Chapter 2

Competitiveness, Strategy, and

Productivity

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Chapter 2: Learning Objectives
• 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

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Chapter 2: Learning Objectives (contd.)

• You should be able to:

– 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

• 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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Hierarchical Planning

Mission

Goals

Organizational Strategies

Functional Strategies

Tactics

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Mission, Goals, and Strategy
• Mission
– The reason for an organization’s 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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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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Strategy Formulation
• Effective strategy formulation requires taking
into account:
– Core( distinctive ) competencies
– Environmental scanning
• SWOT
• Successful strategy formulation also requires
taking into account:
– Order qualifiers
– Order winners

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Operations Strategy
• 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 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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Time- and Quality-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
• 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 part of a cost reduction strategy

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Agile Operations
• Agile operations
– A strategic approach for competitive advantage that
emphasizes the use of flexibility to adapt and prosper
in an environment of change
• Involves the blending of several core competencies:
– Cost
– Quality
– Reliability
– Flexibility

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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 unit’s performance over time
– Judging the performance of an entire industry or
country

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 Productivity Measures
Output
Productivity =
Input

Output Ouput Output

Partial Measures ; ;
Single Input Labor Capital

Output Ouput Output

Multifactor Measures ; ;
Multiple Inputs Labor +Machine Labor +Capital +Energy

Goods or services produced

Total Measure
All inputs used to produce them

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Total Productivity: example

Bluegill Furniture makes kitchen chairs. The weekly

dollar value of its output, including finished goods
and work-in-progress, is $14,280. The value of inputs
(labor, materials, capital) is approximately $16,528.
What is the total productivity measure for Bluegill?

Total productivity = output/input

= $14,280/$16,528 = .864 or 86.4%

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Partial Productivity: example

Bluegill Furniture has hired 2 new workers to paint

chairs. Together they have painted 10 chairs in 4
hours. What is labor productivity for the pair?

Labor productivity = output/labor

= (10 chairs)/(2 x 4 hr)

= (10 chairs)/(8 hr) or 1.25 chairs/hr

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Multifactor Productivity: example

Bluegill Furniture averages 35 chairs/day. Labor costs

average $480, material costs are typically $200, and
overhead cost is $250. Bluegill sells the chairs to a
retailer for $70/unit. Find multifactor productivity.
Multifactor productivity =
(value of output)/(labor + material + overhead costs)

= ($70/chair x 35 chairs)/(480+200+250)
= ($2450)/($930) or 2.63

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Interpreting Productivity Measures

• Productivity measures must be compared to

something, i.e. another year, a different
company

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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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• The manager of a crew that installs carpeting
has trucked the crew’s output over the past
several weeks, obtaining these figures:
Yards
Week Crew Size
Installed
1 4 96
2 3 72
3 4 92
4 2 50
5 3 69
6 2 52

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Compute labor productivity for each of the weeks
.on the basis of calculation what can you conclude
about labor productivity

Week Crew Size Yards Installed Labor Productivity

1 4 96 24 yards
2 3 72 24
3 4 92 23
4 2 50 25
5 3 69 23
6 2 52 26

A crew of 2 seems to work best.

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• Compute the multifactor productivity for each of
the weeks shown. what do productivity figures
suggest ?assume 40 –hour weeks and an
hourly wage of $12,overhead is 1.5 times
weekly labor cost ,material cost is $6 per pound.
standard price is $140 per unit.
workers Materials
Week Output
1 30,000 6 450
2 33,600 7 470
3 32,200 7 460
4 35,400 8 480

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(1) (2) (3) (4) (5) (6) (7)
Worker
Cost@ Overhead Material Total MFP Consider
Week Output $12x40 Cost @1.5 Cost@$6 Cost (2)  (6) standard
price*
(7)x$140
1 30,000 2,880 4,320 2,700 9,900 3.03 424.24
2 33,600 3,360 5,040 2,820 11,220 2.99 419.25
3 32,200 3,360 5,040 2,760 11,160 2.89 403.94
4 35,400 3,840 5,760 2,880 12,480 2.84 397.12

Multifactor productivity dropped steadily from a high of 3.03

to about 2.84.

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