Chapter 2: Competitiveness, Strategy, and Productivity

Competitiveness

Competitiveness How effectively an organization meets the wants and needs of customers relative to
others that offer similar goods or services.

Organizations compete through some combination of their marketing and operations functions
• What do customers want?
• How can these customer needs best be satisfied?

Marketing’s Influence
 Identifying consumer wants and/or needs: create a match between the consumers wants and
needs and the organization’s products/services.
 Pricing and quality: understand the trade-off decision the consumer makes between price and
quality.
 Advertising and promotion: ways of informing consumers about products and attracting them.

Businesses Compete Using Operations

1. Product and service design: reflect efforts to achieve match between financial resources,
operations capabilities, supply chain capabilities and consumer needs and wants
2. Cost: cost reduction efforts are continuous in a business
3. Location: close to inputs/resources, and close to market
4. Quality: refers to materials, workmanship design and service
5. Quick response: bringing new products to market, delivering products, or handling customer
complaints
6. Flexibility: ability to respond to change
7. Inventory management
8. Supply chain management: coordinating internal and external operations to achieve timely and
cost-effective delivery
9. Service: after-sale activities (delivery, setup, warranty, work, and technical support
10. Managers and workers: skilled, competent, and motivated

Why Some Organizations Fail

1. Neglecting operations strategy
2. Failing to take advantage of strengths and opportunities and/or failing to recognize competitive
threats
3. Too much emphasis on short-term financial performance at the expense of R&D
4. Too much emphasis in product and service design and not enough on process design and
improvement
5. Neglecting investments in capital and human resources
6. Failing to establish good internal communications and cooperation
7. Failing to consider customer wants and needs
IN ORDER TO SUCCEED IN COMPETING WITH OTHER PRODUCTS
 The key to success in competition is to determine what the customer wants and creating that product
or service that satisfies them and meets their expectations
 We must ask 2 questions:
A. what do customers want?
B. And what is the best way to satisfy those wants?

There are three basic business strategies:

• Low cost.
• Responsiveness.
• Differentiation from competitors.

Hierarchical Planning

Mission, Goals, and Strategy

 Mission The reason for an organization’s existence
 It answers the question “What business are we in?”
 Goals Provide detail and the scope of the mission
 Goals can be viewed as organizational destinations
 Goals serve as the basis for organizational strategies, which in turn provide the
basis for strategies and tactics of the functional units of the organization
 The mission statement serves as the basis for organizational goals
 Both relate to how the company wants to be perceived by the general public, its
employees, suppliers and customers

 Strategy A plan for achieving organizational goals

Serves as a roadmap for reaching the organizational destinations
 The organizational strategy guides the organization by providing direction for, and
alignment of, the goals and strategies of the functional units.
  The organizational strategy is a major success/failure factor.
There are 2 types:
 Organizational strategies
 Overall strategies that relate to the entire organization
 Support the achievement of organizational goals and mission
 Functional level strategies
 Strategies that relate to each of the functional areas and that support achievement of
the organizational strategy

 Mission statement States the purpose of the organization

 The mission statement should answer the question of “What business are we in?”

Tactics and Operations

 Tactics The methods and actions taken to accomplish strategies
 More specific than strategies, providing guidance and direction for carrying out the actual
operations
 The “how to” part of the process
 Operations
 The actual “doing” part of the process

STRATEGY plans for achieving the organizational goals

 LOW COST: outsource to cheap-labor countries

 Scale-based strategies: high-output, low cost per unit
 Specialization: focus on narrow product line
 Newness: focus on innovation
 Flexible operations: focus on quick-response / customization
 Service:
 Sustainability: environment friendly/energy-efficient

Core Competencies The special attributes or abilities that give an organization a competitive edge.
 To be effective core competencies and strategies need to be aligned

Strategy Formulation

 Effective strategy formulation requires considering:

 Core competencies
 Environmental scanning
 SWOT
 Successful strategy formulation also requires considering:
 Order qualifiers
 Order winners
  Order qualifiers
 Characteristics that customers perceive as minimum standards of acceptability for a
product or service to be considered as a potential for purchase
 Order winners
 Characteristics of an organization’s goods or services that cause it to be perceived as
better than the competition

CHARACTERISTICS SUCH AS PRICE, DELIVERY RELIABILITY, DELIVERY SPEED AND

QUALITY CAN BE ORDER QUALIFIERS AND/OR ORDER WINNERS.

STRATEGY FORMULATION
The key steps in strategy formulation are:
1. Link strategy directly to the organization’s mission or vision statement.
2. Assess strengths, weaknesses, threats and opportunities, and identify core competencies.
3. Identify order winners and order qualifiers.
4. Select one or two strategies (e.g., low cost, speed, customer service) to focus on.

Sample Operations Strategies

Environmental Scanning The monitoring of events and trends that present threats or opportunities for a
company.
Environmental Scanning is necessary to identify
 Internal Factors (Strengths and Weaknesses)
 External Factors (Opportunities and Threats)

Key External Factors

1. Economic conditions: health of the economy, inflation, deflation, tax laws, tariffs
2. Political conditions: attitude towards business, political stabilities, wars
3. Legal environment: government regulations, trade restrictions, product liability laws, labor laws,
patents
4. Technology: rate of product innovation, design technology
5. Competition: number, strength, competencies, ease of market entry
6. Markets: size, location, brand loyalty, ease of entry, potential for growth, demographics

Key Internal Factors

1. Human Resources: skills, abilities, talents, loyalties, expertise, dedication, experience
2. Facilities and equipment: capacity, age, maintenance costs, location
3. Financial resources: cash flow, access to funds, debts
4. Customers: loyalties, understanding the market needs
5. Products and services: existing and potential for new products
6. Technology: existing technology, ability to integrate new technology
7. Suppliers: relationship, dependability, quality, service, flexibility
8. Other: DISTRIBUTION CHANNELS, ACCESS TO RESOURCES

Operations strategy the approach, consistent with organization strategy, that is used to guide the
operations function.
1. Organizations may have a single dominant strategy, or multiple strategies
2. Growth is often a component of strategy for new-comers
3. Companies may fail not only because they do not choose wisely the correct strategy, but
also because of poor execution of strategies
Strategic OM Decision Areas

Two factors that tend to have universal strategic operations importance relate to quality and time. The
following section discusses quality and time strategies.

Quality-based strategy focuses on quality in all phases of an organization

Pursuit of such a strategy is rooted in a number of factors:
 Trying to overcome a poor-quality reputation
 Desire to maintain a quality image
 A desire to catch up with the competition
 A part of a cost reduction strategy
Time-based strategies focus on the reduction of time needed to accomplish tasks
 It is believed that by reducing time, costs are lower, quality is higher, productivity is higher,
time-to-market is faster, and customer service is improved
 Areas where organizations have achieved time reductions:
 Planning time
 Product/service design time
 Processing time
 Changeover time
 Delivery time
 Response time for complaints

Productivity A measure of the effective use of resources, usually expressed as the ratio of output to input
 Productivity measures are useful for:
 Tracking an operating unit’s performance over time
 Judging the performance of an entire industry or country

Why Productivity Matters

1. High productivity is linked to higher standards of living
  As an economy replaces manufacturing jobs with lower productivity service jobs, it is
more difficult to maintain high standards of living
2. Higher productivity relative to the competition leads to competitive advantage in the marketplace
 Pricing and profit effects
3. For an industry, high relative productivity makes it less likely it will be supplanted by foreign
industry

Service Sector Productivity

 Service sector productivity is difficult to measure and manage because
 It involves intellectual activities
 It has a high degree of variability
 A useful measure related to productivity is process yield
 Where products are involved
 ratio of output of good product to the quantity of raw material input.

 Where services are involved, process yield measurement is often dependent on the
particular process:
 ratio of cars rented to cars available for a given day
 ratio of student acceptances to the total number of students approved for
admission.

Factors Affecting Productivity

1. Standardizing processes and procedures wherever possible to reduce variability can have a
significant benefit for both productivity and quality.

2. Quality differences may distort productivity measurements. One way this can happen is when
comparisons are made over time, such as comparing the productivity of a factory now with one
30 years ago. Quality is now much higher than it was then, but there is no simple way to
incorporate quality improvements into productivity measurements.

3. Use of the Internet can lower costs of a wide range of transactions, thereby increasing
productivity. It is likely that this effect will continue to increase productivity in the fore- seeable
future.

4. Computer viruses can have an immense negative impact on productivity.

Searching for lost or misplaced items wastes time, hence negatively affecting productivity.

5. Scrap rates have an adverse effect on productivity, signaling inefficient use of resources.

6. New workers tend to have lower productivity than seasoned workers. Thus, growing companies
may experience a productivity lag.
 7. Safety should be addressed. Accidents can take a toll on productivity.
A shortage of technology-savvy workers hampers the ability of companies to update computing
resources, generate and sustain growth, and take advantage of new opportunities.

8. Layoffs often affect productivity. The effect can be positive and negative. Initially, productivity
may increase after a layoff, because the workload remains the same but fewer workers do the
work—although they have to work harder and longer to do it. However, as time goes by, the
remaining workers may experience an increased risk of burnout, and they may fear additional job
cuts. The most capable workers may decide to leave.

9. Labor turnover has a negative effect on productivity; replacements need time to get up to speed.

10. Design of the workspace can impact productivity. For example, having tools and other work
items within easy reach can positively impact productivity.

11. Incentive plans that reward productivity increases can boost productivity.

Improving Productivity
1. Develop productivity measures for all operations
2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements
4. Establish reasonable goals
5. Make it clear that management supports and encourages productivity improvement
6. Measure and publicize improvements
Don’t confuse productivity with efficiency