Chapter 2

Competitiveness,
Strategy, and
Productivity

McGraw-Hill/Irwin
Copyright © 2012 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
This chapter focuses on three separate, but
related ideas that are vitally important to
business organizations
 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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Marketing’s Influence
Identifying consumer wants and/or needs
Pricing and quality
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
1. Neglecting operations strategy
2. Failing to take advantage of strengths and
opportunities and/or failing to recognize
competitive threats
3. Too much emphasis on short-term financial
performance at the expense of R&D
4. Too much emphasis in product and service
design and not enough on process design and
improvement
5. Neglecting investments in capital and human
resources
6. Failing to establish good internal
communications and cooperation
7. Failing to consider customer wants and needs 2-7
Hierarchical Planning

Mission

Goals

Organizational Strategies

Functional Strategies

Tactics
2-8
Mission, Goals, and Strategy
 Mission
 The reason for an organization’s existence
 It answers the question “What business are we in?”
 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
 The organizational strategy guides the organization by
providing direction for, and alignment of, the goals and
strategies of the functional units
 The organizational strategy is a major success/failure factor

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Fed Ex Mission Statement
 FedEx Corporation will produce superior financial returns
for its shareowners by providing high value-added logistics,
transportation and related information services through
focused operating companies. Customer requirements will
be met in the highest quality manner appropriate to each
market segment served. FedEx Corporation will strive to
develop mutually rewarding relationships with its
employees, partners and suppliers. Safety will be the first
consideration in all operations. Corporate activities will be
conducted to the highest ethical and professional
standards.
http://about.van.fedex.com/mission-strategy-values

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Strategies
 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
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
 Tobe effective core competencies and strategies
need to be aligned

2-13
Sample Operations Strategies
Organizational
Strategy Operations Strategy Examples of Companies or Services
Low Price Low Cost Wal-Mart

Responsiveness Short processing times McDonald’s restaurants

On-time delivery FedEx
Differentiation: High performance design Sony TV
High Quality and/or high quality
processing
Consistent Quality Coca-Cola
Differentiation: Innovation Apple
Newness
Differentiation: Flexibility Burger King (Have it your way”)
Variety Volume McDonald’s (“Buses Welcome”)
Differentiation: Superior customer service Disneyland
Service IBM
Differentiation: Convenience Supermarkets; Mall Stores
Location

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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 for a product
or service to be considered as a potential for
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
 Internal Factors
Strengths and Weaknesses
 External Factors
Opportunities and Threats

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Key External Factors
1. Economic conditions
2. Political conditions
3. Legal environment
4. Technology
5. Competition
6. Markets

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Key Internal Factors
1. Human Resources
2. Facilities and equipment
3. Financial resources
4. Customers
5. Products and services
6. Technology
7. Suppliers
8. Other

2-19
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 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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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

2-22
Productivity Measures
Output
Productivi ty =
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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Productivity Calculation Example
Units produced: 5,000
Standard price: $30/unit
Labor input: 500 hours
Cost of labor: $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
5,000 units $30/unit
=
(500 hours $25/hour) + $5,000 + (2(500 hours $25/hour))

$150,000
=
$42,500
= 3.5294

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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 2014. In 2015, labor productivity was 23 units per hour. What
was the productivity growth from 2014 to 2015?

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


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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
 Where products are involved
 ratio of output of good product to the quantity of raw material
input.
 Where services are involved, process yield measurement
is often dependent on the particular process:
 ratio of cars rented to cars available for a given day
 ratio of student acceptances to the total number of students
approved for admission.

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Factors Affecting Productivity

Methods

Capital Quality

Technology Management

2-28
 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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Thank You

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