COMPETITIVENESS, STRATEGY, ANDPRODUCTIVITY

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Intended Learning Outcomes
By the end of the learning experience, students must be able to:
1. List and briefly discuss the primary ways that business organizations compete.
2. List five reasons for the competitiveness of companies
3. Discuss how the organization strategies and operations strategies influence the
organization.
4. Compare and contrast the strategies based on quality and/or time.
5. Define the term productivity and explain why it is important to organizations and to
countries.
6. List some of the reasons affect productivity and some ways of improving it.

COMPETITIVENESS

“Competitiveness defines on how effectively an organization meets the needs of

customers relative to others that offer similar goods or services (Stevenson, 2002)”. This is an
important factor in determining whether a company prospers, barely gets by, or fail. Business
organizations compete with one another in a variety of ways. These include price, quality,
product or service differentiation, flexibility, time to perform certain activities, service, and
managers and workers.
1) Price is the amount a customer must pay for the product or service. If all other factors
are equal, customers will choose the product or service that has the lowest price.
Organizations that compete on price may settle for lower profit margins, but most
focus on lowering costs of goods or services.
2) Quality refers to materials and workmanship as well as design. Usually, it relates to a
buyer's perceptions of how well the product or service will serve its intended purpose.
3) Product or service differentiation refers to any special features (e.g., design, cost,
quality, ease of use, convenient location, warranty) that cause a product or service to
be perceived by the buyer as more suitable than a competitor's product or service.
4) Flexibility is the ability to respond to changes. The better a company or department is
at responding to changes, the greater its competitive advantage over another
company that is not as responsive. The changes might relate to increases or
decreases in volume demanded, or to changes in the design of goods or services.
5) Time refers to a number of different aspects of an organization's operations. One is
how quickly a product or service is delivered to a customer. This can be facilitated by
faster movement of information backward through the supply chain. Another is how
quickly new products or services are developed and brought to the market. Still
another is the rate at which improvements in products or processes are made.
6) Service might involve after-sale activities that are perceived by customers as value-
added, such as delivery, setup, warranty work, technical support, or extra attention
while work is in progress, such as courtesy, keeping the customer informed, and
attention to little details.
7) Managers and workers are the people at the heart and soul of an organization, and if
they are competent and motivated, they can provide a distinct competitive edge by
their skills and the ideas they create. One skill that is often overlooked is answering
the telephone. How complaint calls or requests for information are handled can be a
positive or a negative. If the person answering the call is rude, not helpful, or cuts off
the call, that can produce a negative image. Conversely, if calls are handled promptly
and cheerfully, that can produce a positive image and, potentially, a competitive
advantage.

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REASONS FOR THE POOR COMPETITIVENESS OF SOME COMPANIES

1) Lack of quality
2) Poor location
3) Slow response to changing market needs
4) Inflexibility of design or services offered
5) Unmotivated/incompetent workers and managers
2 issues that must be addressed to determine the customer expectations:
 “What do the customers want?” and “Which items on the preceding list of the
ways business organizations compete are important to customers?”
 “What is the best way to satisfy those wants?”
Operations must work with marketing to obtain information from the target market to develop
successful strategies.

STRATEGY/STRATEGIES

Strategies are plans for achieving goals.

 Strategies have a major impact on what the organization does and how it does it.
 Strategies can be long term, intermediate term, or short term.
 Effective strategies must be designed to support organization’s mission and its
goals.
An organization's mission is the reason for its existence. Organization without a clear mission is
unlikely to achieve the true success and have a little direction on formulating their strategies.

Strategies and Tactics

 Strategies provide focus for decision making.
 Overall strategies – relate to strategies of entire organization.
 Functional strategies – relate to the functional areas of organization and
support to the overall strategies of organization.
 Tactics are the methods and actions used to accomplish strategies.
 More specific than strategies
 Provide guidance and direction for carrying out actual operations.
Example 1: Rita is a high school student in Southern California. She would like to have
a career in business, have a good job, and earn enough income to live
comfortably. A possible scenario for achieving her goals might look
something like this:
Mission: Live a good life.
Goal: Successful career, good income.
Strategy: Obtain a college education.
Tactics: Select a college and a major, decide how to finance college.
Operations: Register, buy books, takes courses, study.

Operations Strategy
According to Stevenson (2002), organization strategy provides overall direction for the
organization (broad scope) and deals primarily with the operations aspect of the organization
(narrow in scope).
Operations strategy relates to products, processes, methods, operating resources,
quality, costs, lead times, and scheduling. Well-designed and executed operations strategy will
make a good chance for the organization to be successful.
On the other hand, according to Porter (2011) as cited in the book of Slack and Lewis
(2011) mentioned that operations strategy is concerned with both what the operation has to do
in order to meet current and future challenges and also is concerned with the long-term
development of its operations resources and processes to provide the basis for a sustainable
advantage.

Levels of Strategy
i. Corporate level strategy. Provides very general long –range guidance for the whole
organization, often stated as mission statement.

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 ii. Business Strategy. May be for the organization or at the strategic business unit level
in larger diversified companies.
iii. Operational or Functional Strategy. The functions of the business (e.g. operations,
marketing, and finance) make long-range plans which support the business strategy.
 Responsible in the delivery of product/service and has a major responsibility
for business strategy formulation and implementation.

Strategy Formulation (SWOT Approach)

 Must take into account the distinctive competencies of the organizations
 Must scan the environment.
 Must determine what competitors are doing, or planning to do.
 Must critically examine other factors that could have either positive or negative
effects.
Environmental scanning is the considering of events and trends that present either threats or
opportunities for the organization.
 competitors' activities; changing consumer needs; legal, economic, political, and
environmental issues; the potential for new markets (global, national, or local)
The key external environmental factors (Opportunities & Threats) are:
1. Economic conditions: general health and direction of the economy, inflation and
deflation, interest rates, tax laws, and tariffs.
2. Political conditions: favorable or unfavorable attitudes toward business, political
stability or instability, and wars.
3. Legal environment: antitrust laws, government regulations, trade restrictions,
minimum wage laws, product liability laws and recent court experience, labor laws,
and patents.
4. Technology: the rate at which product innovations are occurring, current and future
process technology (equipment, materials handling), and design technology.
5. Competition: the number and strength of competitors, the basis of competition (price,
quality, special features), and the ease of market entry.
6. Markets: size, location, brand loyalties, ease of entry, potential for growth, long-term
stability, and demographics.
The key internal environmental factors (Strengths & Weaknesses) are:
1. Human resources: the skills and abilities of managers and workers; special talents
(creativity, designing, problem solving); loyalty to the organization; expertise;
dedication; and experience.
2. Facilities and equipment: capacities, location, age, and cost to maintain or replace can
have a significant impact on operations.
3. Financial resources: cash flow, access to additional funding, existing debt burden, and
cost of capital are important considerations.
4. Customers: loyalty, existing relationships, and understanding of wants and needs are
important.
5. Products and services: existing products and services, and the potential for new
products and services.
6. Technology: existing technology, the ability to integrate new technology, and the
probable impact of technology on current and future operations.
7. Suppliers: supplier relationships, dependability of suppliers, quality, flexibility, and
service are typical considerations.
8. Other: patents, labor relations, company or product image, distribution channels,
relationships with distributors, maintenance of facilities and equipment, access to
resources, and access to markets.

Competitive Priorities
Four operations priorities or measures of these capabilities can be termed cost, time, quality
and flexibility.
1. Cost: important to maximize profits and deter competitors from entering the market.
2. Time: The delay or speed of operation can be measured as the time between a
customer request for a product/service and then receiving that product/service.
 Speed of the internal process of purchase and make will directly affect the
delivery time experienced by the customers.

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 3. Quality: covers both the quality of the product/service and the quality of the process.
 Can measured by the “cost of quality” as either of achieving good quality (the
cost of quality assurance) or the cost of poor quality products (the costs of not
conforming to specifications).
 The advantages include increased dependability, reduced costs and improved
customer service.
4. Flexibility: the ability to offer a wide variety of product/services to the customer and
to be able to change these products/services quickly.
 needed to adapt to changing customer needs in terms of product
range and varying demand.
Types of flexibility include:
a) product flexibility which is the ability to be able to quickly act in
response to changing customer needs with new product/service
designs and;
b) volume flexibility which is the ability to be able to decrease or increase
output in response to changes in demand. Volume flexibility may be
needed for seasonal changes in demand as services may have to react
to demand changes minute by minute.

QUALITY AND TIME STRATEGIES

Strategies based on quality and/or time are the two approaches are rapidly gaining favour
throughout the business world.
1. Quality-based strategies focus on maintaining or improving the quality of an
organization's products or services.
 the rule rather than the exception.
 can be part of another strategy such as cost reduction or increased
productivity, both of which benefit from higher quality.
2. Time-based strategies focus on reducing the time required to accomplish various
activities in a process.
 When time is reduced, costs are generally less, productivity is higher,
quality tends to be higher, product innovations appear on the market
sooner, and customer service is improved.
 Organizations have achieved time reduction in some of the following:
1. Planning time: The time needed to react to a competitive threat,
to develop strategies and select tactics, to approve proposed
changes to facilities, to adopt new technologies, and so on.
2. Product/service design time: The time needed to develop and
market new or redesigned products or services.
3. Processing time: The time needed to produce goods or provide
services. This can involve scheduling, repairing equipment,
wasted efforts, inventories, quality, training, and the like.
4. Changeover time: The time needed to change from producing
one type of product or service to another. This may involve new
equipment settings and attachments, different methods,
equipment, schedules, or materials.
5. Delivery time: The time needed to fill orders.
6. Response time for complaints: These might be customer
complaints about quality, timing of deliveries, and incorrect
shipments. These might also be complaints from employees
about working conditions (e.g., safety, lighting, heat or cold),
equipment problems, or quality problems.

PRODUCTIVITY

Productivity is an index that measures output (goods and services) relative to the input (labor,
materials, energy, and other resources) used to produce them (Stevenson, 2002). It is usually
expressed as the ration of output to input:

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 Productivity =
Productivity is defined in terms of utilization of resources, like material and labour. In simple
terms, productivity is the ratio of output to input (Kumar and Suresh, 2009).
Productivity can be improved by:
3. controlling inputs
4. improving process
5. by improvement of technology.
Productivity can be measured at firm level, at industry level, at national level and at international
level.
Implications of productivity for the organization and for entire nations:
 For non-profit organizations, higher productivity means lower costs; for profit-based
organizations, productivity is an important factor in determining how competitive a
company is.
 For a nation, the rate of productivity growth is of great importance. Productivity
growth is the increase in productivity from one period to the next relative to the
productivity in the preceding period.
Productivity Growth =
For example, if productivity increased from 80 to 84, the growth rate would be:
= 0.05 or 5%
Productivity growth is a key factor in a country's rate of inflation and the standard
of living of its people.

Computing Productivity
Productivity measures can be based on a single input (partial productivity), on more
than one input (multifactor productivity), or on all inputs (total productivity). The units of
output used in productivity measures depend on the type of job performed.

The following are examples of labor productivity:

Yards of Carpet Installed per labor hour =

Number of Offices Cleaned per Shift =

Board Feet of Lumber Cut per Week =

Some examples of different types of productivity measures:

 Partial Measures =

 Multifactor Measures =

 Total measures =

Some examples of partial productivity measures:

 Labor Productivity
- Units of output per labor
- Units of output per shift
- Value-added per labor hour
- Peso value of output per labor hour
 Machine Productivity
- Units of output per machine hour
- Peso value of output per machine hour
 Capital Productivity
- Units of output per peso input
- Peso value of output per peso input
 Energy Productivity
- Units of output per kilowatt-hour

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 - Peso value of output per kilowatt-hour

Sample Problem 2.1: Determine the productivity for these cases:

a) Four workers installed 720 square yards of carpeting in eight hours.
b) A machine produced 68 usable pieces in two hours.
Solution:
a. Productivity =

= = = 22. 5 yards/hour

b. Productivity = = = 34 pieces/hour

Sample Problem 2.2: Determine the multifactor productivity for the combined input of labor
and machine time using the following data:
Output: 7, 040 units
Input:
- Labor ₱1,000
- Materials ₱520
- Overhead ₱2,000
Solution:
Multifactor Productivity =

= = 2 units/peso

FACTORS AFFECTING PRODUCTIVITY

Some of the principle factors influencing productivity rate are:

a. Capital/labour ratio: It is a measure of whether enough investment is being made in
plant, machinery, and tools to make effective use of labour hours.
b. Scarcity of some resources: Resources such as energy, water and number of metals will
create productivity problems.
c. Work-force changes: Change in work-force effect productivity to a larger extent,
because of the labour turnover.
d. Innovations and technology: This is the major cause of increasing productivity.
e. Regulatory effects: These impose substantial constraints on some firms, which lead to
change in productivity.
f. Bargaining power: Bargaining power of organized labour to command wage increases
excess of output increases has had a detrimental effect on productivity.
g. Managerial factors: Managerial factors are the ways an organization benefits from the
unique planning and managerial skills of its manager.
h. Quality of work life: It is a term that describes the organizational culture, and the
extent to which it motivates and satisfies employees.

IMPROVING PRODUCTIVITY

a. Develop productivity measures for all operations.

b. Look at the system as a whole in deciding which operations are most critical.
c. Develop methods for achieving productivity improvements, such as soliciting ideas
from workers, studying how other firms have increased productivity, and re-examining
the way work is done.
d. Establish reasonable goals for improvement.
e. Management should supports and encourages productivity improvement.
f. Consider incentives to reward workers for contributions.
g. Measure improvements and publicize them.

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“Efficiency is a narrower concept that pertains to getting the most out of affixed set of
resources; while productivity is a broader concept that pertains to effective use of overall
resources.”

References
Stevenson, W.J. 2012. Operations Management. McGraw-Hill Companies Inc. New York, 11th
Edition
Stevenson, W.J. 2002. Operations Management. McGraw-Hill Companies Inc. New York, 7th
Edition
Porter, A. 2011. Operations Management. Albert Porter & Ventus Publishing ApS
Bhat, S.L. 2011. Production and Operations Management. 1st Edition. Himalaya Publishing
House Pvt. Ltd.
Kumar, A. S. & Suresh, N. 2009. Operations Management. New Age International (P) Limited,
Publishers. New Delhi.

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