Chapter 2 Marketing’s Influence

Competitiveness, Strategy, and Productivity  Identifying consumer wants and/or needs

Chapter 2: Learning Objectives  Pricing and quality
You should be able to:  Advertising and promotion
LO 2.1 List several ways that business organizations compete Businesses Compete Using Operations
LO 2.2 Name several reasons that business organizations fail  Product and service design
LO 2.3 Define the terms mission and strategy and explain  Cost
why they are important
 Location
LO 2.4 Discuss and compare organization strategy and
operations strategy, and explain why it is important to link the  Quality
two  Quick response
LO 2.5 Describe and give examples of time-based strategies  Flexibility
LO 2.6 Define the term productivity and explain why it is  Inventory management
important to organizations and to countries
 Supply chain management
LO 2.7 Describe several factors that affect productivity
 Service
A Cold Hard Fact
 Managers and workers
Better quality, higher productivity, lower costs, and the ability
to respond quickly to customer needs are more important than Why Some Organizations Fail
ever, and…
1. Neglecting operations strategy
the bar is getting higher
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
Chapter Focus
6. Failing to establish good internal communications
 This chapter focuses on three separate, but related and cooperation
ideas that are vitally important to business
organizations 7. Failing to consider customer wants and needs

o Competitiveness Hierarchical Planning

o Strategy o Mission
o Productivity o Goals
o Organizational Strategies
o Functional Strategies
Competitiveness o Tactics

• How effectively an organization meets the wants and Mission, Goals, and Strategy
needs of customers relative to others that offer similar
goods or services  Mission
• Organizations compete through some combination of o The reason for an organization’s existence
their marketing and operations functions o It answers the question “What business are we in?”
o What do customers want?
o How can these customer needs best be satisfied?  Goals
o Provide detail and the scope of the mission
o Goals can be viewed as organizational destinations
  Strategy o Strategies that relate to each of the functional
areas and that support achievement of the
o A plan for achieving organizational goals organizational strategy
o Serves as a roadmap for reaching the organizational
destinations TACTICS AND OPERATIONS
o The organizational strategy guides the organization
by providing direction for, and alignment of, the  Tactics
goals and strategies of the functional units o The methods and actions taken to accomplish
o The organizational strategy is a major success/failure strategies
factor o The “how to” part of the process
MISSION  Operations
 Mission o The actual “doing” part of the process
o The reason for an organization’s existence CORE COMPETENCIES
 Mission statement  Core Competencies
o States the purpose of the organization The special attributes or abilities that give an organization
o The mission statement should answer the question of a competitive edge
“What business are we in?”
o To be effective core competencies and
Fed Ex Mission Statement strategies need to be aligned
 FedEx Corporation will produce superior financial STRATEGY FORMULATION
returns for its shareowners by providing high value-
added logistics, transportation and related information  Effective strategy formulation requires taking into
services through focused operating companies. account:
Customer requirements will be met in the highest
quality manner appropriate to each market segment o Core competencies
served. FedEx Corporation will strive to develop o Environmental scanning
mutually rewarding relationships with its employees, o SWOT
partners and suppliers. Safety will be the first
 Successful strategy formulation also requires taking into
consideration in all operations. Corporate activities will
account:
be conducted to the highest ethical and professional
standards. o Order qualifiers
http://about.van.fedex.com/mission-strategy-values o Order winners
GOALS STRATEGY FORMULATION
 The mission statement serves as the basis for  Order qualifiers
organizational goals
o Characteristics that customers perceive as minimum
 Goals standards of acceptability for a product or service to
be considered as a potential for purchase
o Provide detail and the scope of the mission
o Goals can be viewed as organizational destinations  Order winners
o Goals serve as the basis for organizational strategies
o Characteristics of an organization’s goods or services
STRATEGIES that cause it to be perceived as better than the
competition
 Strategy
ENVIROMENTAL SCANNING
o A plan for achieving organizational goals
o Serves as a roadmap for reaching the organizational  Environmental Scanning is necessary to identify
destinations
 Internal Factors
Organizations have
o Strengths and Weaknesses
▪ Organizational strategies
o Overall strategies that relate to the entire  External Factors
organization
o Support the achievement of organizational o Opportunities and Threats
goals and mission KEY EXTERNAL FACTORS
▪ Functional level strategies
1. Economic conditions
 2. Political conditions QUALITY-BASED STRATEGIC
3. Legal environment  Quality-based strategy
4. Technology  Strategy that focuses on quality in all phases of an
organization
5. Competition  Pursuit of such a strategy is rooted in a number of factors:
6. Markets  Trying to overcome a poor quality reputation
 Desire to maintain a quality image
KEY INTERNAL FACTORS  A desire to catch up with the competition
 A part of a cost reduction strategy
1. Human Resources
TIME-BASED STRATEG
2. Facilities and equipment
 Time-based strategies
3. Financial resources
o Strategies that focus on the reduction of time needed to
4. Customers accomplish tasks
▪ It is believed that by reducing time, costs are lower,
5. Products and services
quality is higher, productivity is higher, time-to-
6. Technology market is faster, and customer service is improved

7. Suppliers
TIME-BASED STRATEGY
8. Other
 Areas where organizations have achieved time
OPERATION STRATEGY reductions:
 Operations strategy o Planning time
o The approach, consistent with organization strategy, that o Product/service design time
is used to guide the operations function.
o Processing time
STRATEGIC OM DECISION AREAS
o Changeover time
Decision What the Decisions Affect
Area o Delivery time
o Response time for complaints
Product and Costs, quality, liability, and environmental issues
service AGILE OPERATION
design
 A strategic approach for competitive advantage that
Capacity Cost, structure, flexibility emphasizes the use of flexibility to adapt and prosper in
an environment of change
Process Costs, flexibility, skill level needed, capacity
selection and o Involves the blending of several core competencies:
layout ▪ Cost
▪ Quality
Work design Quality of work life, employee safety, productivity ▪ Reliability
▪ Flexibility
Location Costs, visibility
THE BALANCE SCORECARD APPROACH
Quality Ability to meet or exceed customer expectations  A top-down management system that organizations
can use to clarify their vision and strategy and
Inventory Costs, shortages transform them into action

Maintenance Costs, equipment reliability, productivity

o Develop objectives
o Develop metrics and targets for each objective
Scheduling Flexibility, efficiency
o Develop initiatives to achieve objectives
Supply Costs, quality, agility, shortages, vendor relations
chains
o Identify links among the various perspectives
▪ Finance
Projects Costs, new products, services, or operating systems
▪ Customer
 ▪ Internal business processes Multifacto r Measures
Output
;
Ouput
;
Output
Multiple Inputs Labor + Machine Labor + Capital + Energy
▪ Learning and growth
Goods or services produced
o Monitor results Total Measure
All inputs used to produce them
THE BALANCE SCORECARD
PRODUCTIVITY CALCULATION EXAMPLE
Units produced: 5,000
Standard price: $30/unit
Labor input: 500 hours
Cost of labor: $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
What is the multifactor productivity?
Solution

Output
Multifacto r Productivity =
Labor + Material + Overhead
LO2.6 PRODUCTIVITY
5,000 units  $30/unit
 Productivity =
(500 hours  $25/hour) + $5,000 + (2(500 hours  $25/hour))
o A measure of the effective use of resources,
usually expressed as the ratio of output to input $150,000
=
 Productivity measures are useful for $42,500
o Tracking an operating unit’s performance over = 3.5294
time
What is the implication of an unitless measure of productivity?
o Judging the performance of an entire industry or
country PRODUCTIVITY GROWTH

WHY PRODUCTIVITY IS IMPORTANT Current productivity - Previous productivity

Productivity Growth = 100%
Previous productivity
 High productivity is linked to higher standards of
living Example: Labor productivity on the ABC assembly line was
25 units per hour in 2014. In 2015, labor productivity was 23
o As an economy replaces manufacturing jobs with units per hour. What was the productivity growth from 2014 to
lower productivity service jobs, it is more 2015?
difficult to maintain high standards of living
23 - 25
 Higher productivity relative to the competition leads Productivity Growth =  100% = −8%
to competitive advantage in the marketplace 25
o Pricing and profit effects SERVICE SECTOR PRODUCTIVITTY

 For an industry, high relative productivity makes it  Service sector productivity is difficult to measure and
less likely it will be supplanted by foreign industry manage because
o It involves intellectual activities

PRODUCTIVITY MEASUREMENTS o It has a high degree of variability

Output  A useful measure related to productivity is process yield

Productivity =
Input o Where products are involved
▪ ratio of output of good product to the quantity of
Output Ouput Output raw material input.
Partial Measures ; ;
Single Input Labor Capital
 o 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.
FACTORC AFFECTING PRODUCTIVITY
▪ Methods
▪ Quality
▪ Management
▪ Technology
▪ Capital
IMPROVING PRODUCTIVITY
1. 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