2

Competitiveness,
Strategy,
and Productivity

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

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 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.
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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
Marketing
 Identifying consumer wants and needs
 Pricing
 Advertising and promotion
 Effective Distribution

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 Businesses Compete Using
Operations
 Product and service design
 Cost
 Location
 Quality
 Quick response
 Flexibility
 Inventory management
 Supply chain management
 Service and service quality
 Managers and workers

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 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

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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

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 Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics relate to

decision making and distinctive competencies?

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 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

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 Planning and Decision Making
Figure 2.1

Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures

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 Strategy Example
Example 1

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

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

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 Strategy and Tactics
 Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge
 To be effective, strategies and core competencies
need to be aligned
 Strategy Factors
 Price
 Quality
 Time
 Flexibility
 Service
 Location
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 Examples of Operations Strategies
Table 2.2
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns

Quality High-performance design Sony TV

or high quality Consistent Lexus, Cadillac
quality Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer Disneyland

service Nordstroms

Location Convenience Banks, ATMs

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 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

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 Strategy Formulation
 Distinctive competencies
 Environmental scanning
 SWOT
 An alternative to SWOT analysis is Michael
Porter’s five forces model
 Order qualifiers
 Order winners

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 Strategy Formulation
 Environmental Scanning
 The monitoring of events and trends that
present threats or opportunities for a company
 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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 Key External Factors

 Economic conditions
 Political conditions
 Legal environment
 Technology
 Competition
 Markets

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 Key Internal Factors

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

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 Operations Strategy
 Operations strategy – The approach,
consistent with organization strategy, that is
used to guide the operations function
 It must be aligned with overall organizational
strategy (There must be synergy)

Comparison of mission, organization strategy, and operations strategy

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 Strategic OM Decisions
Table 2.4
Decision Area Affects
Product 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

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 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
 E.g. Concept to market cycle

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 Time-based Strategies
JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery

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 Productivity
 Productivity
 A measure of the effective use of resources,
usually expressed as the ratio of output to
input
 Productivity has important implications for
business organizations and for entire nations
 Productivity ratios are used for
 Planning workforce requirements
 Scheduling equipment
 Financial analysis

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 Productivity

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

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 Productivity Growth

Productivity growth is the increase in productivity

from one period to the next relative to the
productivity in the preceding period

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity

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 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

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 Examples of Partial Productivity Measures
Table 2.5

Labor Units of output per labor hour

Units of output per shift
Productivity Value-added per labor hour

Machine Units of output per machine hour

machine hour
Productivity
Capital Units of output per dollar input
Dollar value of output per dollar input
Productivity
Energy Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Productivity
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 Example 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 Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)

$1000 + $520 + $2000

MFP = 2.0 units per dollar of input

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 Process Yield
 Process yield is the ratio of output of good
product to input
 Defective product is not included in the
output

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Factors Affecting Productivity

Capital Quality

Technology Management

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 Other Factors Affecting Productivity

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

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 Other Factors Affecting Productivity

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

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 Outsourcing
 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 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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