Chapter 2

Competitiveness

Strategic Planning

Productivity

Sam Lampropoulos
© 2021 McGraw Hill
George Brown College
 IKEA

IKEA is the world’s largest

furniture retailer. It has close to
1,800 suppliers in 50 countries, 42
trading service (purchasing) offices
around the world, 43 manufacturing
plants in 9 countries, and 422
franchised stores in 50 countries. It
employs 208,000 people.

© 2021 McGraw Hill

2
 Learning Objectives
• List and discuss the primary ways that organizations
compete.
• Describe mission/vision; goals, strategies, and tactics;
operations strategy and its formulation; and generic
operations strategies, supply chain strategy, global
strategy, sustainability strategy, and strategic planning.
• Define and measure productivity, explain several factors
that affect productivity, and describe why it is important
to manufacturing and service organizations.

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 Chapter Outline
• Competitiveness
• Strategic Planning
• Mission, Vision, and Values
• Goals, Objectives, Strategy,
Tactics, and Action Plans
• Strategy Formulation
• Productivity
• Productivity Measurement of Services
• Factors that Affect Productivity

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 Competitiveness:

The ability and performance of an organization

in the marketplace compared to other
organizations that offer similar goods or services.

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 Competitiveness: Key Purchasing Criteria

Figure 2-1
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 Competitiveness: Key Purchasing Criteria
Factors Description

Price The amount a customer must pay for the

good or service.

Quality The characteristics of a good or service

that are determined by its design,
material, workmanship, performance,
consistency, etc.

Variety The choice of models and options

available to customers.

On-Time Delivery (Timeliness) The availability of goods or services

when they are needed by the customer.

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 Order Qualifiers and Order Winners
• Order qualifiers
• Minimum standards of acceptability for purchase
• Allow product to be considered
• Order winners
• Create perception of being better than the
competition
• Allow product to be purchased

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 Businesses Compete Using Operations:
Competitive Priorities

Figure 2-3
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 Competitive Priorities
Examples of competitive priorities used by companies.
Competitive Priority Emphasis Company Examples

Cost Low Cost The Great Canadian Superstore

(Loblaw), WestJet, Walmart,
Amazon, IKEA

Quality Meeting customer Sony, Sobeys, Toyota, Honda,

requirements Apples, 3M, IKEA, GE,
Innovation Boeing, Disney, Amazon,
Customer Service Costco
Flexibility Variety Dell Computer, Walmart,
Quality, flexibility Potash Corp, Air Canada
Delivery Rapid delivery McDonald’s, UPS, Domino’s
On-time delivery Pizza, WestJet, Shopper Drug
Mart, Magna International
(just-in-time supplier)
Table 2-1
Table 2-1
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 Mission/Vision/Values
• Mission
Where the organization is going now, products and markets
• Vision
Where the organization desires to be in the future
• Values
Shared beliefs of the organization’s stakeholders
• Goals and Objectives
Provide detail and scope of mission
• Strategies
Plans that determine direction for achieving organizational goals
• Tactics and Action Plans
The specific methods and actions taken to accomplish strategies

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 Selected Company Mission Statements
Company Mission Statement
Starbucks To inspire and nurture the human spirit –
one person, one cup and one
neighbourhood at a time.

WestJet To enrich the lives of everyone in WestJet’s

world. We’re proud to have won awards
that show us you think we do.

Food Banks Canada To provide national leadership to relieve

hunger today and prevent hunger tomorrow
in collaboration with the food bank
network in Canada.

Table 2-2
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 Hierarchical Strategic Planning

Figure 2-4

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 Hierarchical Strategy Example

Lily is a high school student. She would like to live comfortably. A possible
scenario for achieving her mission/vision might look something like this:

• Mission: Live a good life.

• Goal: Successful career, good income.
• Strategy: Obtain a college/university degree.
• Tactics: Select a college/university and a major; decide how to finance the
education.
• Operations: Register, buy books, take courses, study.

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 Operations Strategy

Operations strategy – set of coordinated policies,

objectives, and action plans, directly affecting the
operations function
• Consistent with organization strategy
• Support competitive priorities
• Aimed at securing a long-term sustainable
advantage over the competition

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 Strategic Decision Categories

Facility Production Process Types

Human Resources
and Technology

Product Mix and New

Capacity Quality
Products

Vertical Supplier Operations Infrastructure

Integration/Sourcing Relations/partnerships and Systems

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Formulation of an Operations Strategy
1. Link organizational goals to the operations strategy

2. Categorize/segment customers into types and choose competitive

priority emphasis

3. Group product lines into types

( high/low volume)

4. Conduct an operations audit to assess strengths/weakness and

competitive position

5. Assess degree of plant focus

6. Develop and deploy strategy for each decision category

objectives, policies, action plans

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 Generic Operations Strategies:

Continuous Improvement

Large scale-base
Generic
Operations Focused factories
Strategies
Flexible factories

Low labour cost

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Quality and Time-based Strategies
Quality-based strategies
• Maintain or improve quality
• May use initiatives such as 6-sigma or process
re-engineering

Time-based strategies
• Focuses on reduction of time needed to
accomplish tasks

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 Supply Chain Strategy
• A supply chain strategy specifies how to cooperate
with the organization’s supply chain (including
suppliers, distributors, and customers) to achieve
supply chain goals and to be competitive.

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 Global Strategy
• As globalization increased, many companies realized
that strategic decisions with respect to globalization
must be made. Two global strategies:
• One relates to where parts or products are made, or
where services such as customer support are
performed.
• The other relates to where products or services are
sold.

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 Sustainability Strategy
 Sustainability strategy refers to the plans developing a
sustainability vision to the level of organizational
governance, which includes formulating goals for
products and services, processes, and the entire supply
chain; measuring achievements; and striving for
improvements to achieve sustainability goals.

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 Strategic Planning

Balanced Scorecard
Framework

Figure 2-5
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 Productivity
• A measure of the effective use of resources, usually expressed
as the ratio of output to input
• One of the primary responsibilities of an operations manager is
to achieve productive use of an organization’s resources

• Productivity ratios can be computed for:

• A worker
• A department Outputs
• An organization Productivity =
• A country Inputs

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Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity

Management
Capital

Labour

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 Measures of Productivity

Table 2-3
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 Partial Productivity Measures
Labour Productivity Units of output per labour hour
Units of output per shift
Value-added per labour hour
Dollar value of output per labour hour
Machine Productivity Units of output per machine hour
Dollar value of output per machine hour

Material Productivity Units of output per unit material input

Litres per 100 km is the inverse of the
productivity measure but it is still used to
measure productivity.
Dollar value of output per unit material input

Energy Productivity Units of output per kilowatt-hour

Dollar value of output per kilowatt-hour

Table 2-4
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Example: Multifactor Productivity

Determine the multi-factor productivity for the combined inputs of labour,

materials, and machine time using the following data:

Output: 7,040 units

Input costs:
Labour (line and support staff, including benefits): $1,000
Materials: $520
Machine overhead: $2,000

Ans. 2.0 units per dollar of input

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 Productivity Example: Solution

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Productivity Measures are Useful

• Productivity  efficiency
• Used to:
• Track performance over time
• Determine areas for improvement
• Compare competitiveness

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 Productivity Measurement of Services
Measurement of service productivity is
problematic because services :
• Are intangible
• Involve intellectual activities
• Have output with a high degree of variability

How do you measure

an improved state of a customer?

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Factors Affecting Productivity

Methods Management

Technology Labour

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 Chapter Summary
 A company’s competitive priorities might be cost, quality, flexibility, and/or
delivery reliability.
• Identify order qualifiers and order winners
 Strategies are plans for directing the organization to achieve its
mission/vision/goals.
• An operations strategy is a coordinated set of policies, objectives, and
action plans related to the operations function in nine strategic decision
categories.
 Productivity is a measure of efficient use of resources that is:
• Affected by methods & management, equipment & technology, and
labour
• Difficult to measure for highly variable, intangible output of services

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Learning Checklist
 Identify major competitive priorities.
 Define strategic planning, mission/vision/values,
and operations strategy.
 Identify nine strategic decision categories.
 List steps involved in formulating an operations
strategy.
 Define productivity and discuss how it is measured.
 Describe factors affecting productivity.
 Explain why measuring productivity of services is
difficult.
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