McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

22

Competitiveness, Strategy, and Productivity

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Learning ObjectivesLearning 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 ObjectivesLearning 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: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 Businesses Compete Using MarketingMarketing

Identifying consumer wants and needs Pricing Advertising and promotion

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Businesses Compete Using Businesses Compete Using OperationsOperations

Product and service design Cost Location Quality Quick response

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Businesses Compete Using Businesses Compete Using OperationsOperations

Flexibility Inventory management Supply chain management Service and service quality Managers and workers

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Why Some Organizations FailWhy 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 FailWhy 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/TacticsMission/Strategy/Tactics

How does mission, strategies and tactics relate todecision making and distinctive competencies?

StrategyStrategy TacticsTacticsMissionMission

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StrategyStrategy Mission

The reason for existence for an organization

Mission Statement States the purpose of an organization

Goals Provide detail and scope of mission

StrategiesPlans for achieving organizational goals

Tactics The methods and actions taken to accomplish strategies

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Planning and Decision MakingPlanning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Figure 2.1

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Strategy ExampleStrategy 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

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Examples of StrategiesExamples of Strategies Low cost Scale-based strategies Specialization Flexible operations High quality Service

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Strategy and TacticsStrategy and Tactics Distinctive Competencies

The special attributes or abilities that give anorganization a competitive edge.

Strategy Factors Price Quality Time Flexibility Service Location

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Banks, ATMsConvenienceLocationLocation

DisneylandNordstroms

Superior customer service

ServiceService

Burger KingSupermarkets

VarietyVolume

FlexibilityFlexibility

Express Mail, Fedex,One-hour photo, UPS

Rapid deliveryOn-time delivery

TimeTime

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or high quality Consistent quality

QualityQuality

U.S. first-class postageMotel-6, Red Roof Inns

Low CostPricePrice

Examples of Operations StrategiesExamples of Operations StrategiesTable 2.2

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Global StrategyGlobal 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 FormulationStrategy Formulation Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners

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Strategy FormulationStrategy 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

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Economic conditions Political conditions Legal environment Technology Competition Markets

Key External FactorsKey External Factors

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Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers

Key Internal FactorsKey Internal Factors

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Operations StrategyOperations Strategy Operations strategy – The approach,

consistent with organization strategy, that is used to guide the operations function.

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Strategic OM DecisionsStrategic OM Decisions

Decision Area AffectsProduct 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

Table 2.4

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Quality and Time StrategiesQuality 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 StrategiesTime-based Strategies

JAN FEB MAR APR MAY JUN

Planning

Processing

Changeover On time!

Designing

Delivery

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ProductivityProductivity 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

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ProductivityProductivity

Partial measures output/(single input)

Multi-factor measures output/(multiple inputs)

Total measure output/(total inputs)

Productivity = OutputsInputs

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Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

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Measures of ProductivityMeasures of ProductivityTable 2.4

Partial Output Output Output Outputmeasures Labor Machine Capital Energy

Multifactor Output Outputmeasures Labor + Machine Labor + Capital + Energy

Total Goods or Services Producedmeasure All inputs used to produce them

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Units of output per kilowatt-hourDollar value of output per kilowatt-hour

Energy Productivity

Units of output per dollar inputDollar value of output per dollar input

Capital Productivity

Units of output per machine hourmachine hour

Machine Productivity

Units of output per labor hourUnits of output per shiftValue-added per labor hour

Labor Productivity

Examples of Partial Productivity Examples of Partial Productivity MeasuresMeasures

Table 2.5

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Example 3Example 3

7040 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

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Example 3 SolutionExample 3 Solution

MFP = OutputLabor + Materials + Overhead

MFP = (7040 units)$1000 + $520 + $2000

MFP = 2.0 units per dollar of input

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Process YieldProcess 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

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Factors Affecting ProductivityFactors Affecting Productivity

Capital Quality

Technology Management

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Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers

Other Factors Affecting ProductivityOther Factors Affecting Productivity

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Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity

Other Factors Affecting ProductivityOther Factors Affecting Productivity

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OutsourcingOutsourcing

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 ProductivityImproving 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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Video: Process StrategyVideo: Process Strategy

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Video: Compet. AnalysisVideo: Compet. Analysis