01/14/16

Compe,,veness
Strategy

and

Produc,vity

Compe,,veness
Compe,,veness:
How eec,vely an organiza,on meets the wants
and needs of customers rela,ve to others that
oer similar goods or services
Organiza,ons compete through some
combina,on of their marke,ng and opera,ons
func,ons
What do customers want?
How can these customer needs best be sa,sed?

By Prof. Jerome Alvarez

Why Some Organiza,ons Fail

Businesses Compete Using

Opera,ons
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Product and service design

Cost
Loca,on
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers

Emphasis on short-term nancial performance

Neglec,ng strengths and opportuni,es
Neglec,ng opera,ons strategy
Failing to recognize compe,,ve threats
Neglec,ng process improvement
Neglec,ng investments in capital and human resources
Lack of good internal communica,ons
Neglec,ng customer wants and needs

Mission/Strategy/Tac,cs

Strategy
Action plan to
achieve mission
Functional areas
have strategies
Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

Mission

Strategy

Tac+cs

Mission: The reason for existence for an organiza,on

Mission Statement: States the purpose of an organiza,on
Goals:

Provide detail and scope of mission

Strategy: Plans for achieving organiza,onal goals

Tac,cs:

The methods and ac,ons taken to accomplish strategies

01/14/16

Strategic Process
Organizations
Mission

Functional
Area Missions

Marketing

Strategy Analysis

Planning and Decision Making

Mission
Goals
Organiza,onal Strategies

Opera+ons Strategy:
The approach, consistent
with the organiza,on
strategy, that is used to
guide the opera,ons
func,on

Finance
Strategies

Marke,ng
Strategies

o
o

Opera,ons
Strategies

o
o

Tac,cs

Tac,cs

Opera,ng
procedures

Opera,ng
procedures

Tac,cs

A strong compe--ve advantage is

dicult to copy, o7en because of a
rms culture, habits, or sunk costs.

Dis,nc,ve Competencies
The special a+ributes or
Low-cost strategy firms:
abili1es that give an
Honda Motor Co.
organiza1on a
Marriott's Fairfield Inns
Wal-Mart; Sam's Club
compe11ve edge.
Can reshape industry
Strategy Factors
Southwest Airlines
o

Func,onal Goals

Finance/
Accounting

Operations

Price
Quality
Time
Flexibility
Service
Loca,on

McDonalds
Warning:
Do not lower quality.
Wal-Mart vs. Target

Businesses with quality goods

usually have large market shares
Apple and Samsung
Quality is positively related to a
higher return on investment
Toyota and RR
Profitability: Short term decrease;
Long term increase
Quality is free (Philip Crosby)
High quality producers can usually
charge premium prices
Rolex and Mont Blanc

Two types of time performance measures:

1. Speed of doing something (Fast delivery)
2. Reliability of doing something (On-time delivery)
Processing time: the time it takes to process/perform a task.
Queue time: the time spent waiting.
Cycle time: time from beginning of work to finish
OR time between two units at output.
Lead time: time between release of an order and shipment.
Purchasing lead time: time required to obtain purchased item.

Opera,ng
procedures

10

Strategy Formula,on

Dis,nc,ve competencies
Environmental scanning
SWOT
Order qualiers:
Characteris,cs that customers perceive as minimum standards of
acceptability to be considered as a poten,al purchase

Order winners:
Characteris,cs of an organiza,ons goods or services that cause it to
be perceived as becer than the compe,,on

Deciding Factors in Strategy Decisions

Internal Factors

Human Resources
Facili,es and equipment
Financial resources
Customers
Products and services
Technology
Suppliers

External Factors

Economic condi,ons
Poli,cal condi,ons
Legal environment
Technology
Compe,,on
Markets

01/14/16

Four Interna,onal Opera,ons

Strategies (Heizer/Render)

Reasons to Globalize
Tangible
Reasons

Intangible
Reasons

1.
2.
3.
4.
5.
6.

Reduce costs (labor, taxes, tariffs, etc.)

Improve supply chain
Provide better goods and services
Understand markets
Learn to improve operations
Attract and retain global talent

Cost Reduc,on Considera,ons

High
Global Strategy

Transnational Strategy

Standardized product
Economies of scale
Cross-cultural learning

Move material, people, ideas

across national boundaries
Economies of scale
Cross-cultural learning

Examples
Texas Instruments
Caterpillar
Otis Elevator

International Strategy

Examples
Coca-Cola
Nestl

Import/export or
license existing
product

Multidomestic Strategy
Use existing
domestic model globally
Franchise, joint ventures,
subsidiaries

Examples
U.S. Steel
Harley Davidson

Examples
Heinz
The Body Shop
McDonalds Hard Rock Cafe

Low
Low

High
Local Responsiveness Considera,ons
(Quick Response and/or Dieren,a,on)

Match Product & Parent Intl.

Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Dazs Ice Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Peioods

1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestl
7. Pillsbury
8. Sony

Match Product & Parent - Local

Krispy Kreme
Mang Inasal
Kidzania
Yellow Cab
Sky Cable
Volkswagen
Pancake House
McDonalds
Resorts World
City of Dreams
SCTEX
St. Marcs Caf/ Paul
Restaurant
Family Mart

1. Maxs
2. Ayala
3. Jollibee
4. SM
5. Metropacific
6. ABS-CBN/Lopez Group
7. AGI/ Megaworld
8. Bench

Match Product & Parent

Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Dazs Ice Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Peioods

1. Volkswagen
2. Bridgestone
3. Campbell Soup
4. Ford Motor Company
5. Gillette
6. Nestl
7. Pillsbury
8. Sony

Match Product & Country

Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Daz Ice Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Pet Foods

1. Great Britain
2. Germany
3. Japan
4. United States
5. Italy

01/14/16

Match Product & Country

Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Daz Ice Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Pet Foods

Strategies for Compe,,ve Advantage

(Generic Strategies)
Dieren,a,on becer, or at least
dierent
Cost leadership cheaper
Focus/Response Focus cost/Focus
dieren,a,on/ Rapid response

1. Great Britain
2. Germany
3. Japan
4. United States
5. Italy

Strategies for Compe,,ve Advantage

(Generic Strategies)
DIFFERENTIATION
COST
FOCUS RESPONSE

Flexibility is matching
market changes in
design innova,on and
volumes.
Reliability is mee,ng
schedules.
Timeliness is
quickness
in design, produc,on,
and delivery.

Uniqueness can go
beyond both the
physical
characteris,cs and
service acributes to
encompass everything
that impacts
customers percep,on
of value

Provide the maximum

value (lowest cost) as
perceived by
customer. Does not
imply low quality.

Examples:

Examples:

Examples:

Apple products

Cebu Pacific

Fedex

Starbucks Coffee

Pure Gold

Pizza Huts 5 minute

guarantee

Time- and Quality-Based Strategies

Time-based strategies
Strategies that focus on the reduc,on of ,me needed to accomplish
tasks

Quality-based strategy
Strategy that focuses on quality in all phases of an organiza,on

Goods and Services and

the 10 OM Decisions

OMs Contribu,on to Strategy

Operations
Decisions
Product
Quality
Process

Examples

Specific
Strategy Used

Competitive
Advantage

FLEXIBILITY:
Sonys constant innovation
of new products....Design
HPs ability to lead
the printer marketVolume
Southwest Airlines No-frills service....LOW COST

Location
Layout
Human
resource
Supply chain
Inventory
Scheduling

DELIVERY:
Pizza Huts 5-minute guarantee
at lunchtime.....Speed
Federal Expresss absolutely,
positively on time...Dependability
QUALITY:
Motorolas HDTV converters.........Conformance
Motorolas pagers...Performance
Caterpillars after-sale service
on heavy equipment....AFTER-SALE SERVICE
Fidelity Securitys broad
line of mutual funds.BROAD PRODUCT LINE

Differentiation
(Better)

Response
(Faster)
Cost
leadership
(Cheaper)

Operations
Decisions
Goods and
service
design

Goods
Services
Product is usually Product is not
tangible
tangible

Quality

Many objective
standards

Many subjective
standards

Process
and
capacity
design

Customers not
involved

Customer may be
directly involved
Capacity must
match demand

Maintenance

Heizer/ Render

01/14/16

Goods and Services and

the 10 OM Decisions
Operations
Decisions
Location
selection

Goods
Near raw
materials and
labor

Services
Near customers

Layout
design

Production
efficiency

Enhances product
and production

Human
resources
and job
design

Technical skills,
Interact with
consistent labor
customers, labor
standards, output standards vary
based wages

Goods and Services and

the 10 OM Decisions
Operations
Decisions
Supply
chain

Goods
Relationship
critical to final
product

Services
Important, but
may not be
critical

Inventory

Raw materials,
work-in-process,
and finished
goods may be
held

Cannot be stored

Scheduling

Level schedules
possible

Meet immediate
customer demand

Goods and Services and

the 10 OM Decisions
Company Strategy/Issues

Operations
Decisions
Goods
Services
Maintenance Often preventive Often repair and
and takes place
takes place at
at production site customers site

Product Life Cycle

Introduction

Growth

Maturity

Decline

Best period to
increase market share

R&D engineering is
cri,cal

Prac,cal to change
price or quality image

Strengthen niche

Poor ,me to change

image, price, or quality

Compe,,ve costs
become cri,cal
Defend market
posi,on

Cost control cri,cal

Fast food/ Fine

Dining
restaurants
Sales

Tablets/
Phablets
Wireless
Products

Landline, LCDs,
Fluorescent lamps
CDs, DVDs

OM Strategy/Issues

Product Life Cycle

Introduction

Growth

Product design and

development
cri,cal
Frequent product
and process design
changes
Short produc,on
runs
High produc,on
costs

Forecas,ng cri,cal
Product and process
reliability
Compe,,ve product
improvements and
op,ons

Limited models
Acen,on to quality

Increase capacity

Maturity
Standardiza,on
Less rapid product
changes more
minor changes
Op,mum capacity
Increasing stability
of process

Shio toward product Long produc,on

focus
runs
Enhance distribu,on Product
improvement and
cost cupng

Decline
Licle product
dieren,a,on
Cost
minimiza,on
Overcapacity in
the industry

Produc,vity

Prune line to
eliminate items
not returning
good margin
Reduce capacity

01/14/16

Produc,vity

Produc,vity
Productivity =

Units produced
Input used

Measure of process improvement

Represents output relative to input
Only through productivity increases
can our standard of living improve

Productivity: A measure of the eec,ve use of resources, usually expressed

as the ra,o of output to input
Efficiency
the degree to which a process generates outputs with the minimal
consumption of inputs
or
the degree to which a process generates a maximum amount of
outputs for a given amount of inputs.
Effectiveness is doing the right things efficiently.

Important Note!
Production is a measure of output only
and not a measure of efficiency

The objec,ve is to improve produc,vity!

Examples of Partial Productivity Measures

Produc,vity

Par,al measures:
output/(single input)
Mul,-factor measures: output/(mul,ple inputs)
Total measure:
output/(total inputs)
Partial
measures
Multifactor
measures
Total
measure

Output
Labor

Output
Output
Machine Capital

Output
Labor + Machine

Output
Energy

Output
Labor + Capital + Energy

Goods or Services Produced

All inputs used to produce them

Capital

Technology

Quality

Management

Units of output per labor hour

Units of output per shift
Value-added per labor hour

Machine
Productivity

Units of output per machine hour

Capital
Productivity

Units of output per dollar input

Dollar value of output per dollar input

Energy
Productivity

Units of output per kilowatt-hour

Dollar value of output per kilowatt-hour

Other Factors Aec,ng Produc,vity

Factors Aec,ng Produc,vity

Methods

Labor
Productivity

Standardiza,on
Quality / Scrap rates / Rework
Use of Internet / Computer viruses
Searching for lost or misplaced items
Layos / New workers / Labor turnover
Safety
Shortage of IT workers
Design of the workspace
Incen,ve plans that reward quality and produc,vity

01/14/16

Improving Produc,vity at
Starbucks
A team of 10 analysts
con,nually look for ways to
shave ,me. Some
improvements:

Produc,vity Calcula,ons
Labor Produc,vity
Produc,vity =

Stop requiring signatures

on credit card purchases
under $25

Saved 8 seconds
per transaction

Change the size of the ice

scoop

Saved 14 seconds
per drink

New espresso machines

Saved 12 seconds
per shot

1,000
= = 4 units/labor-hour
250
One resource input single-factor produc,vity

Single-Factor Produc,vity Example

Collins Title Company has a sta of 4, each
working 8 hours per day (for a payroll cost of
$640/day) and overhead expenses of $400 per
day. Collins processes and closes on 8 ,tles
each day. The company recently purchased a
computer ,tle-search system that will allow the
processing of 14 ,tles per day. Although the
sta, their work hours, and pay will be the same,
the overhead expenses are now $800 per day.

Collins Title Produc,vity

Old System:

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

Old labor
produc,vity

Collins Title Produc,vity

Old System:

Units produced
Labor-hours used

8 titles/day
Overhead = $400/day

8 ,tles/day
32 labor-hrs

Collins Title Produc,vity

Old System:

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

8 titles/day
Overhead = $400/day

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

8 titles/day
Overhead = $400/day

New System:

14 titles/day
Old labor
produc,vity

8 ,tles/day
32 labor-hrs

= .25 ,tles/labor-hr

Old labor
produc,vity

New labor
produc,vity

Overhead = $800/day
=

8 ,tles/day
32 labor-hrs

= .25 ,tles/labor-hr

14 ,tles/day
32 labor-hrs

01/14/16

Collins Title Produc,vity

Old System:

Collins Title Produc,vity

Old System:

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

8 titles/day
Overhead = $400/day

New System:

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

8 titles/day
Overhead = $400/day

New System:

14 titles/day

Overhead = $800/day

Old labor
produc,vity

New labor
produc,vity

Change in Produc,vity

8 ,tles/day

= .25 ,tles/labor-hr

32 labor-hrs
14 ,tles/day

Old mul,factor
produc,vity

Overhead = $800/day
=

8 ,tles/day
$640 + 400

= .4375 ,tles/labor-hr

32 labor-hrs
=

14 titles/day

.4375-.25

= .75 or 75%

.25

Collins Title Produc,vity

Old System:

Collins Title Produc,vity

Old System:

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

8 titles/day
Overhead = $400/day

New System:

Overhead = $800/day
=

8 ,tles/day

= .0077 ,tles/dollar

$640 + 400

Collins Title Produc,vity

14 titles/day

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

8 titles/day
Overhead = $400/day

New System:

14 titles/day

Overhead = $800/day

Old mul,factor
produc,vity

New mul,factor
produc,vity

=
=

8 ,tles/day
$640 + 400

= .0077 ,tles/dollar

14 ,tles/day
$640 + 800

= .0097 ,tles/dollar

.0097 - .0077
.0077

Overhead = $800/day

Old mul,factor
produc,vity

New mul,factor
produc,vity

8 ,tles/day
$640 + 400

= .0077 ,tles/dollar

14 ,tles/day
$640 + 800

Mul,-Factor Produc,vity

Old System:

Change in Produc,vity

8 titles/day
Overhead = $400/day

New System:

14 titles/day
Old mul,factor
produc,vity

Staff of 4 works 8 hrs/day

Payroll cost = $640/day

Produc,vity =

Output
Labor + Material + Energy +
Capital + Miscellaneous

Also known as total factor productivity

Output and inputs are often expressed in
dollars
Multiple resource inputs multi-factor productivity

= .2597 or 26%

01/14/16

Paper Co. Produc,vity

Paper Co. Produc,vity

A wrapping paper company produced 2,000 rolls

of paper one day. Standard price is $1/roll.
Labor cost was $160, material cost was $50, and
overhead was $320. Determine the
produc,vity.

A wrapping paper company produced 2,000 rolls

of paper one day. Standard price is $1/roll.
Labor cost was $160, material cost was $50, and
overhead was $320. Determine the
produc,vity.

Produc,vity =

Quan,ty produced @ standard price

Labor cost + Material cost + Overhead

Produc,vity =

2,000 rolls x $1/roll

$160 + $50 + $320

= 3.77 rolls output per dollar unit

Exercise 1

Joyce and Joy make apple crates for resale to local

growers. They and their three employees: Abigael,
Caryl, and Angel invest 50 hours per day making
150 crates.

What is their produc,vity?

They have discussed reassigning work so the ow
through the shop is smoother. If they are correct and
can do the necessary training, they think they can
increase crate produc,on to 155 per day. What would
be their new produc,vity?
Is there an increase or decrease in produc,vity? By how
much?

Exercise 2 - Given the following data:

Units produced
Labor (hrs.)
Resin (pounds)
Capital invested ($)
Energy (BTU)

Last Year

Now

1,000

1,000

300

275

50

45

10,000

11,000

3,000

2,850

Exercise 2
1. Show the percentage change for each category.
2. Jiggs determines his cost as follows:

Labor at $ 10 per hour

Resin at $ 5 per pound
Capital at 1% of investment
Energy $ .50 per BTU

Compute for the mul,-factor basis with dollars

as the common denominator