Competitiveness, Strategy,

and Productivity

MODULE 2
 LEARNING OBJECTIVES

• 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.

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 LEARNING OBJECTIVES

• Discuss and compare organization strategy and

operations strategy, and explain why it is
important to link the two.
• 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:

How effectively an organization meets the

wants and needs of customers relative to
others that offer similar goods or services

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 BUSINESSES COMPETE
USING MARKETING
• Identifying consumer wants and needs –
perfect match needs/want vs goods or
services
• Pricing – key factor in consumer buying
decisions
• Advertising and promotion – inform potential
buyers about the features of the product or
services

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 BUSINESSES COMPETE
USING OPERATIONS
• Product and service design - reflect joint
efforts of many areas of the firm to achieve a
match between financial resources,
operations capabilities, supply chain
capabilities and consumer’s wants and
needs

• Cost – productivity is an important

determinant of cost. Higher productivity rate
vs competitors, is a competitive cost
advantage.
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 CON’T

• Quality – refers to materials, workmanship,

design and service. Customers willing to pay
for product and service if they perceive of
higher quality
• Quick response (agility) – quickly bringing new
improve products or services. Quick delivery
of product or services, also quick handling of
complaints

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 BUSINESSES COMPETE
USING OPERATIONS
• Flexibility – ability to respond to changes design
features, volume demanded.
• Inventory management – competitive advantage
by effective matching of supply with demand.
• Supply chain management – timely and cost-
effective delivery of goods or services.
• Service and service quality – after-sale activities-
delivery, setup, warranty and technical support
• Managers and workers – heart and soul of
organization -competent and motivated result to
competitive edge.
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 WHY SOME ORGANIZATIONS FAIL

• Too much emphasis on short-term

financial performance at the expense of R
& D.
• Failing to take advantage of strengths and
opportunities, fail to recognize threats.
• Neglecting operations strategy
• Failing to recognize competitive threats

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 WHY SOME ORGANIZATIONS FAIL

• Too much emphasis in product and

service design and not enough on
improvement
• Neglecting investments in capital and
human resources
• Failing to establish good internal
communications and cooperation among
function areas.
• Failing to consider customer wants and
needs
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 STRATEGY
• Vision
• Outlines WHERE you want to be. Communicates both the
purpose and values of your business
• Mission
• Explains the existence for an organization
• Mission Statement - States the purpose of an
organization
• Goals
• Provide detail and scope of mission
• Strategies
• Plans for achieving organizational goals
• Tactics
• The methods and actions taken to accomplish
strategies
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 MISSION/STRATEGY/TACTICS

Mission Strategy Tactics

How do mission, strategies and tactics relate to

decision making and distinctive competencies?

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 STRATEGIC PLANNING AND DECISION
MAKING
Figure 2.1
Vision

Mission

Organizational
Goals

Organizational Strategies

Functional Goals
Finance Marketing Operations
Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

Procedures Procedures Procedures
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 STRATEGY EXAMPLE
Example 1
Daniel is a high school student. He would like to
have a career in business, have a good job, and
earn enough income to live comfortably

• Mission: Live a good life

• Goal: Successful career, Good income
• Strategy: Obtain a college education
• Tactics: Select a college and a major
• Operations: Register, buy books, take
courses, study

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 EXAMPLES OF STRATEGIES

• Low cost – outsource to country with low labor

cost
• Scale-based strategies – capital intensive, high
output, low cost
• Specialization – focus on product line, higher
quality
• Flexible operations – quick response and
customization
• High quality – higher quality than competitors
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 STRATEGY AND TACTICS
• Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
• Strategy Factors
• Price
• Quality
• Time
• Flexibility
• Service
• Location

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 EXAMPLES OF OPERATIONS
STRATEGIES
Table 2.2
Price Low Cost National first-class postage,
Carrefour, Jetstar

Quality High-performance design Sony TV, Lexus, Disneyland

and/or high quality
Consistent quality
Coca-Cola, PepsiCo, Kodak,
Time Rapid delivery McDonald’s restaurants, UPS
On-time delivery Pizza Hut, FedEx

Flexibility Variety Burger King

Volume McDonald’s

Service Superior customer Disneyland, Accenture Inc,

service JP Morgan Chase & Co,
IBM
Convenience Supermarkets, dry cleaners2-17
Location
 STRATEGY FORMULATION

• Distinctive competencies – special attributes or

abilities in the organization that gives a competitive
edge. Organization’s assessment of its strength and
weaknesses.
• Environmental scanning – organization’s assessment
of opportunities and threats.
• SWOT – strength, weaknesses, opportunities and
threats (SO strategies, ST strategies, WO strategies,
WT strategies)

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 STRATEGY FORMULATION

• Order qualifiers
• Characteristics that potential
customers perceive as minimum
standards of acceptability to be
considered as a potential 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
KEY EXTERNAL FACTORS

• Economic conditions – general health of the

economy (inflation, deflation, interest rate, taxes,
tariffs, etc)
• Political conditions – political stability or
instaability
• Legal environment – gov’t regulations, trade
restrictions, etc
• Technology – product innovations
• Competition – strength of competitors (price,
quality, etc)
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 ENVIRONMENTAL SCANNING
KEY INTERNAL FACTORS
• Human Resources – skills and abilities, loyalty,
dedication, experience, expertise, etc
• Facilities and equipment – capacities, location,
maintenance cost, age, etc.
• Financial resources – cash flow, access to funding,
• Customers – loyalty, understanding of needs and
wants
• Products and services – existing and potential for
new products and services
• Technology – existing technology and ability to
integrate new technology
• Suppliers – relationship, dependability, quality, etc 2-21
 GLOBAL STRATEGY
• Strategic decisions must be made with
respect to globalization
• What works in one country may not work
in another
• Strategies must be changed to account
for these differences
• Other issues
• Political, social, cultural, and economic
differences
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 OPERATIONS STRATEGY

Operations strategy
• The approach consistent with
organization strategy, that is used to
guide the operations function.

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 STRATEGIC OM DECISIONS AREAS
Table 2.4
Decision Area Affects
Product and service design Costs, quality, liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, capacity

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
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Projects Costs, new products, services, or operating systems
 QUALITY AND TIME STRATEGIES
• Quality-based strategies
• Focuses on maintaining or improving the
quality of an organization’s products or
services
• Quality at the source
• Time-based strategies
• Focuses on reduction of time needed to
accomplish tasks

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 TIME-BASED STRATEGIES

JAN FEB MAR APR MAY JUN

Planning

Designing

Processing

Changeover time On time!

Delivery

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 PRODUCTIVITY

• Productivity
• A measure of the effective use of resources,
usually expressed as the ratio of output to input

• Productivity ratios are used for

• Planning workforce requirements
• Scheduling equipment
• Financial analysis

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 PRODUCTIVITY

• Partial measures
• output/(single input)

• Multi-factor measures
• output/(multiple inputs)

• Total measure
• output/(total inputs)
Output
Productivity =
Input

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 Productivity Growth

Productivity Growth =

Current Period Productivity – Previous Period Productivity X 100

Previous Period Productivity

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 Measures of Productivity
Table 2.5

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

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Examples of Partial Productivity Measures
Table 2.6

Labor Units of output per labor hour

Units of output per shift
Productivity Value-added per labor hour

Machine Units of output per machine hour

Dollar value of output per machine hour
Productivity
Capital Units of output per dollar input
Dollar value of output per dollar input
Productivity
Energy Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Productivity

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 EXAMPLE 3

7040 Units Produced

Cost of labor: Php1,000

Cost of materials: Php520

Cost of overhead: Php2000

What is the multifactor productivity? (MFP)

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 EXAMPLE 3: SOLUTION

MFP = Output
Labor + Materials + Overhead

MFP = (7040 units)

P1000 + P520 + P2000

MFP = 2.0 units per peso of input

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 PROCESS YIELD – SERVICE
SECTOR
• Process yield is the ratio of output of
good product to the quantity of raw
material input.
(Defective product is not included in the
output)

• Service example:
• Ratio of cars rented to cars available to rent
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FACTORS AFFECTING PRODUCTIVITY

Quality
Capital

Manag
ement

Method
s
Technol
ogy

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 OTHER FACTORS AFFECTING
PRODUCTIVITY

• Standardization – process and procedure

• Quality differences – comparison old and
new technology
• Use of Internet – lower cost
• Computer viruses – negative impact
• Searching for lost or misplaced items –
waste of time
• Scrap rates – inefficient use of resources
• New workers – lower productivity

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 OTHER FACTORS AFFECTING
PRODUCTIVITY

• Safety – accidents can take a toll on

productivity
• Shortage of IT workers – hampers computing,
sustain growth,
• Layoffs – affect productivity –negative or
positive
• Labor turnover – replacement needs time to
get up speed
• Design of the workspace – tools within easy
reach positive impact on productivity
• Incentive plans that reward productivity –
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 OUTSOURCING

• Higher productivity in another company

is a key reason organizations outsource
work
• Improving productivity may reduce the
need for outsourcing

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 IMPROVING PRODUCTIVITY
• Develop productivity measures
• Determine critical (bottleneck) operations
• Develop methods for productivity
improvements
• Establish reasonable goals
• Get management support
• Measure and publicize improvements
• Do not confuse productivity with efficiency

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