Chapter 2: Strategy and Productivity

By: Catherine U. Malig, MBA

References: R. Dan Reid & Nada R. Sanders

Alex Hill & Terry Hill (3rd Edition)
 Strategy
 Strategy embodies the aspects of both
direction and implementation.

 Itcame from the Greek word

“strategos” (a general) which means
stratos (army) and aegin (to lead).
 Levels of Strategy
 1. Corporate- decisions as a whole in terms of
sectors in which it wishes to compete.

 2. Business Unit- it comprise different parts of the

total business.

 3. Functional- each business unit will comprise a

number of functions.
Levels of Strategy
Level of Strategy Distinctive tasks

Corporate Strategic activity at the corporate level concerns

the direction of the total business and addresses
issues such as where to invest/divest and priorities
in terms of sales revenue growth. Implementation
and allocation of funds.

Business Unit Comprise different parts of a total business.

Example in corporate banking, retail banking,
financial markets, mortgages, pensions and
insurance. Each BU has their own strategies.
Functional Each business unit will comprise a number of
functions such as sales and marketing, operations
and IT that make up the total activities within a
business unit
Examples of Functional Strategic Responsibilities

Research & Product and service design

Development

IT System Development

Marketing Brand name, customer relationship and

pricing

Operations Delivery, reliability, quality conformance,

price (in terms of cost reduction) and
delivery speed

© 2009 South-Western, a part of Cengage Learning

 Corporate

CW1 CW2 CGIC Business Unit

Sales Claims Underwriting Accounting Functional

Retail Retail Retail AR/Cash

Corporate Corporate Corporate AP

BUSINESS STRATEGY- this are the long-range
plan of a business, designed to provide and
sustain shareholder value.

OPERATIONS STRATEGY- is a long-range plan

for the operations function that specifies the
design and use of resources to support the
business strategy.
 Market-driven vs. Market-driving

Being Market –driven concerns providing the

competitive criteria in a market to the
required levels.

Market-driving concerns proactively seeking

ways to change the competitive norms and
hence create a situation where a company
influence its market position vis-à-vis its
competitors. (market based or resource
based)
 Market-driven vs. Market-driving

Market- based- the companies proactively identify

where the market advantage could be gained by
outperforming the current norms on one or more
relevant market drivers and then allocating
resources at the end.

Resource- based-it exploits the potential of

existing resources and capabilities to outperform
current norms on one or more competitive drivers.
Case study 2: Comparing Success of
Kmart and Wallmart
Developing a Business Strategy

A business strategy is developed after taking into

many factors and following some strategic decisions
such as mission, ES, and CC.

a. What business is the company in (mission).

b. Analyzing and understanding the market
(environmental scanning).
c. Identifying the companies strengths (core
competencies).
Factors in Business Strategies

1. Mission

2. Environmental Scanning

3. Core Competencies

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Mission – a statement defining
what business an organization is
in, who its customers and how its
core beliefs shape its business

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Environmental scanning is the
monitoring of the external
environment for changes and trends
to determine business
opportunities and threats.

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 2 Methods in Environmental Scanning

Michael
Porter’s
Five
Forces
Analysis
MP Five Forces Analysis

Competitive Rivalry
• Very many competitive
• Commodity Products
• Low switching costs
• Low loyalty customers
• High cost of leaving the market
 MP Five Forces Analysis
Threat of a New Entry
• Not too expensive to enter the market
• Experience needed but training is easily
available
• Some economies of scale
• Some costs benefits if in business for some
time
• No technology protection
• Low barriers to entry
• New entry quite easy
MP Five Forces Analysis

Supplier Power
• Moderate number of supplier
• Supplier is large
• Similar products
• Able to substitute and change
• Neutral supplier power
MP Five Forces Analysis

Threat of Substitution
• Some cross-product substitution
• Ability to import food
• Some substitution
MP Five Forces Analysis

Buyer Power
• Few, large supermarkets
• Maybe co-operative
• Very large orders
• Homogeneous products
• Extreme price sensitivity
• Ability to price substitute
• High buyer-power
PESTLE ANALYSIS
POLITICS Government type and policy
Funding, grant and initiatives
ECONOMY Inflation and interest rates
Labor and energy costs
SOCIAL Population, education, media
Lifestyle, fashion, culture
TECHONOLOGY Emerging technologies, web
Information and Communication
LEGAL Regulations and standards
Employment law
ENVIRONMENT Weather, green & Ethicak issues
Pollution, waste, recycling
Core Competencies is/are the
unique strengths of a business

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Operations
Strategy –
Designing the
Operations
Function
Competitive Priorities are the capabilities
that the Operations Strategy–function can
develop in order to give a company a
competitive advantage in its market.

COST?,TIME?,QUALITY?,FLEXIBILITY?

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Competing on Cost?
1. Offering product at a low price relative to
competition.
2. Typically high volume products.
3. Often limit product range & offer little
customization.
4. May invest in automation to reduce unit costs.
5. Can use lower skill labor.
6. Probably use product focused layouts.
7. Low cost does not mean low quality.

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Competing on Time?
• Time/speed is one of most important
competition priorities
• First that can deliver often wins the race

Time related issues involve

Rapid delivery:
Focused on shorter time between order placement
and delivery
On-time delivery:
Deliver product exactly when needed every time

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Competing on Quality?
Two major quality dimensions include
1. High performance design:
Superior features, high durability, & excellent
customer service
2. Product & service consistency:
Meets design specifications
Close tolerances
Error free delivery
Quality needs to address
Product design quality – product/service meets
requirements
Process quality – error free products
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Competing on Flexibility?
Product flexibility:
Easily switch production from one item to
another
Easily customize product/service to meet
specific requirements of a customer

Volume flexibility:
Ability to ramp production up and down to
match market demands
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Trade offs

The need to focus more on one

competitive priority than on others

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Competitive Priorities

Order Qualifiers – competitive priorities

that must be met for a company to
qualify as a competitor in the
marketplace

Example the Price or Speed in Delivery

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Competitive Priorities

Order Winners – Competitive Priorities

that win orders in the marketplace.

Example – fresh ingredients and home

made taste

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Specific Operation Requirements
• Structure – Operation Decisions
related to the design of the
production process, such as
facilities, technology, and flow
of goods and services through
the facility.

© 2009 South-Western, a part of Cengage Learning

Specific Operation Requirements

• Infrastructure – Operation
decisions related to the
planning and control systems of
the operation such as
organization operations, skill
and pay of workers, and quality
measures

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Three Types of Technologies

1.Product
is any new technology developed
technology by a firm

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Three Types of Technologies

1.Product
technology

is any new technology developed by

a firm
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Three Types of Technologies

2.Process
technology

the technology used to improve the

process of creating goods and services .
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 3. INFORMATION TECHNOLOGY
It enables
communication
processing and
storage of
information to
the company.

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Advantages and Disadvantages of Technology

Positive
Improve processes
Maintain up-to-date standards
Obtain competitive advantage

Negative
Costly
Promotes dependency
Risks such as overstating benefits
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PRODUCTIVITY

Productivity is a measure of how

efficiently an organization converts
inputs into outputs.

Productivity = output/input

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TOTAL PRODUCTIVITY

Total productivity
computed as a ratio of all
output to all inputs

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 EXAMPLE
•ABC Furniture makes furniture. The weekly peso
value of its output, including finished goods and
work-in-progress, is Php 14,000. The value of
inputs (labor, materials, capital) is approximately
16,000. What is the total productivity measure for
Betis?

Total productivity = output/input

Php 14,000/Php16,000 = .875 or 87.5%

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PARTIAL PRODUCTIVITY
Productivity computed as a ratio of output to
only one input (labor, materials and machines)
Example: Lumanog Guitar has hired 3 new
workers to paint guitars. Together they have
painted 20 guitars in 5 hours. What is labor
productivity for the trio?
(20 guitars)/(3 x 5 hrs)
= (20 guitars)/(15 hrs) or 1.33 guitars/hr

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Multifactor Productivity
Productivity computed as a ratio of output to
several but not all inputs.

Example: Mommamees Bakery produces an

average of 100 hopias/day. Labor costs average Php
500, material costs are typically 200, and overhead
cost is Php 50. Mommamees sells these hopias to a
retailer for Php 70/unit. Find multifactor
productivity.

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Multifactor Productivity
Multifactor productivity = (value of
output)/(labor + material + overhead
costs)
(Php 70/hopia x 100hopia/(500+200+50)
= 7,000/750 = P9.33/unit

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END OF DISCUSSION