St.

Paul University Philippines

Graduate School

Module 2: Competitiveness, Strategy, and Productivity

1. Contrast strategies of Pepsi, emphasizing its diet cola, and Coca-Cola, focusing
on reviving its Classic Coke brand. What is the basis of its one’s strategy?

Coca-Cola advertising has historically focused on wholesomeness and nostalgic effects for
childhood. Coca-Cola advertising is often characterized as "family-friendly" and often relies
on "cute" characters like the Coca-Cola polar bear mascot and Santa Claus around Christmas.
One example of a heated exchange that occurred during the Cola Wars was Coca-Cola's
making a strategic retreat on July 11, 1985, by announcing its plans to bring back the original
"Classic" Coke after recently introducing New Coke.

In the late 1990s, Pepsi launched its most successful long-term strategy of the Cola
Wars, Pepsi Stuff. Consumers were invited to "Drink Pepsi, Get Stuff" and collect Pepsi
Points on billions of packages and cups; they could redeem the points for free Pepsi lifestyle
merchandise. After researching and testing the program for over two years to ensure that it
resonated with consumers, Pepsi launched Pepsi Stuff, which was an instant success. Tens of
millions of consumers participated. Pepsi outperformed Coke during the summer of
the Atlanta Olympics - held in Coke's hometown - where Coke was a lead sponsor of the
Games. Due to its success, the program was expanded to include Mountain Dew and Pepsi's
international markets worldwide. The company continued to run the program for many years,
continually innovating with new features each year.

2. A US Company has two manufacturing plants, one in the United States and one
in another country. Both produce the same item, each for sale in their respective
countries. However, their productivity figures are different. The analysts thinks
this is because the US plant uses more automated equipment for processing while
the other plant uses a higher percentage of labor. Explain how that factor can
cause productivity figures to be misleading. Is there another way to compare the
two plants that would be more meaningful?

These two plants are related through a transnational strategy. Transnational strategies exploit
the economies of scale and learning, as well as pressure for responsiveness, by recognizing
that core competence does not reside in the “home” country but can exist anywhere in the
organization.

Key activities in a transnational company are neither centralized in the parent company nor
decentralized so that each subsidiary can carry out its own tasks on a local basis. Instead, the
resources and activities are dispersed, but specialized so as to be both efficient and flexible in
an interdependent network.

The difference between the US using more automated equipment for processing while the
foreign plant uses a relatively high percentage of human labor can be explained through what
is called a “resources view.” This term is a method that managers utilize in order to evaluate
the resources at their disposal and manage or alter them to achieve competitive advantage.
In the United States, the resources are capitalize on the advanced technology at disposal in
order to use more automated equipment, unlike other countries that may not be so
resourceful. In that case, in order to keep up with production, they must increase the amount
of human labor. Because of the difference between the available resources between the two
countries, it can cause the productivity figures to be misleading.

3. While it is true that increases in efficiency generate productivity, it is possible to

get caught in an “efficiency improvement trap”. Explain what this means.

Efficiency is basically finding the best way to attain a given goal. It mainly concerns itself
with the way things are done. In most cases, an increase in efficiency is accompanied by
an increase in productivity. However, organizations enhancing their efficiency should be
vigilant to avoid being caught up in an “efficiency improvement trap.”

While efficiency deals with the quantity and quality of a product and mainly concerns
itself with how things are being done, productivity mainly concerns with an operations
end results. It is hence clear that by using efficiency as a way to find the most appropriate
way to reach a goal in a given operation, the end results of the operation i.e. productivity
will be more impressive with every increase in efficiency.

Efficiency Improvement Trap means that an organization focuses on improving

efficiency rather than productivity that might overlook other improvements to
productivity and thereby fall behind its competitors.

Concentrating on efficiency improvement as opposed to the improvement of productivity

may not be successful at all as organization would not be focusing on the use of different
resources when it comes to doing things in a better way. This essentially means that such
organization would lag behind competitors as far as productivity is concerned and hence
incurring more costs going forward than competitors.

Therefore it is important to note that productivity as a concept is wider than efficiency

and organizations should look for increasing their efficiency by deriving the most out of a
set of assets, productivity dictates that for each production goal to be reached, resources
must be used efficiently

4. In the past there was concern about a “productivity paradox” related to IT

services. More recently there have been few references to this phenomenon.
Using the Internet, explain the term ”productivity paradox”. Why do you think
that the discussion of that topic has faded?

Anything that is related to computers and computing is some type of Information Technology
(IT). Thus when business buy computers, software, hardware, or other computer related
materials, they make investment in IT. Although it seems attractive, but investment in IT is
not quite profitable.

The productivity paradox (also the Solow computer paradox) is the peculiar observation
made in business process analysis that, as more investment is made in information
technology, worker productivity may go down instead of up. This observation has been
firmly supported with empirical evidence from the 1970s to the early 1990s. This is highly
counter intuitive. Before investment in IT became widespread, the expected return on
investment in terms of productivity was 3-4%. This average rate developed from the
mechanization/automation of the farm and factory sectors. With IT though, the normal return
on investment was only 1% from the 1970s to the early 1990s.

the paradox began to take place in the early 1970s and progressed through 5 stages:

Stage 1 These were the early days, when not much was known about the implications of IT
investment and expectations were huge. The idea of IT investment was so novel that there
was a broad notion that IT was going displace labor entirely. Ever since this early period of
investment in IT, it was assumed that labor productivity was the correct way to measure the
impact IT had.
Stage 2 This stage started in the late 1970s and marked the first indications that the result of
IT investment was less than expected. Even though this was the case, companies continued to
funnel huge amounts of capitol into computing. Most companies didn't even bother to try and
evaluate their IT investment. Those that did usually only used return on investment
calculations.
Stage 3 This stage, which spanned the early 1980s, was marked by the realization that IT
was only to be used in terms of productivity. Instead, companies began to use IT strategy.
Several companies (American Airlines, American Hospital Supplies, and Citibank)
strategically used IT to create a competitive advantage over their competitors. Stage 4 By
the late 1980s IT investments migrated to management information systems. In this new area
IT was no longer expected to be directly productive. It was also during this time that
numerous explanations for the productivity paradox emerged. Although none of them
individually provided a concrete explanation, collectively they hinted at a larger problem.
Stage 5 After the late 1980s, most of the investment in IT has been in telecommunications.
With this new area of investment, expectations of productivity increases were further
lowered.