Chapter 2:

Competitivenes
s, Strategy, and
Productivity
IBM–Y3–S2
Course: Operations Management
Lectured by Ms. LEAV PHICHLORNG

Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No

reproduction or distribution without the prior written consent of McGraw-Hill
Learning Objectives
 List several ways that business organizations compete
 List several reasons that business organizations fail
 Define the terms mission and strategy and explain why they
are important
 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
 Describe several factors that affect productivity

2
 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.

3
 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 price, delivery time,
and product or service differentiation.
o What do customers want?
o How can these customer needs best be satisfied?

4
 Marketing’s Influence
Competitiveness
• Identifying consumer wants/needs
the ideal is to achieve a perfect match between those wants and needs
and organization’s goods and services
• Pricing and quality
are main factors in consumer buying decisions
• Advertising and promotion
are ways organizations can inform potential customers about features
of their products or services, and attract consumers.

5
 Operations and Its
Influence On
Competitiveness
• Product and service design • Managers and workers
• Cost
• Location
• Quality
• Quick response
• Flexibility
• Inventory management
• Supply chain management
• Service

6
 Why Some Organizations
Fail
• Neglecting operations strategy
• Failing to take advantage of strengths and opportunities and/ or failing to
recognize competitive threats
• Too much emphasis in 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
• Failing to consider customer wants and needs

7
The key to successfully
competing

First: what do the customers want?

Second: what is the best way to satisfy those wants?

 Understanding competitive issues can help managers develop

successful strategies.

8
 Hierarchical Planning
 Mission

 Goals

 Strategies (organizational and functional)

 Tactics

9
Hierarchical Planning
(Cont.)
Mission Goals Strategy
The reason for an Provide detail and the A plan for achieving
organization’s scope of the mission organizational goal
existence o
Goals can be viewed Serves as a roadmap for
reaching the organizational
It answers the question as organizational destinations
“what business are we destinations o Organizational strategies:
in?” • Overall strategies that
relate the entire
organization
• Support the achievement
of organizational goals
and mission
o Functional level strategies
• Strategies that relate to
each of the functional
areas and that support 10
achievement of the
Hierarchical Planning
(Cont.)
Tactics Operations
The methods and The actual “doing”
actions taken to part of the process
accomplish strategies
The “how to” part of
the process

Sometime the same issue may apply to all levels. However, a key difference is
the time frame. From strategic perspective, long-term implications are most
relevant. From tactical and operational perspective, the time frames are much
shorter. Apparently, the operational time frame is often measured in days.

11
Example
Ms. A is a univeritiy student. She would like to have a career in business,
have a good job, and earn enough income to live comfortably. A possible
scenario for achiveing her goals might look somehow like this:

Mission: Live a good life

Goal: Successful career, good income

Streategy: Obtain a higher education

Tactics: select a college and a major; decide how to finance education

Operations: register, buy books, take relevant courses and study

12
Planning and Decision
Making are Hierarchical in
Organizations

PRESENTATION TITLE 13
 The Basic Business
Strategies
There are three basic business strategies:
 Low cost
 Responsiveness
 Differentiation from competitors

Some organizations focus on a single strategy while others employ a

combination of strategies. One company that has multiple strategies is
Amazon.com. Not only does it offer low cost and quick, reliable deliveries, it
also good in customer service.

14
 Core competencies
The special attributes or abilities that give an organization a competitive edge
(advantage)

• To be effective core competencies and strategies need to be aligned

• The most effective organizations use an approach that develops core

competencies based on customer needs as well as on what the competitor
is doing

15
Strategy Formulation
The key steps in strategy formulations are:

 Link core competencies of org and scan surrounding environment.

 Assess Strengths, Weaknesses, Opportunities, and Threats, and

identify core competences.

 Identify order winners and order qualifiers.

 Select one or two strategiess (e.g., low cost, rsponsivness, customer

serivce) to focus on.

16
Strategy Formulation
(cont.)
Order qualifiers

characteristics that customers perceive as minimum standards of

acceptability for a product or service to be considered as a potential for
purchase

Order winners

characteristics of an organization’s goods or services that cause it

to be perceived as better than the competition

17
 SWOT Analysis
• Strengths are •Weaknesses are
internal, positive negative factors that
attributes of your detract from your
company. These are strengths. These are
things that are within things that you might
your control. need to improve on to
S W be competitive.

O T
• Opportunities are
external factors in • Threats are external
your business factors that you have no
environment that are control over. You may
likely to contribute want to consider putting
to your success. in place contingency
plans for dealing them if
they occur.

18
Key External Factors
 Economic conditions

 Politicla conditions

 Legal environment

 Technology

 Competition

 Markets

19
Key Internal Factors
 Human resources  Technology

 Facilities and equipment  Suppliers

 Financial resources  Others

 Customers

 Products and services

20
Operations Strategy
 The approach, consistent with organization strategy, that is used to
guide the operations function

21
Sample Operations
Strategies
Organizational Strategy Operations Strategy

Low cost Outsource operation

Scale-based strategies Use capital-intensive methods

Focus on narrow product line or limited
Specialization
service
Newness Focus on innovation

Flexible operations Focus on quick response or customization

Focus on acheieving higher quality than
High quality
competitor
Focus on various aspects of service (e.g.,
Service
helpful, polite, reliable, etc)
Focus on environmental-friendly and
Sustainablity
energy-efficient operations
22
Strategic OM Decision
Areas
Decision Area What the Decisions Affect
Product and service Costs, quality, liability, and environment issues
design
Capacity Cost, structure, flexibility
Process selection and Costs, flexibity, skill level needed, capacity
layout
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs and shortage
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility and efficiency
Supply chains Costs, quality, agility, shortage, vendor relations
Projects Costs, new products, services, or operationg systems 23
Quality-Based Strategies
 Strategy that focuses on maintaining or improving the quality in all
phases of an organization. Quality is generally a factor in both
attracting and retaining customers.

 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

24
Time-Based Strategies
 Strategies that focus on reducing the time required to accomplish
various activities (e.g., develop new products or services and market
them, respond to a change in customer demand, or deliver a product
or perform a service)

 It is believed that by reducing time, costs are generally less, quality

tends to be higher, productivity is higher, time-to-market is faster, and
customer service is improved

25
Time-Based Strategies
(cont.)
 Areas where organizations have achieved time reductions:

• Planning time

• Product/service design time

• Processing time

• Changeover time

• Delivery time

• Response time for complaints

26
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 distinct competencies such as:
• Cost
• Quality
• Reliability
• Flexibility
 Successful agile operation requires careful planing to achive a system
that include people, flexible equipment, and infromation technology.

27
Implications of Organization
Strategy for Operations
Management

PRESENTATION TITLE 28
The Balanced Scorecard
Approach
A top-down management system that organizations can
use to clarify their vision and strategy and transform
them into
• Develop action
objectives
• Develop metrics and targets for each objective
• Develop initiatives to achieve objective
• Identify links among the various perspectives
• Finance performance
• Customer/stakeholder satisfaction
• Efficiency of internal business process
• Organizational knowledge and innovation
• Monitor results

29
The Balanced Scorecard

PRESENTATION TITLE 30
What is major key to
Apple’s continued success?
A major key to Apple’s continued success is its ability to keep pushing the
boundaries of innovation. Apple has demonstrated how to create growth
by dreaming up products so new and ingenious that they have upended
on industry after another.

31
Productivity
• A measure of the effective use of resources, usually expressed as the ratio
of output to input

• It is useful for:

• Tracking an operating unit’s performance over time

• Judging the performance of an entire industry or country

32
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

33
 Productivity Measures
Output
Productivi ty =
Input
Output Ouput Output
Partial Measures ; ;
Single Input Labor Capital
Output Ouput Output
Multifactor Measures ; ;
Multiple Inputs Labor + Machine Labor + Capital + Energy

 Goods or services produced

Total Measure
 All inputs used to produce them

34
Productivity Calculation
Example
Units produced: 7,000
Standard price: $25/unit
Labor input: 450 hours
Cost of labor: $20/hour
Cost of materials: $7,000
Cost of overhead: 3 times of labor cost

What is the multifactor productivity?

35
 Solution
Output
Multifactor Productivity =
Labor + Material + Overhead

7,000𝑢𝑛𝑖𝑡𝑠 𝑥 $ 25/𝑢𝑛𝑖𝑡
 ¿
( 450 h𝑜𝑢𝑟𝑠 𝑥 $ 20 /h𝑜𝑢𝑟 ) +$ 7,000+ ( 3 ( 450 h𝑜𝑢𝑟𝑠 𝑥 $ 20/h𝑜𝑢𝑟 ) )

175,000
¿
$ 43,000

= 4.069

36
 Productivity Growth
Current productivity - Previous productivity
Productivity Growth = 100%
Previous productivity

Example: labor productivity on the Brand assembly line was 35 units per
hour in 2021. in 2022, labor productivity was 30 units per hour. What was the
 productivity growth from 2021 to 2022?

30 − 35
Productivity growth =𝑥 100 % =− 14 %
35

37
Service Sector Productivity
• Is difficult to measure and manga 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 given day
• Ratio of student acceptance to the total number of students approved
for admission

38
Factors Affecting
Productivity
A commonly held misconception is that workers are the main determinant of
productivity. However, the fact is that many productivity gains in the past
have come from technological improvement.

Methods

Capital Quality

Technology Management

39
Improving Productivity
• Develop productivity measurement 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

• Measurement and publicize improvements

40
 Productivity and Efficiency
Productivity Efficiency
Is a broader concept that pertains Is a narrow concept that pertains
to effective use of overall to getting the most out of a fixed
resources. set of resources.

• For example, an efficiency perspective on moving a lawn given a hand

mower would focus on the best way to use the hand mower; a productivity
perspective would include the possibility of using a power mower.

41
The End