Competitiveness, Strategy, and Productivity

1. 2 Competitiveness, Strategy, and Productivity

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.

3. 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.

4. Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

5. Businesses Compete Using Marketing • Identifying consumer wants and needs • Pricing • Advertising and promotion

6. Businesses Compete Using Operations • Product and service design • Cost • Location • Quality • Quick response • Flexibility • Inventory management • Supply chain management • Service and service quality • Managers and workers

7. Why Some Organizations Fail • Too much emphasis on short-term financial performance • Failing to take advantage of strengths and opportunities • Neglecting operations strategy • Failing to recognize competitive threats

8. 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 • Failing to consider customer wants and needs

9. Mission/Strategy/Tactics Mission Strategy Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies?

10. Strategy • Mission • The reason for 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

11. Planning and Decision Making Figure 2.1 Mission Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

12. Strategy Example Example 1 Rita is a high school student. She 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, graduate, get job

13. Class Exercise Set your mission & fill in the table: Mission: • Goal: • Strategy: • Tactics: • Operations:

14. Mission vs. Vision Organizations sometimes summarize goals and objectives into a mission statement and / or a vision statement: A Definition of Vision in a dictionary: 'An Image of the future we seek to create'. • A vision statement describes in graphic terms where the goal-setters want to see themselves in the future. It may describe how they see events unfolding over 10 or 20 years if everything goes exactly as hoped. • A definition of Mission in a dictionary: purpose, reason for being; also, an inner calling to pursue an activity or perform a service. • Many people mistake vision statement for mission statement. The Vision describes a future identity and the Mission describes how it will be achieved. A Mission statement may define the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future state. Vision is related to some form of achievement if successful. • For example, "We help transport goods and people efficiently and cost effectively without damaging environment" is a mission statement. Ford's brief but powerful slogan "Quality is Job 1" could count as a mission statement. "We will be one amongst the top three transporters of goods and people in North America by 2010" is a vision statement. It is very concrete and unambiguous goal.

15. Examples of Strategies • Low cost • Scale-based strategies • Specialization • Flexible operations • High quality • Service

16. 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

17. Examples of Operations Strategies Price Low Cost U.S. first-class postage Motel-6, Red Roof Inns Quality High-performance design or high quality Consistent quality Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola Time Express Mail, Fedex, One-hour photo, UPS Rapid deliveryOn-time delivery Flexibility Variety Volume Burger King Supermarkets Service Superior customer service Disneyland Nordstroms Location Convenience Banks, ATMs Table 2.2

18. 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

19. Strategy Formulation • Distinctive competencies • Environmental scanning • SWOT • Order qualifiers • Order winners

20. Strategy Formulation • Order qualifiers • Characteristics that 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

21. Key External Factors • Economic conditions • Political conditions • Legal environment • Technology • Competition • Markets

22. Key Internal Factors • Human Resources • Facilities and equipment • Financial resources • Customers • Products and services • Technology • Suppliers

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

24. Strategic OM Decisions Table 2.4

25. 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

26. Time-based Strategies JAN FEB MAR APR MAY JUN Planning Designing Processing Changeover On time! Delivery

27. 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

28. Productivity Outputs Productiv ity = Inputs • Partial measures • output/(single input) • Multi-factor measures • output/(multiple inputs) • Total measure • output/(total inputs)

29. Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity Growth Productivity Growth =

30. Measures of Productivity Table 2.4 Partial Output Output Output Outputmeasures 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

31. Labor Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Machine Productivity Units of output per machine hour machine hour Capital Productivity Units of output per dollar input Dollar value of output per dollar input Energy Productivity Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Examples of Partial Productivity Measures Table 2.5

32. Example 3 7040 Units Produced Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity?

33. Example 3 Solution MFP = Output Labor + Materials + Overhead MFP = MFP = units per dollar of input

34. Process Yield • Process yield is the ratio of output of good product to total production. • Defective product is not included in the output. • Service example: • Ratio of cars rented to cars available to rent

35. Factors Affecting Productivity Capital Quality Technology Management

36. Other Factors Affecting Productivity • Standardization • Quality • Use of Internet • Computer viruses • Searching for lost or misplaced items • Scrap rates • New workers

37. Other Factors Affecting Productivity • Safety • Shortage of IT workers • Layoffs • Labor turnover • Design of the workspace • Incentive plans that reward productivity

38. Outsourcing • Higher productivity in another company is a key reason organizations outsource work • Improving productivity may reduce the need for outsourcing

39. Improving Productivity • Develop productivity measures • Determine critical (bottleneck) operations • Develop methods for productivity improvements • Establish reasonable goals • Get management support • Measure and publicize improvements • Don’t confuse productivity with efficiency!

40. Quiz 1 Write down four factors that affects productivity?

41. Quiz 1 2040 Units Produced Labor: 100 employees Cost of materials: $520 Cost of overhead: $1000 What is the Labor productivity?