CHAPTER 2

COMPETITIVENESS - is an important factor in determining whether a company prospers,

barely gets by, or fails.

- how effectively an organization meets the wants and needs of customers relative to
others that offer similar goods or services.

Marketing influences competitiveness in several ways:

1. Identifying consumer wants and/or needs - basic input in an organization’s decision-

making process, and central to competitiveness.
2. Price and quality - key factors in consumer buying decisions.
3. Advertising and promotion – ways to inform potential customers about features of their
products or services.
Operations has a major influence on competitiveness through:

1. Product and Service Design

- Special characteristics or features of a product or service can be a key factor in
consumer buying decisions.
- Other key factors include innovation and the time-to-market for new products and
services.
2. Cost
- key variable that affects pricing decisions and profits.
- Productivity is an important determinant of cost.
- Organizations with higher productivity rates than their competitors have a
competitive cost advantage.
3. Location
- important in terms of cost and convenience for customers
- Convenient location is particularly important in the retail sector (e.g. near
markets=quick deliveries; near inputs=lower input cost).
4. Quality
- refers to materials, workmanship, design, and service.
- how well they think a product or service will satisfy its intended purpose.
- Consumers pay more for quality.
5. Quick Response
- Competitive advantage
- Quick bringing of new products, quick deliveries, quick handling of complaints.
6. Flexibility
- ability to respond to changes.
 - Changes might relate to alterations.
7. Inventory Management
- competitive advantage by effectively matching supplies of goods with demand.
8. Supply Chain Management
- coordinating internal and external operations (buyers and suppliers) to achieve timely
and cost-effective delivery of goods.
9. Service
- involve after-sale activities customers perceive as value-added.
- involve extra attention while work is in progress.
- Service quality can be a key differentiator; and it is one that is often sustainable.
- Businesses rated highly by their customers for service quality tend to be more
profitable and grow faster.
10. Managers and Workers
- people at the heart and soul of an organization.
- One often overlooked skill is answering the telephone.

The key to successfully competing is to determine what customers want and then directing
efforts toward meeting customer’s expectations.

Why some organization fail?

1. Neglect operations strategy
2. Fails to take advantage of strength and opportunities
3. Too much emphasis on short-term performance
4. Too much emphasis on production and neglect research
5. Neglect investments
6. Failing to establish good internal cooperation
7. Failure to consider the customer’s needs and wants
Organization’s Mission – reason for its existence

Mission statement - states the purpose of an organization.

- serves as basis for organizational goals

Organizational Goals - provide detail and scope of the mission.

- serves as a foundation for the development of organizational strategies

- destination

Organizational Strategies - plans for achieving organizational goals.

- can be the main reason for the success and failure of an organization
- roadmaps for reaching the destination; provide focus for decision making
Three basic business strategy:

1. Low Cost
2. Responsiveness – ability to respond to changing demands
3. Differentiation from competitors – relate to products/service features, qualities, reputation
or customer service.

Amazon.com – employs combination or multiple strategies

Some companies’ Mission

Microsoft - help people and businesses throughout the world to realize their full potential.
Verizon - help people and businesses communicate with each other.
Starbucks - inspire and nurture the human spirit—one cup and one neighborhood at a time.
U.S. Dept. of Education - promote student achievement and preparation for global
competitiveness and fostering educational excellence and ensuring equal access.

Tactics – methods and actions used to accomplish strategies.

- the “how to” part of the process

Core competencies - the special attributes or abilities that give an organization a competitive
edge.

Strategy Formulation – critical to the success of the strategy.

SWOT analysis/approach – strength, weakness, opportunities, and threats

- examine other factors that could have either positive or negative effects.
- often regarded as the link between organizational strategy and operations strategy.
- Strengths and weaknesses have an internal focus and are typically evaluated by
operations people.
- Threats and opportunities have an external focus and are typically evaluated by
marketing people.

Must be taken to account in formulating successful strategies:

1. Order Qualifiers – characteristics that potential customers perceive as minimum standards

of acceptability for a product to be considered for purchase.
2. Order Winners - characteristics of an organization’s goods or services that cause them to
be perceived as better than the competition.

Environmental scanning - is the monitoring of events and trends that present either threats or
opportunities for the organization.
Technological Change – key factor to consider because it can present real opportunities and
threats to an organization.

- Change can occurs in product, service and processes.

External Factors to consider:

1. Economic conditions - includes the general health and direction of the economy,
inflation and deflation, interest rates, tax laws, and tariffs.
2. Political conditions - includes favorable or unfavorable attitudes toward business,
political stability or instability, and wars.
3. Legal environment - includes antitrust laws, government regulations, trade
restrictions, minimum wage laws, product liability laws and recent court experience,
labor laws, and patents.
4. Technology - includes the rate at which product innovations are occurring, current
and future process technology, and design technology.
5. Competition - includes the number and strength of competitors, the basis of
competition and the ease of market entry.
6. Markets - includes size, location, brand loyalties, ease of entry, potential for growth,
long-term stability, and demographics.

Internal Factors to consider:

1. Human resources - include the skills and abilities of managers and workers, special
talents (creativity, designing, problem solving), loyalty to the organization, expertise,
dedication, and experience.
2. Facilities and equipment – the capacities, location, age, and cost to maintain or
replace can have a significant impact on operations.
3. Financial resources – includes the cash flow, access to additional funding, existing
debt burden, and cost of capital are important considerations.
4. Customers - loyalty, existing relationships, and understanding of wants and needs are
important.
5. Products and services - include existing products and services, and the potential for
new products and services.
6. Technology - includes existing technology, the ability to integrate new technology,
and the probable impact of technology on current and future operations.
7. Suppliers - supplier relationships, dependability of suppliers, quality, flexibility, and
service are typical considerations.
8. Other - include patents, labor relations, company or product image, distribution
channels, relationships with distributors, maintenance of facilities and equipment,
access to resources, and access to markets.
Growth – component of strategy (especially new companies)
Profit Impact of Market Strategy (PIMS) – example of a useful resource on successful
strategies. (contains over 3000 business profiles)

- help managers understand and react to their business environment

The key steps in strategy formulation are:

1. Link strategy directly to the organization’s mission or vision statement.
2. Assess strengths, weaknesses, threats, and opportunities, and identify core competencies.
3. Identify order winners and order qualifiers.
4. Select one or two strategies to focus on.
Database - is a collection of statistically documented experiences drawn from thousands of
businesses, designed to help understand what kinds of strategies work best in what kinds of
business environments.
- Data constitute a key resource for such critical management tasks as evaluating
business performance, analyzing new business opportunities, evaluating and reality
testing new strategies, and screening business portfolios.

Various Strategies:
1. Supply Chain Strategy - how the supply chain should function to achieve supply chain
goals.
2. Sustainability Strategy - placing increasing emphasis on corporate sustainability
practices in the form of governmental regulations and interest groups.
3. Global Strategy – Globalization

Operation Strategy - narrower in scope, dealing primarily with the operations aspect of the
organization.
- consistent with the organization strategy, that is used to guide the operations function.

Strategies based on quality and/or time:

1. Quality-based strategy - focus on maintaining or improving the quality of an
organization’s products or services.
2. Time based strategy - focus on reducing the time required to accomplish various
activities.
Rationale: Reducing time = Reducing Cost
Organizations have achieved time reduction in some of the following:
 1. Planning time: time needed to react to threat, to develop strategies and tactics, to
approve proposed changes to facilities, to adopt new technologies, and so on.
2. Product/service design time: time needed to develop and market new or redesigned
products or services.
3. Processing time: time needed to produce goods or provide services.
4. Changeover time: time needed to change from producing one type of product or service
to another.
5. Delivery time: The time needed to fill orders.
6. Response time for complaints: time to deal with customers or employee’s complaints.

Reducing the time needed to perform work is one of the ways an organization can improve a
key metric: productivity.

Balanced Scorecard (BSC) - is a top-down management system that organizations can use to
clarify their vision and strategy and transform them into action.
- idea was to move away from a purely financial perspective of the organization and
integrate other perspectives such as customers, internal business processes, and
learning and growth.
- was introduced in the early 1990s by Robert Kaplan and David Norton.
Focal Points:
1. Suppliers
2. Internal Processes
3. Employees
4. Customers

Productivity - index that measures output (goods and services) relative to the input (labor,
materials, energy, and other resources) used to produce it.
- A measure of the effective use of resources, usually expressed as the ratio of output
to input.
- measures can be based on a single input (partial productivity), on more than one input
(multifactor productivity), or on all inputs (total productivity).
Productivity growth - is the increase in productivity from one period to the next relative to the
productivity in the preceding period.
Formula:
Productivity = Output / Input
Productivity Growth = {(Current Productivity – Previous Productivity) / Prev.
Productivity} x 100%
Factors that affect productivity:
1. Methods
2. Capital
3. Quality
4. Technology
5. Management
Other Factors:
1. Standardizing: reduce variability can have a significant benefit for both productivity
and quality.
2. Quality differences: may distort productivity measurements.
3. Use of the Internet: can lower costs of a wide range of transactions, thereby
increasing productivity.
4. Computer viruses: can have an immense negative impact on productivity.
5. Searching for lost or misplaced items: wastes time, hence negatively affecting
productivity.
6. Scrap rates: adverse effect on productivity, signaling inefficient use of resources.
7. New workers: tend to have lower productivity than seasoned workers.
8. Safety: accidents can take a toll on productivity.
9. Shortage of technology-savvy workers: hampers the ability of companies to update
computing resources, generate and sustain growth, and take advantage of new
opportunities.
10. Layoffs: affect productivity. The effect can be positive and negative.
11. Labor turnover: has a negative effect on productivity; replacements need time to get
up to speed.
12. Design of the workspace: can impact productivity. For example, having tools and
other work items within easy reach can positively impact productivity.
13. Incentive plans that reward productivity increases: can boost productivity.