Competitiveness,

Strategy, and
Productivity

McGraw-Hill/Irwin

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

 You 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 important
4. Discuss and compare organization strategy and operations
strategy, and explain why it is important to link the two
5. Describe and give examples of time-based strategies
6. Define the term productivity and explain why it is important to
organizations and countries
7. Provide some reasons for poor productivity and some ways of
improving it

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Type

Definition

Low Cost

Producing the lowest cost products in the

market.

Market
Segmentation

Satisfying the needs of a particular market

niche.

Product
Differentiation

Offering products that differ significantly from

the competition.

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Services
Products

Capacity

Facilities

Copyright 2006 John Wiley & Sons, Inc.

Human
Resources

Sourcing

Process
and
Technology
Quality

Operating
Systems

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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

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This chapter focuses on three separate, but

related topics that are vitally important to

business organizations
Competitiveness
Strategy
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
Organizations compete through some
combination of their marketing and operations
functions
What do customers want?
How can these customer needs best be satisfied?

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Identifying consumer wants and/or needs

Pricing
Advertising and promotion

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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Product and service design

Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers

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11

Organizations fail, or perform poorly for a variety of

reasons; including;
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 needs
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Mission
Goals
Organizational Strategies
Functional Strategies
Tactics
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Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies

Tactics
Operating
procedures

Marketing
Strategies

Tactics
Operating
procedures

Operations
Strategies

Tactics
Operating
procedures

 Mission
The reason for an organizations existence

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

Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational
destinations

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Mission
The reason for an organizations existence

Mission statement
States the purpose of the organization
The mission statement should answer the

question of What business are we in?

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Example
Apple designs Macs, the best personal
computers in the world, along with OS X, iLife,
iWork and professional software. Apple leads the
digital music revolution with its iPods and iTunes
online store. Apple has reinvented the mobile
phone with its revolutionaryiPhone and App
store, and is defining the future of mobile media
and computing devices with iPad.

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The mission statement serves as the basis

for organizational goals

Goals (Objectives)
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Goals serve as the basis for organizational

strategies
Examples
Reduce overall budget costs by 10% by 20xx
Increase market share by 5% by 20xx
Increase customer satisfaction by 10% by 20xx
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 Strategy
A plan (steps) for achieving organizational goals
Serves as a roadmap for reaching the organizational
destinations
Organizations have
Organizational strategies
Overall strategies that relate to the entire organization
Support the achievement of organizational goals and

mission

Functional level strategies

Strategies that relate to each of the functional areas and

that support achievement of the organizational strategy

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Effective strategy formulation requires taking

into account:

Core competencies
Environmental scanning
SWOT

Successful strategy formulation also requires

taking into account:

Order qualifiers (satisfy minimum relative

standards the company is a viable competitor)

Order winners (satisfy higher relative standards
the company is superior to its competitors)

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

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Environmental Scanning is

necessary to identify
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats

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1. Economic conditions
2. Political conditions
3. Legal environment
4. Technology
5. Competition
6. Markets

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1. Human Resources
2. Facilities and equipment
3. Financial resources
4. Customers
5. Products and services
6. Technology
7. Suppliers
8. Other

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

used to guide the operations function.

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

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Quality-based strategy
Strategy that focuses on quality in all phases

of an organization
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

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Time-based strategies
Strategies that focus on the reduction of time

needed to accomplish tasks

It 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

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Areas where organizations have

achieved time reductions:

Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints

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Productivity
A measure of the effective use of resources,

usually expressed as the ratio of output to input

Productivity measures are useful for
Tracking an operating units performance over

time
Judging the performance of an entire industry or
country

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 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

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Productivity =

Output
Input

PartialMeasures

Output
Ouput Output
;
;
SingleInput
Labor
Capital

MultifactorMeasures

TotalMeasure

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Output
Ouput
Output
;
;
MultipleInputs Labor + Machine Labor +Capital + Energy

Goodsorservicesproduced
Allinputsusedtoproducethem

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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?
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MultifactorProductivity =

Output
Labor + Material + Overhead

5,000 units $30/unit

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

$150,000
$42,500

= 3.5294
What is the implication of an unitless measure of productivity?

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Currentproductivity Previousproductivity
ProductivityGrowth =
100%
Previousproductivity
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?

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23 25
ProductivityGrowth =
100% 8%
25

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 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

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 a given day

ratio of student acceptances to the total number of students

approved for admission.

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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

Dont confuse productivity with efficiency

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