CHAPTER 2

Competitiveness, Strategy,
And Productivity

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Learning objectives
After completing this chapter, you should be able to:
• 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.
• 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. 2-2
Part I: 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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Businesses Compete Using Marketing
• Identifying consumer wants and/or needs
• Pricing
• Advertising and promotion

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Businesses Compete Using Operations
1. Product and service design
2. Cost
3. Location
4. Quality
5. Quick response
6. Flexibility
7. Inventory management
8. Supply chain management
9. Service
10. Managers and workers
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Why Some Organizations Fail
• Neglecting operations strategy
• Failing to take advantage of strengths and
opportunities
• Failing to recognize competitive threats
• Too much emphasis in product and service
design and not enough on improvement
• Too much emphasis on short-term financial
performance
• 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/Strategy/Tactics

Mission Strategy Tactics

How do mission, strategies and tactics relate to

decision making and distinctive competencies?

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Part II: Mission and Strategies
• A) Mission
– The reason for an organization’s 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

• B) Goals
– Provide detail and the scope of the mission
• Goals can be viewed as organizational destinations
– Goals serve as the basis for organizational strategies

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Strategies
• C) Strategy
– A plan 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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Tactics and Operations
• D) Tactics
– The methods and actions taken to accomplish
strategies
– The “how to” part of the process

• E) 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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 Planning and Decision Making
Figure 2.1

Mission

Organizational
Goals

Organizational Strategies

Functional Goals
Finance Marketing Operations
Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

Procedures Procedures Procedures

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 Examples of Operations Strategies
Table 2.2
Price Low Cost National first-class postage,
Carrefour, Jetstar

Quality High-performance design Sony TV, Lexus, Disneyland

and/or high quality
Consistent quality
Coca-Cola, PepsiCo, Kodak,
Time Rapid delivery McDonald’s restaurants, UPS
On-time delivery Pizza Hut, FedEx

Flexibility Variety Burger King

Volume McDonald’s

Service Superior customer Disneyland, Hewlett-

service Packard, IBM

Location Convenience Supermarkets, dry cleaners

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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 organization’s 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

– A) Internal Factors
• Strengths and Weaknesses

– B) External Factors
• Opportunities and Threats

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A) Key Internal Factors

• Human Resources
• Facilities and equipment
• Financial resources
• Customers
• Products and services
• Technology
• Suppliers
• Others (patents, labor relations, image, etc)

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B) Key External Factors

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

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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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Part III: Operations Strategy

• Operations strategy
– The approach, consistent with organization
strategy, that is used to guide the operations
function.

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Strategic OM Decision Areas
Decision Area What the Decisions Affect

Product and service Costs, quality, liability, and environmental issues

design
Capacity Cost, structure, flexibility

Process selection and Costs, flexibility, 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, 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

• Time-based strategies
– Focuses on reduction of time
needed to accomplish tasks

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Time-Based Strategies

JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover On time!

Delivery

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Part IV: Productivity

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

• Productivity ratios are used for

– Planning workforce requirements
– Scheduling equipment
– Financial analysis

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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

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

Output
Productivity =
Input

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 Measures of Productivity

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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 Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity X 100%
Previous Period Productivity

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Examples of Partial Productivity Measures
Table 2.6

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

Dollar value of output per 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: Productivity Calculation
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

Output
Multifactor Productivity =
Labor +Material +Overhead

5,500 units  $35/unit

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

= 4.529

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Productivity Growth

Current productivity - Previous productivity

Productivity Growth = 100%
Previous productivity

Example: Labor productivity on the ABC assembly line was 25 units

per hour in 2006. In 2007, labor productivity was 23 units per hour.
What was the productivity growth from 2006 to 2007?

23 - 25
Productivity Growth = 100%  8%
25


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Exercise 1:
Chuck Sox makes wooden boxes in which to ship
motorcycles. Chuck and his three employees invest
a total of 40 hours per day making the 120 boxes.

a) What is their productivity?

b) Chuck and his employees have discussed
redesigning the process to improve efficiency. If
they can increase the rate to 125 per day, what will
be their new productivity?
c) What will be their unit increase in productivity per
hour?
d) What will be their percentage change in
productivity?
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Exercise 2:

• Measure the productivity change?

Last Year Now Output

Production (dozen) 1,500 1,500

Labor hrs. 350 325

Input
Capital invested 15,000 18,000

Energy (btu) 3,000 2,750

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Exercise 3:
The Dulac Box plant produces wooden packing boxes to
be used in the local seafood industry. Current operations
allow the company to make 500 boxes per day, in two 8-
hour shifts (250 boxes per shift). The company has
introduced some moderate changes in equipment, and
conducted appropriate job training, so that production
levels have risen to 300 boxes per shift. Labor costs
average $10 per hour for each of the 5 full-time workers
on each shift. Capital costs were previously $3,000 per
day, and rose to $3,200 per day with the equipment
modifications. Energy costs were unchanged by the
modifications, at $400 per day. What is the firm's
multifactor productivity before and after the changes?
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Service Sector Productivity
• 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

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Factors Affecting Productivity

Methods

Capital Quality

Technology Management

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Other Factors Affecting Productivity
• Standardization
• Quality differences
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward productivity
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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
Don’t confuse productivity with efficiency

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Guided Learning (Case Study 1)

Please visit the following link for Case Study

1 text and questions:
https://prezi.com/view/3G9pDZlVBJhU4MWBGlLw/

Answer the questions of the and submit your

answers to your respective tutors during Tutorial
for Chapter 2 / or any date set by your tutors.

The submission is Compulsory as it will be counted

as part of your attendance

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