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Competitiveness, Strategy, and Productivity
2 Competitiveness, Strategy, and Productivity
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Learning Objectives List and briefly discuss the primary ways that business organizations compete. List five reasons for the poor competitiveness of some companies. Define the term strategy and explain why strategy is important for competitiveness. Contrast strategy and tactics.
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Learning Objectives Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two. Describe and give examples of time-based strategies. Define the term productivity and explain why it is important to organizations and to countries. List some of the reasons for poor productivity and some ways of improving it.
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Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services
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Businesses Compete Using Marketing
Identifying consumer wants and needs Pricing Advertising and promotion
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Businesses Compete Using Operations
Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service and service quality Managers and workers
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Why Some Organizations Fail
Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Neglecting operations strategy Failing to recognize competitive threats
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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
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Mission/Strategy/Tactics
How does mission, strategies and tactics relate to decision making and distinctive competencies?
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Strategy Mission Mission Statement Goals Strategies Tactics
The reason for existence for an organization Mission Statement States the purpose of an organization Goals Provide detail and scope of mission Strategies Plans for achieving organizational goals Tactics The methods and actions taken to accomplish strategies
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Planning and Decision Making
Figure 2.1 Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating procedures
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Strategy Example Mission: Live a good life
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
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Class Exercise Set your mission & fill in the table: Mission: Goal:
Strategy: Tactics: Operations:
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Mission vs. Vision Organizations sometimes summarize goals and objectives into a mission statement and / or a vision statement: A Definition of Vision in a dictionary: 'An Image of the future we seek to create'. A vision statement describes in graphic terms where the goal-setters want to see themselves in the future. It may describe how they see events unfolding over 10 or 20 years if everything goes exactly as hoped. A definition of Mission in a dictionary: purpose, reason for being; also, an inner calling to pursue an activity or perform a service. Many people mistake vision statement for mission statement. The Vision describes a future identity and the Mission describes how it will be achieved. A Mission statement may define the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future state. Vision is related to some form of achievement if successful. For example, "We help transport goods and people efficiently and cost effectively without damaging environment" is a mission statement. Ford's brief but powerful slogan "Quality is Job 1" could count as a mission statement. "We will be one amongst the top three transporters of goods and people in North America by 2010" is a vision statement. It is very concrete and unambiguous goal.
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Examples of Strategies
Low cost Scale-based strategies Specialization Flexible operations High quality Service
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Strategy and Tactics Distinctive Competencies Strategy Factors
The special attributes or abilities that give an organization a competitive edge. Strategy Factors Price Quality Time Flexibility Service Location
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Examples of Operations Strategies
Table 2.2 Banks, ATMs Convenience Location Disneyland Nordstroms Superior customer service Service Burger King Supermarkets Variety Volume Flexibility Express Mail, Fedex, One-hour photo, UPS Rapid delivery On-time delivery Time Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola High-performance design or high quality Consistent quality Quality U.S. first-class postage Motel-6, Red Roof Inns Low Cost Price
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Global Strategy Strategic decisions must be made with respect to globalization What works in one country may not work in another Strategies must be changed to account for these differences Other issues Political, social, cultural, and economic differences
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Strategy Formulation Distinctive competencies Environmental scanning
SWOT Order qualifiers Order winners
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Strategy Formulation Order qualifiers Order winners
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
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Key External Factors Economic conditions Political conditions
Legal environment Technology Competition Markets
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Key Internal Factors Human Resources Facilities and equipment
Financial resources Customers Products and services Technology Suppliers
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Operations Strategy Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.
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Strategic OM Decisions
Table 2.4 Decision Area Affects Product and service design Costs, quality liability and environmental Capacity Cost structure, flexibility Process selection and layout Costs, flexibility, skill level, capacity Work design Quality of work life, employee safety, productivity Location Costs, visibility Quality Ability to meet or exceed customer expectations Inventory Costs, shortages Maintenance Costs, equipment reliability, productivity Scheduling Flexibility, efficiency Supply chains Costs, quality, agility, shortages, vendor relations Projects Costs, new products, services, or operating systems
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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
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Time-based Strategies
JAN FEB MAR APR MAY JUN Planning Processing Changeover On time! Designing Delivery
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Productivity Productivity Productivity ratios are used for
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
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Productivity Productiv ity = Outputs Inputs Partial measures
output/(single input) Multi-factor measures output/(multiple inputs) Total measure output/(total inputs) Productiv ity = Outputs Inputs
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Productivity Growth Productivity Growth =
Current Period Productivity – Previous Period Productivity Previous Period Productivity
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Measures of Productivity
Table 2.4 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
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Examples of Partial Productivity Measures
Table 2.5 Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity
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Example 3 7040 Units Produced Cost of labor of $1,000
Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity?
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Example 3 Solution MFP = Output Labor + Materials + Overhead MFP =
MFP = units per dollar of input
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Process Yield Process yield is the ratio of output of good product to total production. Defective product is not included in the output. Service example: Ratio of cars rented to cars available to rent
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Factors Affecting Productivity
Capital Quality Technology Management
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Other Factors Affecting Productivity
Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers
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Other Factors Affecting Productivity
Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity
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Outsourcing Higher productivity in another company is a key reason organizations outsource work Improving productivity may reduce the need for outsourcing
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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!
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Quiz 1 Write down four factors that affects productivity?
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Quiz 1 2040 Units Produced Labor: 100 employees
Cost of materials: $520 Cost of overhead: $1000 What is the Labor productivity?
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