Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

Competitiveness, Strategy, and Productivity

Chapter 2

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2: Learning ObjectivesYou should be able to:

1. List the three primary ways that business organizations compete

2. Explain five reasons for the poor competitiveness of some companies

3. Define the term strategy and explain why strategy is important4. Discuss and compare organization strategy and operations

strategy, and explain why it is important to link the two5. Describe and give examples of time-based strategies6. Define the term productivity and explain why it is important to

organizations and countries7. Provide some reasons for poor productivity and some ways of

improving it

Instructor Slides 2-2

“Hazel”, page 381. In what ways are Hazel’s customers likely to

judge the quality of her lawn care services?2. Hazel is the operations manager of her

business. Among her responsibilities are forecasting, inventory management, scheduling, quality assurance, and maintenance.

a) What kinds of things would likely require a forecast?b) What inventory items does Hazel probably have?c) What scheduling must she do? What things might occur to

disrupt schedules and cause Hazel to reschedule?d) How important is quality assurance to her business?e) What kinds of maintenance must be performed?

3. All managers have to cope with variation.a) What are the major sources of variation that Hazel has to contend

with? b) How might these sources of variation impact Hazel’s inability to

match supply to demand?

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


Chapter FocusThis chapter focuses on three separate, but

related that are vitally important to business organizationsCompetitivenessStrategyProductivity


CompetitivenessCompetitiveness:

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?


Marketing’s InfluenceIdentifying consumer wants and/or needsPricingAdvertising and promotion


Businesses Compete Using Operations

1. Product and service design2. Cost3. Location4. Quality5. Quick response6. Flexibility7. Inventory management8. Supply chain management9. Service10. Managers and workers


Why Some Organizations Fail

1. Neglecting operations strategy 2. Failing to take advantage of strengths and

opportunities and/or failing to recognize competitive threats

3. Too much emphasis on short-term financial performance at the expense of R&D

4. Too much emphasis in product and service design and not enough on process design and improvement

5. Neglecting investments in capital and human resources

6. Failing to establish good internal communications and cooperation

7. Failing to consider customer wants and needsInstructor Slides 2-9

Hierarchical Planning

Mission

Goals

Organizational Strategies

Tactics

Functional Strategies


Mission The reason for an organization’s existence

Goals Provide detail and the scope of the mission

Goals can be viewed as organizational destinationsStrategy

A plan for achieving organizational goalsServes as a roadmap for reaching the organizational

destinations

Mission, Goals, and Strategy


MissionMission

The reason for an organization’s existenceMission statement

States the purpose of the organizationThe mission statement should answer the

question of “What business are we in?”


Fed Ex Mission Statement FedEx Corporation will produce superior financial returns

for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.http://ir.fedex.com/documentdisplay.cfm?DocumentID=125


http://ir.fedex.com/documentdisplay.cfm?DocumentID=125

GoalsThe mission statement serves as the

basis for organizational goalsGoals

Provide detail and the scope of the missionGoals can be viewed as organizational destinations

Goals serve as the basis for organizational strategies


StrategiesStrategy

A plan for achieving organizational goalsServes as a roadmap for reaching the organizational

destinations Organizations have

Organizational strategiesOverall strategies that relate to the entire organizationSupport the achievement of organizational goals and

missionFunctional level strategies

Strategies that relate to each of the functional areas and that support achievement of the organizational strategy


Tactics and OperationsTactics

The methods and actions taken to accomplish strategies

The “how to” part of the processOperations

The actual “doing” part of the process


Core CompetenciesCore Competencies

The special attributes or abilities that give anorganization a competitive edge

To be effective core competencies and strategies need to be aligned


Organizational Strategy Operations Strategy Examples of Companies or Services

Low Price Low Cost U.S. first-class postage

Wal-Mart

Responsiveness Short processing times

On-time delivery

McDonald’s restaurants

FedEx

Differentiation:High Quality

High performance design and/or high quality processing

Consistent Quality

Sony TV

Coca-Cola

Differentiation:Newness

Innovation 3M, Apple

Differentiation:Variety

Flexibility

Volume

Burger King (Have it your way”)

McDonald’s (“Buses Welcome”)

Differentiation:Service

Superior customer service Disneyland

IBM

Differentiation:Location

Convenience Supermarkets; Mall Stores

Sample Operations Strategies


Strategy FormulationEffective strategy formulation requires

taking into account:Core competenciesEnvironmental scanning

SWOTSuccessful strategy formulation also

requires taking into account:Order qualifiersOrder winners


Strategy FormulationOrder qualifiers

Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase

Order winnersCharacteristics of an organization’s goods

or services that cause it to be perceived as better than the competition


Environmental ScanningEnvironmental Scanning is

necessary to identifyInternal Factors

Strengths and WeaknessesExternal Factors

Opportunities and Threats


Key External Factors

1. Economic conditions2. Political conditions3. Legal environment4. Technology5. Competition6. Markets


Key Internal Factors

1. Human Resources2. Facilities and equipment3. Financial resources4. Customers5. Products and services6. Technology7. Suppliers8. Other


Operations strategy The approach, consistent with organization strategy, that is

used to guide the operations function.

Operations Strategy

Decision Area What the Decisions Affect

Product and service design Costs, quality, liability, and environmental issues

Capacity Cost, structure, flexibility

Process selection and layout

Costs, flexibility, skill level needed, 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


Quality-Based StrategiesQuality-based strategy

Strategy that focuses on quality in all phases of an organizationPursuit of such a strategy is rooted in a number of

factors:Trying to overcome a poor quality reputationDesire to maintain a quality imageA desire to catch up with the competitionA part of a cost reduction strategy


Time-Based StrategiesTime-based strategies

Strategies that focus on the reduction of time needed to accomplish tasksIt 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


Time-Based StrategiesAreas where organizations have

achieved time reductions:Planning timeProduct/service design timeProcessing timeChangeover timeDelivery timeResponse time for complaints


Agile OperationsAgile operations

A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of changeInvolves the blending of several core competencies:

CostQualityReliabilityFlexibility


PRODUCTIVITY

Instructor Slides 29

ProductivityProductivity

A measure of the effective use of resources, usually expressed as the ratio of output to input

Productivity measures are useful forTracking an operating unit’s performance over

timeJudging the performance of an entire industry

or country


Why Productivity MattersHigh 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


Productivity Measures

Partial Measures Output

Single Input;

Ouput

Labor;

Output

Capital

Multifactor Measures Output

Multiple Inputs;

Ouput

Labor +Machine;

Output

Labor +Capital +Energy

Total Measure Goods or services produced

All inputs used to produce them

Input

Output=tyProductivi


What is the multifactorproductivity?

Productivity Calculation Example

Units produced: 5,000 Standard price: $30/unitLabor input: 500 hoursCost of labor: $25/hourCost of materials: $5,000Cost of overhead: 2x labor cost


Solution

Multifactor Productivity =Output

Labor +Material +Overhead

$25/hour))hours (2(500+$5,000+$25/hour)hours (500

$30/unitunits 5,000=

3.5294=

What is the implication of an unitless measure of productivity?

500,42$

$150,000=


What is output had only been measured in units? 5,000 units? What is the multifactor productivity? How do you interpret it?

U.S. Multifactor Productivity(1976 – 2010)


Productivity Growth

Productivity Growth = Current productivity - Previous productivity

Previous productivity100%

Productivity Growth = 23 - 25

25100% 8%

Example: Labor productivity on the ABC assembly line was 25 units per hour in 2009. In 2010, labor productivity was 23 units per hour. What was the productivity growth from 2009 to 2010?


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 yieldWhere 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.

Service Sector Productivity


Factors Affecting Productivity

Capital

Methods

Technology Management

Quality


Improving Productivity1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations

3. Develop methods for productivity improvements

4. Establish reasonable goals

5. Make it clear that management supports and encourages productivity improvement

6. Measure and publicize improvements

Don’t confuse productivity with efficiency


So what is a Bottleneck?The operation with the least capacity.

Task A. 2 minutes

Task B1.8 minutes

Task C.6 minutes

1. Which operation has the least capacity?2. Why?3. What effect does task capacity have on the output of the system?

Rule of Bottlenecks: Improving the efficiency of any other operation in the process, other than the bottleneck, will NOT improve the efficiency of the system. EXPLAIN.

Back to Hazel’s business…What types of productivity measures

would be useful in Hazel’s business? Why?

Should Hazel measure productivity? Why or Why not?

Homework – due at the beginning of the next class.

Problem 1, page 65Problem 2, page 65Problem 3, page 65

Make sure you show all your work. You can use a spreadsheet.

Documents

Competitiveness, Strategy, and Productivity McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved