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Chapter 2

CompetitivenessStrategy

Productivity

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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 In…

Operations• Product and service design• Cost• Location• Quality• Quick response• Flexibility• Inventory management• Supply chain management• Managers and workers

Marketing• Consumer wants & needs• Pricing• Advertising & promotion

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Why Some Organizations Fail

• Emphasis on short-term financial performance• Neglecting strengths and opportunities• Neglecting operations strategy• Failing to recognize competitive threats• Neglecting process improvement• Neglecting investments in capital and human resources• Lack of good internal communications• Neglecting customer wants and needs

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Strategy

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Mission/Strategy/Tactics

Strategy TacticsMission

Mission: The reason for existence for an organization

Mission Statement: States the purpose of an organization

Goals: Provide detail and scope of mission

Strategy: Plans for achieving organizational goals

Tactics: The methods and actions taken to accomplish strategies

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Planning and Decision Making

Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

• 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 a job

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Strategy AnalysisDistinctive CompetenciesThe special attributes or abilities that give an organization a competitive edge.Strategy Factors

o Priceo Qualityo Timeo Flexibilityo Serviceo Location

A strong competitive advantage is difficult to copy, often because of a firm’s culture, habits, or sunk costs.

Low-cost strategy firms:Honda Motor Co. Marriott's Fairfield Inns

Wal-Mart; Sam's Club

Can reshape industry Southwest AirlinesMcDonald’s

Warning: Do not lower quality.Wal-Mart vs. Target

Businesses with quality goods usually have large market shares I-Pod and Samsung

Quality is positively related to a higher return on investment Toyota and RR

Profitability: Short term decrease; Long term increase – Quality is free (Philip Crosby)

High quality producers can usually charge premium pricesRolex and Mont Blanc

Two types of time performance measures:1. Speed of doing something (Fast delivery)2. Reliability of doing something (On-time delivery)

• Processing time: the time it takes to process/perform a task.

• Queue time: the time spent waiting.• Cycle time: time from beginning of work to finish

OR time between two units at output.• Lead time: time between release of an order and

shipment.• Purchasing lead time: time required to obtain

purchased item.

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Strategy Formulation

• Distinctive competencies• Environmental scanning• SWOT• 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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Internal Factors• Human Resources• Facilities and equipment• Financial resources• Customers• Products and services• Technology• Suppliers

Deciding Factors in Strategy Decisions

External Factors• Economic conditions• Political conditions• Legal environment• Technology• Competition• Markets

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Productivity

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Productivity

Productivity: A measure of the effective use of resources, usually expressed as the ratio of output to input• Productivity = Output / Input

Efficiencythe degree to which a process generates outputs with the minimal consumption of inputs or the degree to which a process generates a maximum amount of outputs for a given amount of inputs.

Effectiveness is doing the right things efficiently.

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Productivity

• Partial measures: output/(single input)• Multi-factor measures: output/(multiple inputs)• Total measure: output/(total inputs)

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 Productivity

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

Labor Productivity

Examples of Partial Productivity Measures

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Productivity Growth

Percentage Increase in Productivity

Productivity Growth

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• Standardization• Quality / Scrap rates / Rework• Use of Internet / Computer viruses• Searching for lost or misplaced items• Layoffs / New workers / Labor turnover• Safety• Shortage of IT workers• Design of the workspace• Incentive plans that reward quality and productivity

Other Factors Affecting Productivity

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Same CompanySame product: Mufflers

Shanghai, ChinaVersusLitchfield, MichiganFortune, Sept 18, 2006

OutsourcingHigher productivity in another company is a key reason organizations outsource work.Improving productivity may reduce the need for outsourcing.

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Simple Exercise

4 employees produced 1600 camerasProductivity = 1600/4 = 400 Cameras per employee

4 employees produced 1600 cameras in two days

4 employees produced 1600 cameras3 worked 2 days, 1 worked 1.5 days, all 4 produced same number of cameras (ie. 400)

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4 employees produced 1600 cameras in two daysThe company works 8 hours a day, 5 days a week, 52 weeks a

yearWorkers get paid $14 an hour, and salary overheads are 200%Equipment yearly depreciation cost is $312,000Material cost is $18 per cameraThis company charges dealers $30 per camera

What is the Productivity?

Simple Exercise (Cont’d)

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Thoughts about Productivity

The 70s and the 80s were bad In the 70s and 80s:

Manufacturing Productivity Growth:~4% per year

Services Productivity Growth: ~0% per year

Combined Productivity Growth: ~1% per year

Now it is much better

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Negative Impact on Productivity• Workers and employees attitude

• Less saving… more spending/consuming

• More government regulations

• Legal/lawyers cost

• Increased demand for services

• Emphasis on short term performance