They were also abused and fired any time as there was job insecurity (Georgakas & Surkin, 1998). In order to enhance high productivity, proper management of labour is important. This encompasses motivating employees by exposing them to good working conditions, and it can lead to increased productivity.

In their study of the urban revolution, Georgakas & Surkin (1998) state that the black workers were important in the factories. The persistent success evidenced in the factories had greater priority as compared to the organizational attachments with like-minded individuals. This meant treating the black workers with respect and giving according their demands, which included women liberation and eradication of racism. These added up to workers' control of the process of production.

In conclusion, it is clear that the use of labour is linked to a rise in a firm’s profit margin. Labour is the main and most important factor in any company as without it, service provision or production and goods will be impossible. It influences many factors in a company that are directly linked to profit maximization. For instance, increasing labour results to higher conformance quality and service quality. Higher conformance quality is related to reduced costs, increased sales, and  high profits. Labour also has a positive relationship with quality, which dictates the level of sales as well as profit level a given firm can achieve within a given operational context. Overall, having more labour in an organization has been identified as a profit driver. Lastly, some scholars have been of the opinion that the benefits greatly surpasses the costs.

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