Chapter 2

Competitiveness, Strategy, and

Productivity

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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

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Chapter Focus
Competitiveness
Strategy
Productivity

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Competitiveness
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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Keys that business use to

compete with one another
5

Price: the amount a customer must pay for the

product or service.
Quality: it relates to the buyers perception of how
well the product or service will serve its purpose.
Product differentiation: refers to any special
features that cause a G or S to be perceived by the
buyer as more suitable than a competitors product
or service

Lecturer: Ahmed El Rawas

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Keys that business use to

compete with one6 another
Flexibility: is the ability to respond to changes.
Time: refers to a number of different aspects of an
org operation, one is how quickly a product or
service is delivered to a customer, another is how
quickly new product or service are developed and
brought to the market.

Lecturer: Ahmed El Rawas

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Why Some Organizations Fail

Neglecting operations strategy

Failing to take advantage of strengths and opportunities
Failing to recognize competitive threats and weaknesses
Neglecting investments in capital and human resources
Failing to establish good internal communications and cooperation
Failing to consider customer wants and needs

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Hierarchical Planning
Mission
Goals
Organizational Strategies
Functional Strategies
Tactics
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Mission
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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Goals
The mission statement serves as the basis for
organizational goals
Goals
Provide detail and the scope of the mission
Goals serve as the basis for organizational strategies

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Strategies
Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational
objectives
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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Tactics and Operations

Tactics
The methods and actions taken to accomplish
strategies
The how to part of the process

Operations
The actual doing part of the process

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Core Competencies
Core Competencies
The special attributes or abilities that give an
organization a competitive edge

To be effective core competencies and

strategies need to be aligned

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Sample Strategies
Organizational
Strategy
High Quality

Short Time

Operations Strategy

Examples of Companies or
Services

High performance design

and/or high quality
processing

Sony TV
Lexus

Consistent Quality

Coca-Cola; electric power

Quick Response

McDonalds Restaurants
Express mail
FedEx;

On-time delivery
Newness

Innovation

microsoft
Express mail

Variety

Flexibility
Volume

Burger King (Have it your way)

McDonalds (Buses Welcome)

Service

Superior customer service

Disneyland
IBM

Location

Convenience

Supermarkets
Mall Stores

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Strategy Formulation
Effective strategy formulation requires taking
into account:
Core competencies
Environmental scanning
SWOT

Successful strategy formulation also requires

taking into account:
Order qualifiers
Order winners

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Strategy Formulation
Order qualifiers
Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential 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
Environmental Scanning is necessary to
identify
Internal Factors
Strengths and Weaknesses

External Factors
Opportunities and Threats

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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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Quality-Based Strategies
Quality-based strategy
Strategy that focuses on quality in all phases of an
organization
Pursuit of such a strategy is rooted through
Trying to overcome a poor quality reputation
Desire to maintain a quality image

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Time-Based Strategies
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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Time-Based Strategies
Areas where organizations have achieved time
reductions:
Planning time
Product/service design time
Processing time
Delivery time
Response time for complaints

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Productivity
Productivity is a measure of the efficiency of
production. Productivity is a ratio of what is
produced to what is required to produce it.
Usually this ratio is in the form of an average,
expressing the total output divided by the total
input. Productivity is a measure of output from a
production process, per unit of input.

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Productivity
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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Productivity Measures
Productivity=

Output
Input

Partial Measures

Output
;
Single Input

Multifactor Measures

Ouput
;
Labor

Output
;
Multiple Inputs

Output
Capital
Ouput
;
Labor +Machine

Output
Labor +Capital +Energy

Goods or services produced

Total Measure
All inputs used to produce them

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Labor Productivity
is the ratio of (the real value of) output to the input
of labor. Where possible, hours worked, rather than
the numbers of employees, is used as the measure
of labor input. Specifically, how many goods or
services are produced within one working hour.
With an increase in part-time employment, hours
worked provides the more accurate measure of
labor input. Labor productivity should be interpreted
very carefully if used as a measure of efficiency. In
particular, it reflects more than just the efficiency or
productivity of workers.

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Labor Productivity
Labor productivity is the ratio of output to labor input;
and output is influenced by many factors that are outside
of workers' influence, including the nature and amount of
capital equipment which is used to produce other
commodities, introduction of new technologies,
agricultural resources and management practices. There
is an inverse relationship between the demand for labor
and the wage rate that a business needs to pay for each
additional worker employed. When the wages per
worker are less, then labor becomes relatively cheaper
than for example using capital equipment and it
becomes more profitable for the business to take on
more employees.

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Multifactor Productivity
is the ratio of the real value of output to the combined
input of labor and capital. The Standard neo-classical
labor market theory assumes that businesses seek to
maximize profits. They will therefore search in the long
run for the mix of factors of production (labor and capital)
that produces the required level of output as efficiently
as possible for the lowest possible total cost. Sometimes
this measure is referred to as total factor productivity. In
principle, multifactor productivity is a better indicator of
efficiency. It measures how efficiently and effectively the
main factors of production - labor and capital - combine
to generate output

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Productivity Calculation Example

Units produced: 5,500
Standard price: $35/unit
Labor input: 500 hours
Cost of labor of $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
What is the
multifactor
productivity?
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Solution
Multifactor Productivity=
=

Output
Labor +Material +Overhead
5,000 units $30/unit
(500 hours $25/hour)+$5,000 +(2(500 hours $25/hour))

= 4.12

What
is the implication of a unitless measure of productivity?

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Question (1)
31

The following table contains productivity information for may

and June 2001 for a company of landscaping service.

May
June
Output
800
1200
Plants, flower
200
400
Gasoline
100
150
Wages
400
500
Maintenance
50
60
Measure the productivity and find the change in productivity
that occurred between may and June.

Lecturer: Ahmed El Rawas

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Answer Question no (1)

32

Productivity for may = output / input

800 / (200+100+400+50) = 1.07
Productivity for June= output / input
1200 / ( 400+150+ 500+60) = 1.08
The change between may and June productivity
increases by 0.01

Lecturer: Ahmed El Rawas

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Question (2)
33

The weekly output of a fabrication process is 400

units. The standard selling price is L.E 125 per
unit. Assume the number of workers are 15, each
work 40 hours a week and hourly wage of L.E 15.
material cost is L.E 50 per unit and overhead
charged at the rate of 2000 plus 10% of the labor
cost.
Compute: 1- labor productivity.

2- multifactor productivity.

Lecturer: Ahmed El Rawas

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Answer for Question (2)

34

Labor productivity= output / labor input.

400 x 125 / ( 15 x 40 x 15 )= 5.6
Total productivity= total output / total input
400 x 125 / ( 15 x 40 x 15 ) + ( 50 x 400 ) + ( 2000
+ 10% x ( 15 x 40 x 15 )= 1.57

Lecturer: Ahmed El Rawas

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productivity growth
At the national level, productivity growth raises living
standards because more real income improves
people's ability to purchase goods and services,
enjoy leisure, improve housing and education and
contribute to social and environmental programs.
Productivity growth is important to the firm because
it means that the firm can meet its (perhaps
growing) obligations to customers, suppliers,
workers, shareholders, and governments (taxes and
regulation), and still remain competitive or even
improve its competitiveness in the market place

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Productivity Growth
Current productivity- Previous productivity
Productivity Growth =
100%
Previous productivity
Example: Labor productivity on the ABC assembly line was 23 units per hour in
2006. In 2007, labor productivity was 25 units per hour. What was the
productivity growth from 2006 to 2007?

Productivity Growth =

25 - 23
100% 8%
23

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Growth - Non-Farm

Average Annual Percent Change

Growth in the Private Non-Farm Business Sector

5
4
3
2

1.9
1.1

0.4

1.3

0.6

0
1948-1973

1973-1990

1990-1995

1995-2000

2000-2007

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Growth - Manufacturing
Growth in the Manufacturing Sector
5
4
3

2
1

1.2

1.6

0.2

0
1987-1990

1990-1995

1995-2000

2000-2006

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Importance of national productivity

growth
Productivity growth is a crucial source of growth in living
standards. Productivity growth means more value is
added in production and this means more income is
available to be distributed.
At a firm or industry level, the benefits of productivity
growth can be distributed in a number of different ways:
1.to the workforce through better wages and conditions
2.to shareholders through increased profits and dividend
distributions
3.to customers through lower prices
4.to the environment through more environmental
protection
5.to governments through increases in tax payments
(which can be used to fund social and environmental
programs).
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Sources of productivity growth

In the most immediate sense, productivity is determined
by:
1.the available technology or know-how for converting
resources into outputs desired in an economy; and
2.the way in which resources are organized in firms and
industries to produce goods and services.
Average productivity can improve as firms move toward
the best available technology; plants and firms with poor
productivity performance cease operation; and as new
technologies become available. Firms can change
organizational structures (e.g. core functions and
supplier relationships), management systems and work
arrangements to take the best advantage of new
technologies and changing market opportunities. A
nation's average productivity level can also be affected
by the movement of resources from low-productivity to
high-productivity industries and activities.
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Factors Affecting Productivity

Methods

Capital

Technology

Quality

Management

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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

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