McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 2 Competitiveness, Strategy, and Productivity

2-2 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.

2-3 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.

2-4 Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

2-5 Businesses Compete Using Marketing  Identifying consumer wants and needs  Pricing  Advertising and promotion

2-6 Businesses Compete Using Operations  Product and service design  Cost  Location  Quality  Quick response

2-7 Businesses Compete Using Operations  Flexibility  Inventory management  Supply chain management  Service and service quality  Managers and workers

2-8 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

2-9 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

2-10 Mission/Strategy/Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies? StrategyTacticsMission

2-11 Strategy  Mission  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

2-12 Planning and Decision Making Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Operating procedures Figure 2.1

2-13 Strategy Example 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 Example 1

2-14 Examples of Strategies  Low cost  Scale-based strategies  Specialization  Flexible operations  High quality  Service

2-15 Strategy and Tactics  Distinctive Competencies The special attributes or abilities that give an organization a competitive edge.  Strategy Factors  Price  Quality  Time  Flexibility  Service  Location

2-16 Banks, ATMsConvenienceLocation Disneyland Nordstroms Superior customer serviceService Burger King Supermarkets Variety VolumeFlexibility 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 qualityQuality U.S. first-class postage Motel-6, Red Roof Inns Low CostPrice Examples of Operations Strategies Table 2.2

2-17 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

2-18 Strategy Formulation  Distinctive competencies  Environmental scanning  SWOT  Order qualifiers  Order winners

2-19 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

2-20  Economic conditions  Political conditions  Legal environment  Technology  Competition  Markets Key External Factors

2-21  Human Resources  Facilities and equipment  Financial resources  Customers  Products and services  Technology  Suppliers Key Internal Factors

2-22 Operations Strategy  Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.

2-23 Strategic OM Decisions Decision AreaAffects Product and service designCosts, quality liability and environmental CapacityCost structure, flexibility Process selection and layoutCosts, flexibility, skill level, capacity Work designQuality of work life, employee safety, productivity LocationCosts, visibility QualityAbility to meet or exceed customer expectations InventoryCosts, shortages MaintenanceCosts, equipment reliability, productivity SchedulingFlexibility, efficiency Supply chainsCosts, quality, agility, shortages, vendor relations ProjectsCosts, new products, services, or operating systems Table 2.4

2-24 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

2-25 Time-based Strategies JANFEBMARAPRMAYJUN Planning Processing Changeover On time! Designing Delivery

2-26 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

2-27 Productivity  Partial measures  output/(single input)  Multi-factor measures  output/(multiple inputs)  Total measure  output/(total inputs) Productivity= Outputs Inputs

2-28 Productivity Growth Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity Growth =

2-29 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

2-30 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 Examples of Partial Productivity Measures Table 2.5

2-31 Example Units Produced Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.0 units per dollar of input

2-32 Example 3 Solution MFP =Output Labor + Materials + Overhead MFP =(7040 units) $ $520 + $2000 MFP =2.0 units per dollar of input

2-33 Process Yield  Process yield is the ratio of output of good product to input  Defective product is not included in the output  Service example:  Ratio of cars rented to cars available to rent

2-34 Factors Affecting Productivity CapitalQuality TechnologyManagement

2-35  Standardization  Quality  Use of Internet  Computer viruses  Searching for lost or misplaced items  Scrap rates  New workers Other Factors Affecting Productivity

2-36  Safety  Shortage of IT workers  Layoffs  Labor turnover  Design of the workspace  Incentive plans that reward productivity Other Factors Affecting Productivity

2-37 Outsourcing  Higher productivity in another company is a key reason organizations outsource work  Improving productivity may reduce the need for outsourcing

2-38 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