Anne Liah D.

Romero

BSA2205 – BSMA1E

Activity 2

CHAPTER 2. COMPETITIVENESS, STRATEGY, AND PRODUCTIVITY

This chapter discusses competitiveness, strategy, and productivity, three distinct but related issues that are
critical to business organizations. Competitiveness refers to an organization's effectiveness in the
marketplace in comparison to other organizations that provide similar products or services.
Competitiveness is heavily influenced by operations and marketing. Strategy refers to the plans that
govern how an organization achieves its objectives. In this sense, operations strategy is very significant.
Productivity is concerned with the efficient use of resources and has a direct impact on competitiveness.
Productivity is mostly the responsibility of operations management.

I. Competitiveness

Underlying Question: How effectively an organization meets the wants and needs of customers relative
to others that offer similar goods or services?

To sell their goods and services in the marketplace, businesses must be competitive. Competitiveness is a
key factor in determining whether a firm develops, struggles, or fails.

Businesses compete through a combination of their marketing and operational activities. Marketing has an
impact on competition in a variety of ways, including identifying customer wants and needs, pricing, and
advertising and promotion.

1. Identifying consumer wants and/or needs

It is a fundamental input in the decision-making process of a company and is critical to competitiveness.

The ideal situation is to establish a perfect match between those wants and needs and the goods and/or
services offered by the company.

2. Price and quality

These are important considerations in consumer purchasing decisions. It is essential to consider the trade-
off decision that buyers make between price and quality.

3. Advertising and promotion

These are methods for businesses to inform potential customers about the benefits of their products or
services and attract purchasers.
Product and service design, pricing, location, quality, response time, flexibility, inventory and supply
chain management, and service all have a significant impact on competitiveness. Many of these are
interrelated.

1. Product and service design should represent the joint efforts of various departments within the
company to establish a match between financial resources, operational skills, supply chain
capabilities, and consumer wants and needs a product's or service’s unique qualities or features
can play an important role in customer purchasing choices. Innovation and time-to-market for
new products and services are also important considerations.

2. Cost of an organization's production is a significant variable that influences pricing decisions and
profits. In most business organizations, cost-reduction efforts are continuous. Productivity is a
key cost determinant. Organizations that outperform their competitors in terms of productivity
have a cost advantage. A company may outsource a portion of its operations in order to reduce
costs, increase productivity, or improve quality.

3. Location can be significant in terms of cost and consumer convenience The proximity of inputs
might result in cheaper input costs. The proximity of markets might result in reduced
transportation costs and faster delivery times. Convenient location is very essential in the retail
industry.

4. Quality refers to the quality of the materials, workmanship, design, and service. Consumers
assess quality based on how effectively they think a product or service will fulfill its intended
purpose. Customers usually willing to pay extra for a product or service if they believe it is of
greater quality than a competitor's.

5. Quick Response can provide you a competitive advantage. One technique is to bring new or
better products or services to market as soon as possible. Another is the ability to immediately
provide existing items and services to a consumer after they have been ordered, and yet another is
the ability to handle consumer complaints fast.

6. Flexibility is the ability to adapt to new situations. Changes in design characteristics of a product
or service, or in the amount requested by customers, or in the mix of products or services supplied
by an organization, are examples of changes. In a volatile environment, high flexibility might
provide a competitive edge.

7. Inventory Management can provide a competitive advantage by successfully matching products

supply with demand.

8. Supply Chain Management involves coordinating internal and external activities (buyers and
suppliers) to ensure timely and cost-effective delivery of commodities across the system.

9. Service might involve after-sale operations that customers view as value-added, such as delivery,
setup, warranty work, and technical assistance. Alternatively, it might include extra attention
 while progress is being made, such as courtesy, keeping the customer informed, and paying
attention to details.

10. Managers and worker are the people at the heart and soul of a business, and if they are skilled
and motivated, their skills and the ideas they generate may give a significant competitive
advantage.

Reasons why business organizations fail

Organizations fail or underperform for a number of reasons. Being aware of these causes can
help managers in avoiding similar mistakes. Among the most important reasons are the following:

1. Disregarding operational strategy.

2. Failure to take advantage on strengths and opportunities, as well as failure to detect competitive
threats.
3. Overemphasis on short-term financial performance at the expense of research and development.
4. Too much focus is placed on product and service design while not enough attention is placed on
process design and improvement.
5. Disregarding capital and human resource investments.
6. Failure to create effective internal communications and cooperation among various functional
sectors.
7. Failure to consider the wants and needs of the consumer.

II. Strategy

Mission

 It is the reason for its existence.

 It is a summary of the aims and core values.
 It clearly tells what you as an organization does for customers.
 It is comprehensive but also very specific to set you apart from other organizations.
 It is stated in the organization's mission statement.

The mission statement of a corporate organization should answer the question, "What business are we
in?" Missions differ from one organization to another, depending on the nature of their company.

Examples: Microsoft: To help people and businesses throughout the world to realize their full potential.

Nike: To bring inspiration and innovation to every athlete in the world.

Verizon: To help people and businesses communicate with each other.

 Walt Disney: To be one of the world’s leading producers and providers of entertainment and

Information

Strategies

 These are important because they lead the organization by providing direction for and aligning
the goals and strategies of the functional units.
 These can be the major cause for a company's success or failure.
 These are the ways that will take you to your goal.
 These offer a viewpoint for decision making.

Organizations, in general, have overall strategies known as organizational strategies that apply to the
entire organization. They also have functional strategies that are related to each of the organization's
functional areas. Functional strategies should support the organization's overall strategy, just as
organizational strategies should support the organization's goals and mission.

Tactics

 These are the methods and actions that are utilized to carry out strategies.
 They are more detailed than strategies.
 They give guidance and direction for real activities that need the most exact and thorough plans
and decision making in an organization.

Considering tactics to be the “how to” component of the process (e.g., how to get it to the destination by
following the strategy roadmap) and operations to be the actual “doing” part of the process.

It should be obvious that the overall connection exists from the mission down to actual operations is
hierarchical. A simple example may help to put this hierarchy into perspective. This is illustrated in
Figure 1:
Example:

Rita is a high school student in Southern California. She would like to have a career in business, have a
good job, and earn enough income to live comfortably.

A possible scenario for achieving her goals might look something like this:

Mission: Live a good life.

Goal: Successful career, good income.

Strategy: Obtain a college education.

Tactics: Select a college and a major; decide how to finance college.

Operations: Register, buy books, take courses, study.

Here are some examples of different strategies an organization might choose from:

Low cost - Outsource operations to third-world countries that have low labor costs.

Scale-based strategies - Use capital-intensive methods to achieve high output volume and low unit costs.

Specialization - Focus on narrow product lines or limited service to achieve higher quality.

Newness - Focus on innovation to create new products or services.

Flexible operations - Focus on quick response and/or customization.

High quality - Focus on achieving higher quality than competitors.

Service - Focus on various aspects of service (e.g., helpful, courteous, reliable, etc.).

Sustainability - Focus on environmental-friendly and energy-efficient operations.

 Strategy Formulation

Strategy formulation is the analytical process of determining the

optimal course of action to fulfill the organization's objectives and
vision. It is a phase in the strategic management process. The
strategic plan enables a company to assess its resources, develop a
financial strategy, and choose the best course of action for growing
profits.

SWOT analysis is used to evaluate it. The term SWOT stands for
strength, weakness, opportunity, and threat. The strategic plan
should be presented to all employees so that they are aware of the
company objectives, mission, and vision. It gives employees with
direction and concentration.
Steps of Strategy Formulation

The steps of strategy formulation include the following:

1. Establishing Organizational Objectives - This includes

generating an organization's long-term goals. Once the
organizational objectives have been established, strategic decisions
may be made.

2. Analysis of Organizational Environment - This requires doing a

SWOT analysis, which involves evaluating the company's strengths
and weaknesses as well as keeping a close eye on rivals' actions in
order to recognize opportunities and threats.

3. Forming quantitative goals - Defining targets in order to fulfill

the company's short- and long-term goals. For example, a
company's sales increased by 30% this year.

4. Objectives in context with divisional plans - This includes setting

up goals for each department so that they all work together to
benefit the business as a whole.

5. Performance Analysis - This is done to estimate the degree of difference between an

organization's actual and standard performance.

6. Selection of Strategy - This is the final step in the strategy formulation process. It entails
evaluating the options and selecting the best plan from among them to be the organization's
strategy.

Levels of Strategy Formulation

There are three levels of strategy formulation used in an organization:

 Corporate level strategy - This level defines your goals: expansion, stability, acquisition, or
retrenchment. It focuses on the type of business you intend
to start.

 Business level strategy - This level provides a response to

the issue of how you intend to compete. It is useful in
organizations with smaller business units, each of which is
regarded as a strategic business unit (SBU).

 Functional level strategy - This level focuses on how an

organization will expand. It outlines everyday actions such as resource allocation to deliver
corporate and company level strategies.
The monitoring of events and trends that provide threats or opportunities for the company is known as
environmental scanning. In general, they include the actions of competitors, changing customer
requirements, legal, economic, political, and environmental concerns, the possibility for new markets, and
so on.

Another key factor to consider when developing strategies is technological change, which can present
real opportunities and threats to an organization. Technological changes occur in products (high-
definition TV, improved computer chips, improved cellular telephone systems, and improved designs for
earthquake-proof structures); in services (faster order processing, faster delivery); and in processes
(robotics, automation, computer-assisted processing, point of-sale scanners, and flexible manufacturing
systems). The obvious benefit is a competitive edge; the risk is that incorrect choices, poor execution, and
higher-than-expected operating costs will create competitive disadvantages.

Important factors may be internal or external. The following are key external factors:

1. Economic conditions - These include the general health and direction of the economy, inflation and
deflation, interest rates, tax laws, and tariffs.

2. Political conditions - These include favorable or unfavorable attitudes toward business, political
stability or instability, and wars.

3. Legal environment - This includes antitrust laws, government regulations, trade restrictions, minimum
wage laws, product liability laws and recent court experience, labor laws, and patents.

4. Technology - This can include the rate at which product innovations are occurring, current and future
process technology (equipment, materials handling), and design technology.

5. Competition - This includes the number and strength of competitors, the basis of competition (price,
quality, special features), and the ease of market entry.

6. Markets - This includes size, location, brand loyalties, ease of entry, and potential for growth, long-
term stability, and demographics.

The organization also must take into account various internal factors that relate to possible strengths or
weaknesses. Among the key internal factors are the following:

1. Human resources - These 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 - Capacities, location, age, and cost to maintain or replace can have a
significant impact on operations.

3. Financial resources - 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 - These include existing products and services, and the potential for new
products and services.

6. Technology - This 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. Others - Other factors 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.

 Global Strategy

As globalization became more prevalent, more businesses recognized the need of making globalization-
related strategic decisions. One difficulty that businesses must confront is that what works in one country
or region may not work in another, and strategies must be carefully developed to account for these
variations. Another concern is the possibility of political or social instability. Another concern is the
difficulty of coordinating and supervising operations in remote locations. “In today's global marketplaces,
you don't have to go overseas to experience international competition,” he says. "Eventually, the world
will come to you."

A global strategy is one adopted by a company in order to compete and expand in the global market. In
other words, a strategy used by firms to grow worldwide. A global strategy is a set of plans established by
an organization to expand outside its borders. Its specific goal is to enhance foreign sales of goods or
services.

In fact, the word "global strategy" is a shorter term for three strategies: international, multinational, and
global. If a company want to develop globally, it must pursue tactics in these three areas.

International

An international business is one that imports and exports goods. In other words, it sells to consumers in
other countries and has suppliers in other countries. According to New Horizons Global Partners, this sort
of business does not have any investments, such as branches, offices, or factories, outside of its home
country.

Multinational

A multinational corporation, as compared to an international corporation, has investments in different

nations. It has operations, employees, and facilities in more than one countries. Its product offers,
however, are not coordinated. A global corporation is more concerned with developing its products and
services to specific local markets.

Global

A multinational corporation has investments and operations in many countries. It advertises its goods or
services in each market using the same coordinated image/brand. In most situations, a single corporate
office is in charge of global strategy. A considerable focus is also placed on cost control, efficiency, and
volume.

 Operations Strategy

Operations strategy is narrower in scope, dealing primarily with the operations aspect of the
organization. Operations strategy relates to products, processes, methods, operating resources, quality,
costs, lead times, and scheduling.

In order for operations strategy to be truly effective, it is important to link it to organization strategy; that
is, the two should not be formulated independently. Rather, formulation of organization strategy should
take into account the realities of operations’ strengths and weaknesses, capitalizing on strengths and
dealing with weaknesses. Similarly, operations strategy must be consistent with the overall strategy of the
organization, and with the other functional units of the organization. This requires that senior managers
work with functional units to formulate strategies that will support, rather than conflict with, each other
and the overall strategy of the organization. As obvious as this may seem, it doesn’t always happen in
practice. Instead, we may find power struggles between various functional units. These struggles are
detrimental to the organization because they pit functional units against each other rather than focusing
their energy on making the organization more competitive and better able to serve the customer. Some of
the latest approaches in organizations, involving teams of managers and workers, may reflect a growing
awareness of the synergistic effects of working together rather than competing internally.

Operations strategy can have a major influence on the competitiveness of an organization. If it is well
designed and well executed, there is a good chance that the organization will be successful; if it is not
well designed or executed, the chances are much less that the organization will be successful.

The process of refining and defining a company's business strategy, as well as establishing strategic
initiatives and operational plans, all with the goal of allowing departments and business units to
successfully implement the overall business strategy, is referred to as operational strategy. The work
involves, among others:

 Providing management with feedback regarding the overall effectiveness of the corporate and
business strategies
 Performing detailed operational analysis to identify any omissions / problems / improvement
areas in the overarching strategies
 Developing SMART (Specific, Measurable, Actionable, Realistic, Timebound) plans to deliver
the outcomes, and
  Implementing the action plans and measuring the results against predefined goals and key
performance indicators

Some of the techniques used to achieve the operational strategy are:

 Value chain analysis

 Benchmarking
 Value proposition analysis
 Activity Based Costing

 Strategic Operations Management Decision Areas

The success of businesses is highly dependent on the 10 decision areas of Operations Management (OM).
Businesses who align and integrate their business activities and strategies to these 10 decision areas will
find themselves highly efficient and effective in their operations which in turn result in higher business
profitability. The 10 areas of OM are:

1. Goods and services – This involves searching for ways to implement cost, quality, and resource
consistency across all business divisions.
2. Quality Management - Be clear on the customer’s demands and then meet those expectations.
Use market research to determine customer needs and batch quality assurance testing on products
and services in production.
3. Process and Capacity Design - Create plans that support all production goals, including
technology and resources. A value stream map can assist in determining which operations are
required and how to keep them operating smoothly.
4. Location - Consider the supply chain and how the location will acquire supplies, the flow of
goods and services internally and to consumers, and the role of marketing and public relations in
location selection when designing a location strategy.
5. Layout Design and Strategy - Consider the location of desks and workstations, as well as how
supplies are supplied and used.
6. Human Resources and Job Design - To achieve success in this area, implement continuous
improvement programs with frequent evaluations, give continual training for staff, and create
employee satisfaction initiatives.
7. Supply Chain Management - Determine the best strategies for streamlining, be cost-effective,
and developing trustworthy partners.
8. Inventory - When it comes to inventory, different markets provide different challenges, but all
must think and plan their inventory control. Weather, supply constraints, and labor availability all
have an impact on how a company manages its inventory.
9. Scheduling - Consider both production and people. Ask questions such as how much product is
required to be produced for the customer in the required time? How many people and how many
machines are required to do the job effectively and efficiently? This differs among industries and
business departments.
 10. Maintenance - This involves the upkeep of both people and machinery, as well as the process.
What steps must you take to ensure quality and the dependability and stability of your resources?

 Quality and Time Strategies

Traditional company strategies have tended to prioritize cost reduction or product differentiation. While
not abandoning such strategies, many companies have embraced quality and/or time-based measures.

Quality-based strategies are concerned with preserving or increasing the quality of a company's products
or services. In general, quality has a role in both attracting and maintaining consumers. A multitude of
variables can inspire quality-based strategies. They may represent an effort to overcome a low-quality
image, a desire to keep up with the competition, a desire to retain a high-quality image already in place, or
some combination of these and other factors. Surprisingly, quality-based strategies may be integrated into
other strategies such as cost reduction, enhanced productivity, or time management, all of which benefit
from higher quality.

Time-based strategies aim to reduce the amount of time necessary to complete certain tasks (e.g.,
develop new products or services and market them, respond to a change in customer demand, or deliver a
product or perform a service). By doing so, companies want to improve customer service and gain a
competitive advantage over competitors who take longer to do the same activities.

Time-based strategies aim to reduce the amount of time required to complete the various tasks in a
process. The argument is that by decreasing time, expenses are typically reduced, productivity is
increased, quality is generally greater, product innovations are introduced to the market sooner, and
customer service is enhanced.

Organizations have achieved time reduction in some of the following:

Planning time - The time needed to react to a competitive threat, to develop strategies and select tactics,
to approve proposed changes to facilities, to adopt new technologies, and so on.

Product/service design time - The time needed to develop and market new or redesigned products or
services.

Processing time - The time needed to produce goods or provide services. This can involve scheduling,
repairing equipment, methods used, inventories, quality, training, and the like.

Changeover time - The time needed to change from producing one type of product or service to another.
This may involve new equipment settings and attachments, different methods, equipment, schedules, or
materials.

Delivery time - The time needed to fill orders.

Response time for complaints - These might be customer complaints about quality, timing of deliveries,
and incorrect shipments. These might also be complaints from employees about working conditions (e.g.,
safety, lighting, heat or cold), equipment problems, or quality problems.
 III. Productivity

One of a manager's key tasks is to make effective use of an organization's resources. This is referred to as
"productivity." Productivity is a measure of output (goods and services) in relation to input (work,
materials, energy, and other resources) needed to create it. It is commonly stated as the output to input
𝑂𝑢𝑡𝑝𝑢𝑡
ratio: Productivity =
𝐼𝑛𝑝𝑢𝑡

Although productivity is important for all business organizations, it is particularly important for
organizations that use a strategy of low cost, because the higher the productivity, the lower the cost of the
output.

A productivity ratio can be computed for a single operation, a department, an organization, or an entire
country. In business organizations, productivity ratios are used for planning workforce requirements,
scheduling equipment, financial analysis, and other important tasks.

Productivity has important implications for business organizations and for entire nations. For nonprofit
organizations, higher productivity means lower costs; for profit-based organizations, productivity is an
important factor in determining how competitive a company is. For a nation, the rate of productivity
growth is of great importance. Productivity growth is the increase in productivity from one period to the
next relative to the productivity in the preceding period. Thus,

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦−𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

Productivity Growth = 𝑥 100
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦

For example, if productivity increased from 80 to 84, the growth rate would be:

84−80
𝑥 100 = 5%
80
Productivity growth is a key factor in a country’s rate of inflation and the standard of living of its people.
Productivity increases add value to the economy while keeping inflation in check. Productivity growth
was a major factor in the long period of sustained economic growth in the United States in the 1990s.

Computing Productivity

Productivity measures can be based on a single input (partial productivity), on more than one input
(multifactor productivity), or on all inputs (total productivity). In table 1, there are list examples of
productivity measures. The choice of productivity measure depends primarily on the purpose of the
measurement. If the purpose is to track improvements in labor productivity, then labor becomes the
obvious input measure.
Partial measures are often of greatest use in operations management. Table 2 provides some examples of
partial productivity measures.

The units of output used in productivity measures depend on the type of job performed. The following are
examples of labor productivity:
𝑌𝑎𝑟𝑑𝑠 𝑜𝑓 𝑐𝑎𝑟𝑝𝑒𝑡 𝑖𝑛𝑠𝑡𝑎𝑙𝑙𝑒𝑑
= Yards of carpet installed per labor hour
𝐿𝑎𝑏𝑜𝑟 ℎ𝑜𝑢𝑟𝑠

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑚𝑜𝑡𝑒𝑙 𝑟𝑜𝑜𝑚𝑠 𝑐𝑙𝑒𝑎𝑛𝑒𝑑

= Number of motel rooms cleaned per worker
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠

Similar examples can be listed for machine productivity (e.g., the number of pieces per hour turned out by
a machine).

Productivity measures are useful on a number of levels. For an individual department or organization,
productivity measures can be used to track performance over time. This allows managers to judge
performance and to decide where improvements are needed. For example, if productivity has slipped in a
certain area, operations staff can examine the factors used to compute productivity to determine what has
changed and then devise a means of improving productivity in subsequent periods. Productivity measures
also can be used to judge the performance of an entire industry or the productivity of a country as a
whole. These productivity measures are aggregate measures. In essence, productivity measurements serve
as scorecards of the effective use of resources. Business leaders are concerned with productivity as it
relates to competitiveness: If two firms both have the same level of output but one requires less input
because of higher productivity, that one will be able to charge a lower price and consequently increase its
share of the market. Or that firm might elect to charge the same price, thereby reaping a greater profit.
Government leaders are concerned with national productivity because of the close relationship between
productivity and a nation’s standard of living. High levels of productivity are largely responsible for the
relatively high standards of living enjoyed by people in industrial nations. Furthermore, wage and price
increases not accompanied by productivity increases tend to create inflationary pressures on a nation’s
economy.

Factors That Affect Productivity

Numerous factors affect productivity. Generally, they are methods, capital, quality, technology, and
management.

A commonly held misconception is that workers are the main determinant of productivity. According to
that theory, the route to productivity gains involves getting employees to work harder. However, the fact
is that many productivity gains in the past have come from technological improvements. Familiar
examples include: Fax machines, Automation, Copiers, Calculators, The Internet; search engines,
Computers, Voice mail; cellular phones, E-mail, and Software.

However, technology alone won’t guarantee productivity gains; it must be used wisely and thoughtfully.
Without careful planning, technology can actually reduce productivity, especially if it leads to
inflexibility, high costs, or mismatched operations. Another current productivity pitfall results from
employees’ use of computers for non-work-related activities (playing games or checking stock prices or
sports scores on the Internet). Beyond all of these is the dip in productivity that results while employees
learn to use new equipment or procedures that will eventually lead to productivity gains after the learning
phase ends.

Other factors that affect productivity include the following:

Standardizing processes and procedures wherever possible to reduce variability can have a significant
benefit for both productivity and quality.

Quality differences may distort productivity measurements. One way this can happen is when
comparisons are made over time, such as comparing the productivity of a factory now with one 30 years
ago. Quality is now much higher than it was then, but there is no simple way to incorporate quality
improvements into productivity measurements.

Use of the Internet can lower costs of a wide range of transactions, thereby increasing productivity. It is
likely that this effect will continue to increase productivity in the foreseeable future.

Computer viruses can have an immense negative impact on productivity.

Searching for lost or misplaced items wastes time, hence negatively affecting productivity.

Scrap rates have an adverse effect on productivity, signaling inefficient use of resources.

New workers tend to have lower productivity than seasoned workers. Thus, growing companies may
experience a productivity lag.
Safety should be addressed. Accidents can take a toll on productivity.

A shortage of information technology workers and other technical workers hampers the ability of
companies to update computing resources, generate and sustain growth, and take advantage of new
opportunities.

Layoffs often affect productivity. The effect can be positive and negative. Initially, productivity may
increase after a layoff, because the workload remains the same but fewer workers do the work—although
they have to work harder and longer to do it. However, as time goes by, the remaining workers may
experience an increased risk of burnout, and they may fear additional job cuts. The most capable workers
may decide to leave.

Labor turnover has a negative effect on productivity; replacements need time to get up to speed.

Design of the workspace can impact productivity. For example, having tools and other work items
within easy reach can positively impact productivity.

Incentive plans that reward productivity increases can boost productivity.

And there are still other factors that affect productivity, such as equipment breakdowns and shortages of
parts or materials. The education level and training of workers and their health can greatly affect
productivity. The opportunity to obtain lower costs due to higher productivity elsewhere is a key reason
many organizations turn to outsourcing. Hence, an alternative to outsourcing can be improved
productivity. Moreover, as a part of their strategy for quality, the best organizations strive for continuous
improvement. Productivity improvements can be an important aspect of that approach.

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