1. Competitiveness, Strategy, and Productivity
Chapter 2
Competitiveness, Strategy, and Productivity

2. the bar is getting higher
A Cold Hard Fact
Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever and…
the bar is getting higher
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3. Competitiveness
Companies must be competitive to sell their goods and services in the marketplace.
Competitiveness is an important factor in determining whether a company prospers, barely gets by, or fails.

4. Business organizations compete through some combination of their marketing and operations functions. Marketing influences competitiveness in several ways, including identifying consumer wants and needs, pricing, and advertising and promotion.

5. Operations has a major influence on competitiveness through product and service design, cost, location, quality, response time, flexibility, inventory and supply chain management, and service. Many of these are interrelated.

6. Why Some Organizations Fail
Organizations fail, or perform poorly, for a variety of reasons. Being aware of those reasons can help managers avoid making similar mistakes. Among the main reasons are the following:
Neglecting operations strategy
Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats
Putting too much emphasis on short-term financial performance at the expense of research and development

7. Why Some Organizations Fail (cont’n)
Placing too much emphasis on product and service design and not enough on process design and improvement.
Neglecting investments in capital and human resources.
Failing to establish good internal communications and cooperation among different functional areas.
Failing to consider customer wants and needs.

8. Mission and Strategies
An organization’s mission is the reason for existence. It is expressed in its mission statement. A mission statement serves as the basis for organizational goals, which provide more detail and describe the scope of the mission.
Goals serves as a foundation for the development of organizational strategies. Organizational strategy is important because it guides the organization by providing direction for, and alignment of, the goals and strategies of the functional units.

9. Three Basic Business Strategies
LOW COST
RESPONSIVENESS
DIFFERENTIATION

10. Strategies and Tactics
Strategies provide focus for decision making.
Organizations have organizational strategies and functional strategies.
Tactics are the methods and actions used to accomplish strategies. They are more specific than strategies.

12. Walmart discovered that when it opened stores in Japan
Walmart discovered that when it opened stores in Japan. Although Walmart thrived in many countries on its reputation for low- cost items, Japanese consumers associated low cost with low quality, causing Walmart to rethink its strategy in the Japanese market.
Strategy formulation is almost always critical to the success of a strategy.

13. Many felt that Hewlett- Packard(HP) committed a strategic error when it acquired Compaq Computers at a cost of $19 billion. HP’s share of the computer market was less after the merger than the sum of the shares of the separate companies before the merger.

14. Long known for its highly durable leather goods in a market where women typically owned few handbags, Coach created a new market for itself by changing women’s view of handbags by promoting “different handbags for different occasions” such as party bags, totes, clutches, wristlets, overnight bags, purses, and day bags. And Coach introduced many fashion styles and colors.

15. To formulate an effective strategy, senior managers must take into account the core competencies of the organizations, and they must scan the environment. They must determine what competitors are doing, or planning to do, and take that into account. They must critically examine other factors that could have either positive or negative effects. This is sometimes referred to as the SWOT approach (strengths, weaknesses, opportunities, and threats).

16. In formulating a successful strategy, organizations must take into account both order qualifiers and order winners. Order qualifiers are those characteristics that potential customers perceive as minimum standards of acceptability for a product to be considered for purchase. However, that may not be sufficient to get a potential customer to purchase from the organization. Order winners are those characteristics of an organization’s goods or services that cause them to be perceived as better than the competition.

17. Operations Strategy
The organization strategy provides the overall direction for the organization. It is broad in scope, covering the entire organization. Operations strategy is narrower in scope, dealing primarily with the operations aspect of the organization. Operations strategy relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling.

18. Strategic Operations Management Decision Areas

20. Productivity measures are useful for
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
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21. Why Productivity Matters
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
Higher productivity relative to the competition leads to competitive advantage in the marketplace
Pricing and profit effects
For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry 21

22. Productivity Measures22

23. Productivity Calculation Example
Units produced: 5,000
Standard price: $35/unit
Labor input: 500 hours
Cost of labor of $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
What is the
multifactor productivity? 23

24. Solution 24

25. U.S. Multifactor Productivity (1976 – 2010)
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Instructor Slides

26. Productivity Growth
Example: Labor productivity on the ABC assembly line was 25 units per hour in In 2007, labor productivity was 23 units per hour. What was the productivity growth from 2006 to 2007? 26

27. 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.
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Instructor Slides

28. Factors Affecting Productivity
Methods
Capital
Quality
Technology
Management
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29. Improving Productivity
Develop productivity measures for all operations
Determine critical (bottleneck) operations
Develop methods for productivity improvements
Establish reasonable goals
Make it clear that management supports and encourages productivity improvement
Measure and publicize improvements
Don’t confuse productivity with efficiency 29

30. 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?

31. Businesses Compete Using Operations
Product and service design
Cost
Location
Quality
Responsiveness
Flexibility
Inventory management
Supply chain management
Service
Managers and workers

32. Sample Strategies Organizational Strategy Operations Strategy
Examples of Companies or Services
Low Price
Low Cost
U.S. first-class postage
Wal-Mart
High Quality
High performance design and/or high quality processing
Consistent Quality
Sony TV
Lexus
Coca-Cola; electric power
Short Time
Quick Response
On-time delivery
McDonald’s Restaurants
Express mail
FedEx; One-hour photo
Newness
Innovation 3M
Variety
Flexibility
Volume
Burger King (Have it your way”)
McDonald’s (“Buses Welcome”)
Service
Superior customer service
Disneyland
IBM
Location
Convenience
Supermarkets
Mall Stores

33. Quality-Based Strategies
Quality-based strategy
Strategy that 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
Instructor Slides
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34. Time-Based Strategies
Strategies that 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
Instructor Slides
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35. Time-Based Strategies
Areas where organizations have achieved time reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
Instructor Slides
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36. Agile Operations Agile operations
A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change
Involves the blending of several core competencies:
Cost
Quality
Reliability
Flexibility
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Instructor Slides