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2

Competitiveness,
Strategy,
and Productivity

Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved.


Learning Objectives
 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.

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Learning Objectives
 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.
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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
Using Marketing
 Identifying consumer wants and needs
 Pricing
 Advertising and promotion

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Businesses Compete
Using Operations
 Product and service design
 Cost
 Location
 Quality
 Quick response

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Businesses Compete
Using Operations
 Flexibility
 Inventory management
 Supply chain management
 Service and service quality
 Managers and workers

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Why Some Organizations Fail
 Too much emphasis on short-term
financial performance
 Failing to take advantage of strengths
and opportunities and/or to recognize
competitive threats
 Neglecting operations strategy
 Too much emphasis in product and
service design and not enough on
process design and improvement

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Why Some Organizations Fail
 Neglecting investments in capital and
human resources
 Failing to establish good internal
communications and inter-functional
cooperation
 Failing to consider customer wants and
needs

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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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Strategy
 Mission
 Explains the existence for an organization
 Mission Statement
 States the purpose of an organization
 Goals
 Provide detail and scope of mission
 Strategies
 Plans for achieving organizational goals
 Tactics
 The methods and actions taken to accomplish strategies

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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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Strategy Example
Example 1
Jun Hee is a high school student. She would like to
have a career in business, have a good job, and
earn enough income to live comfortably

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

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Examples of Strategies
 Low cost
 Scale-based strategies
 Specialization
 Flexible operations
 High quality
 Service

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Strategy and Tactics
 Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
 Strategy Factors
 Price
 Quality
 Time
 Flexibility
 Service
 Location

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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
 Distinctive competencies
 Environmental scanning
 SWOT
 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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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
 Others (patents, labor relations, image,
etc)
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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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Operations Strategy
 Operations strategy: The approach
consistent with organization strategy,
that is used to guide the operations
function.

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Strategic OM Decisions
Table 2.4
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, 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 and Time Strategies
 Quality-based
strategies
 Focuses on maintaining or
improving the quality of an
organization’s products or
services
 Quality at the source
 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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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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Productivity
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)
Output
Productivity =
Input

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Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity

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Measures of Productivity
Table 2.5

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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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 3

7040 Units Produced

Cost of labor: $1,000

Cost of materials: $520

Cost of overhead: $2000

What is the multifactor productivity?


Ans. 2.0 units per dollar of input
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Example 3: Solution

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)


$1000 + $520 + $2000

MFP = 2.0 units per dollar of input

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Process Yield
 Process yield is the ratio of output of good
product to input
 Defective product is not included in the
output

 Service example:
 Ratio of cars rented to cars available to rent

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Factors Affecting Productivity

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

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Other Factors Affecting Productivity

 Safety
 Shortage of IT workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity

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Outsourcing
 Higher productivity in another company is a
key reason organizations outsource work
 Improving productivity may reduce the need
for outsourcing

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Improving Productivity
 Develop productivity measures
 Determine critical (bottleneck) operations
 Develop methods for productivity
improvements
 Establish reasonable goals
 Get management support
 Measure and publicize improvements

** Do not confuse productivity with efficiency


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