You should be able to:

LO 2.1 List several ways that business organizations compete

LO 2.2 Name several reasons that business organizations fail
LO 2.3 Define the terms mission and strategy and explain why they are
Competitiveness, important
Strategy, and LO 2.4 Discuss and compare organization strategy and operations
Productivity strategy and explain why it is important to link the two
LO 2.5 Describe and give examples of time-based strategies
LO 2.6 Define the term productivity and explain why it is important to
organizations and to countries
LO 2.7 Describe several factors that affect productivity

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Better quality, higher productivity, lower costs, and the  This chapter focuses on three separate but related
ability to respond quickly to customer needs are more ideas that are vitally important to business
important than ever, and… organizations
the bar is getting higher 1. Competitiveness
2. Strategy
3. Productivity

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 Competitiveness:  Identifying consumer wants and/or needs

 How effectively an organization meets the wants and  Pricing and quality
needs of customers relative to others that offer similar  Advertising and promotion
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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1. Product and service design 1. Neglecting operations strategy
2. Cost 2. Failing to take advantage of strengths and opportunities
and/or failing to recognize competitive threats
3. Location
3. Too much emphasis on short-term financial performance
4. Quality at the expense of R&D
5. Quick response 4. Too much emphasis on product and service design and
6. Flexibility not enough on process design and improvement
7. Inventory management 5. Neglecting investments in capital and human resources
8. Supply chain management 6. Failing to establish good internal communications and
cooperation
9. Service
7. Failing to consider customer wants and needs
10. Managers and workers

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 Mission  Mission
 Goals  The reason for an organization’s existence

 Organizational strategies  Mission statement

 States the purpose of the organization
 Functional strategies
 The mission statement should answer the question of
 Tactics
“What business are we in?”

FIGURE 2.1
Planning and decision making
are hierarchical in organizations

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 The mission statement serves as the basis for

organizational goals
 Goals
 Provide detail and the scope of the mission
 Goals can be viewed as organizational destinations
 Goals serve as the basis for organizational strategies

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 Strategy  Tactics
 A plan for achieving organizational goals
 The methods and actions taken to accomplish strategies
 Serves as a roadmap for reaching the organizational destinations
 Organizations have  The “how to” part of the process
 Organizational strategies  Operations
 Overall strategies that relate to the entire organization
 Support the achievement of organizational goals and mission  The actual “doing” part of the process
 Functional level strategies
 Strategies that relate to each of the functional areas and that support
achievement of the organizational strategy

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 Core competencies Organizational

Strategy Operations Strategy Examples of Companies or Services

The special attributes or abilities that give an Low Price Low cost U.S. first-class postage
Wal-Mart
organization a competitive edge Responsiveness Short processing times McDonald’s restaurants
On-time delivery FedEx
 To be effective, core competencies and strategies need to be
Differentiation: High performance design Sony TV
aligned High Quality and/or high quality processing
Consistent quality
Coca-Cola
Differentiation: Innovation 3M, 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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LO 2.4
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 Effective strategy formulation requires taking into  Order qualifiers

account:  Characteristics that customers perceive as minimum
 Core competencies standards of acceptability for a product or service to be
 Environmental scanning considered as a potential for purchase
 SWOT: Strengths, Weaknesses, Opportunities, and Threats
 Order winners
 Characteristics of an organization’s goods or services that
 Successful strategy formulation also requires taking cause it to be perceived as better than the competition
into account:
 Order qualifiers
 Order winners

LO 2.4 LO 2.4
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 Environmental scanning is necessary to identify 1. Economic conditions
 Internal factors 2. Political conditions
 Strengths and weaknesses 3. Legal environment
 External factors 4. Technology
 Opportunities and threats
5. Competition
6. Customers
7. Suppliers
8. Markets

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1. Human resources  Supply Chain Strategy

2. Facilities and equipment  How the organization should work with suppliers and
3. Financial resources policies relating to customer relationships and
sustainability
4. Customers
5. Products and services  Sustainability Strategy
 Work with governmental regulations and interest
6. Technology
groups to achieve sustainability goals
7. Other
 Global Strategy
 Work with international suppliers/producers and also
with countries where the products and services are sold

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 Operations strategy Decision Area What the Decisions Affect

 The approach, consistent with organization strategy, Product and service design Costs, quality, liability, and environmental issues
Capacity Cost, structure, flexibility
that is used to guide the operations function
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

LO 2.4 LO 2.4
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 Quality-based strategy  Time-based strategies
 Strategy that focuses on quality in all phases of an  Strategies that focus on the reduction of time needed to
organization accomplish tasks
 Pursuit of such a strategy is rooted in a number of factors:  It is believed that by reducing time, costs are lower, quality is
 Trying to overcome a poor quality reputation higher, productivity is higher, time-to-market is faster, and
 Desire to maintain a quality image customer service is improved
 A desire to catch up with the competition
 A part of a cost reduction strategy

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 Areas where organizations have achieved time  Agile operations

reductions:  A strategic approach for competitive advantage that
 Planning time emphasizes the use of flexibility to adapt and prosper in
 Product/service design time an environment of change
 Processing time  Involves the blending of several core competencies:
 Cost
 Changeover time
 Quality
 Delivery time  Reliability
 Response time for complaints  Flexibility

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 A top-down management system that organizations can use to FIGURE 2.2

clarify their vision and strategy and transform them into action The Balanced Scorecard
 Develop objectives
 Develop metrics and targets for each objective
 Develop initiatives to achieve objectives
 Identify links among the various perspectives
 Finance
 Customer
 Internal business processes
 Learning and growth
 Monitor results

Source: Adapted from Robert S. Kaplan

and David P. Norton, “Using the Balanced
Scorecard as a Strategic Management
System,” Harvard Business Review
(January-Febrary 1996): 76.

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 Productivity  High productivity is linked to higher standards of living
 A measure of the effective use of resources, usually  As an economy replaces manufacturing jobs with lower productivity
service jobs, it is more difficult to maintain high standards of living
expressed as the ratio of output to input
 Higher productivity relative to the competition leads to
 Productivity measures are useful for
competitive advantage in the marketplace
 Tracking an operating unit’s performance over time
 Pricing and profit effects
 Judging the performance of an entire industry or
 For an industry, high relative productivity makes it less
country
likely it will be supplanted by foreign industry

LO 2.6 LO 2.6
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Output
Productivity =
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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Units produced: 5,000 Multifactor Productivity =

Output
Standard price: $30/unit Labor +Material +Overhead
Labor input: 500 hours 5,000 units  $30/unit
=
Cost of labor: $25/hour (500 hours $25/hour)+ $5,000 + (2(500 hours $25/hour))

Cost of materials: $5,000 $150,000
=
Cost of overhead: 2× labor cost $42,500
= 3.5294

What is the What is the implication of an unitless measure of productivity?

multifactor
productivity?

LO 2.4 LO 2.6
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  Service sector productivity is difficult to measure and
manage because
Current productivity - Previous productivity
Productivity Growth = 100%  It involves intellectual activities
Previous productivity  It has a high degree of variability
 A useful measure related to productivity is process yield
Example: Labor productivity on the ABC assembly line was 25 units per hour in  Where products are involved
2014. In 2015, labor productivity was 23 units per hour. What was the  Ratio of output of good product to the quantity of raw material
productivity growth from 2014 to 2015? input
 Where services are involved, process yield measurement is
23 - 25 often dependent on the particular process:
Productivity Growth = 100% = −8%
25  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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Methods • Drones
• GPS devices
• Smartphones
• 3D printers
• Radio frequency ID tags (RFID)
Capital Quality • Medical imaging
• Artificial intelligence

Technology Management

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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
7. Don’t confuse productivity with efficiency

LO 2.7
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