2-1 Competitiveness, Strategy, and Productivity

CHAPTER
2

Competitiveness, Strategy,
and Productivity

McGraw-Hill/Irwin
2-2 Competitiveness, Strategy, and Productivity
2-3 Competitiveness, Strategy, and Productivity

2.2. Competitiveness
Competitiveness:

How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services
2-4 Competitiveness, Strategy, and Productivity

Businesses Compete Using Marketing

 Identifying consumer wants and needs

 Pricing

 Advertising and promotion

2-5 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Product and service design

 Cost
 Location
 Quality
 Quick response
2-6 Competitiveness, Strategy, and Productivity

Businesses Compete Using Operations

 Flexibility
 Inventory management

 Supply chain management

 Service

 Managers and Workers

2-7 Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

 Too much emphasis on short-term financial

performance
 Failing to take advantage of strengths and
opportunities
 Failing to recognize competitive threats

 Neglecting operations strategy

2-8 Competitiveness, Strategy, and Productivity

Why Some Organizations Fail

 Too much emphasis in product and service

design and not enough on improvement
 Neglecting investments in capital and human
resources
 Failing to establish good internal
communications
 Failing to consider customer wants and needs
2-9 Competitiveness, Strategy, and Productivity

2.3. Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?
2-10 Competitiveness, Strategy, and Productivity

Strategy
 Strategies
 Plans for achieving organizational goals
 Mission
 The reason for existence for an organization
 Mission Statement
 Answers the question “What business are we in?”
 Goals
 Provide detail and scope of mission
 Tactics
 The methods and actions taken to accomplish strategies
2-11 Competitiveness, Strategy, and Productivity

Strategy Example
Example 1
Rita is a high school student. She would like to have a
career in business, have a good job, and earn enough
income to live comfortably
Mission: Live a good life
 Goal: Successful career, good income
 Strategy: Obtain a college education
 Tactics: Select a college and a major
 Operations: Register, buy books, take
courses, study, graduate, get job
2-12 Competitiveness, Strategy, and Productivity

Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures
2-13 Competitiveness, Strategy, and Productivity

Strategy and Tactics

 Distinctive (Core) Competencies

The special attributes or abilities that give an
organization a competitive edge.
 Price
 Quality
 Time
 Flexibility
 Service
 Location
2-14 Competitiveness, Strategy, and Productivity

Examples of Distinctive Competencies

Price Low Cost U.S. first-class postage

Motel-6, Red Roof Inns

Quality High-performance design Sony

or high quality Consistent Lexus, Cadillac
quality iPhone, Toyota

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Nordstroms

Location Convenience Banks, ATMs

2-15 Competitiveness, Strategy, and Productivity

Examples of Strategies

 Low cost
 Scale-based strategies

 Specialization

 Flexible operations

 High quality

 Service
2-16 Competitiveness, Strategy, and Productivity

Strategy Formulation

 Order qualifiers
 Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
 Order winners
 Characteristics of an organization’s goods or
services that cause it to be perceived as better
than the competition
2-17 Competitiveness, Strategy, and Productivity

Strategy Formulation

 Distinctive competencies
 Environmental scanning
 SWOT
 Order qualifiers
 Order winners
2-18 Competitiveness, Strategy, and Productivity

Key External Factors

 Economic conditions
 Political conditions

 Legal environment

 Technology

 Competition

 Markets
2-19 Competitiveness, Strategy, and Productivity

Key Internal Factors

 Human Resources
 Facilities and equipment

 Financial resources

 Customers

 Products and services

 Technology

 Suppliers
2-20 Competitiveness, Strategy, and Productivity

Other Strategies

 Supply Chain Strategy

 Specifies how the supply chain should function to
achieve supply chain goals.
 Sustainability strategies
 elevating sustainability to the level of organizational
governance; formulating goals for products and
services, for processes, and for the entire supply chain;
measuring achievements and striving for
improvements; and possibly linking executive
compensation to the achievement of sustainability
goals
2-21 Competitiveness, Strategy, and Productivity

Other Strategies

 Global Strategy
 Many International companies
realized that strategic decisions
with respect to globalization must
be made
2-22 Competitiveness, Strategy, and Productivity

Quality and Time Strategies

 Quality-based strategies
 Focuses on maintaining or
improving the quality of an
organization’s products or
services
 Quality at the source

 Time-based strategies
 Focuses on reduction of time
needed to accomplish tasks
2-23 Competitiveness, Strategy, and Productivity

Time-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery

In addition to Response time for complaints

2-24 Competitiveness, Strategy, and Productivity

2.4 OPERATIONS STRATEGY

Operations strategy – The

approach, consistent with
organization strategy, that
is used to guide the
operations function.
Table 2.2 - 47
2-25 Competitiveness, Strategy, and Productivity
2-26 Competitiveness, Strategy, and Productivity

TABLE 2.4: Strategic operations management decisions

2-27 Competitiveness, Strategy, and Productivity
2.5 IMPLICATIONS OF ORGANIZATION STRATEGY FOR
OPERATIONS MANAGEMENT
 2-28 Competitiveness, Strategy, and Productivity

2.6
TRANSFORMIN
G STRATEGY
INTO ACTION:
THE
BALANCED
SCORECARD

1. it is important to note that it

has no role in strategy formulation

2. this approach pays little

attention to suppliers and
government regulations, and
community, environmental, and
sustainability issues are missing.
2-29 Competitiveness, Strategy, and Productivity

Balanced scorecard factors Examples

2-30 Competitiveness, Strategy, and Productivity

Productivity

 Productivity
 A measure of the effective use of resources,
usually expressed as the ratio of output to input
 Productivity ratios are used for
 Planning workforce requirements
 Scheduling equipment

 Financial analysis
2-31 Competitiveness, Strategy, and Productivity

Productivity

 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)
Outputs
Productivity =
Inputs
2-32 Competitiveness, Strategy, and Productivity

Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
2-33 Competitiveness, Strategy, and Productivity

Measures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them
2-34 Competitiveness, Strategy, and Productivity

Examples of Partial Productivity Measures

Labor Units of output per labor hour

Units of output per shift
Productivity Value-added per labor hour

Machine Units of output per machine hour

Productivity

Capital Units of output per dollar input

Dollar value of output per dollar input
Productivity

Energy Units of output per kilowatt-hour

Dollar value of output per kilowatt-hour
Productivity
2-35 Competitiveness, Strategy, and Productivity

Example 3

7040 Units Produced

Sold for $1.10/unit

Cost of labor of $1,000 What is the

multifactor
Cost of materials: $520 productivity?

Cost of overhead: $2000 Ans. 2.20

2-36 Competitiveness, Strategy, and Productivity

Example 3 Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)*($1.10)

$1000 + $520 + $2000

MFP = 2.20
2-37 Competitiveness, Strategy, and Productivity

Productivity in the Service Sector

Service productivity is
more problematic than
manufacturing productivity
2-38 Competitiveness, Strategy, and Productivity

Factors Affecting Productivity

Capital Quality

Technology Management
2-39 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

 Standardization
 Quality Differences

 Use of Internet

 Computer viruses

 Searching for lost or misplaced items

 Scrap rates

 New workers
2-40 Competitiveness, Strategy, and Productivity

Other Factors Affecting Productivity

 Safety
 Shortage of IT workers

 Layoffs

 Labor turnover

 Design of the workspace

 Incentive plans that reward productivity

2-41 Competitiveness, Strategy, and Productivity

Bottleneck Operation
Figure 2.3

10/hr
Machine
Machine #1
#1

10/hr
Machine
Machine #2
#2 Bottleneck
Bottleneck 30/hr
Operation
Operation
Machine
Machine #3
#3 10/hr

Machine
Machine #4
#4 10/hr
2-42 Competitiveness, Strategy, and Productivity

Improving Productivity

 Develop productivity measures

 Determine critical (bottleneck) operations

 Develop methods for productivity

improvements
 Establish reasonable goals

 Get management support

 Measure and publicize improvements

 Don’t confuse productivity with efficiency