CHAPTER 2 Competitiveness, Strategy, and Productivity

1. CHAPTER 2Competitiveness, Strategy, and Productivity

2. Outline • Competitiveness • Strategy • Productivity

3. The Cold Hard Facts -- Competition Those who understand how to play the game will succeed; those who don’t are doomed to fail… Don’t think the game is just companies competing with each other. In companies with multiple factories or divisions producing the same goods or services, factories or divisions find themselves competing with each other…

4. A Cold Hard Fact Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever and… the bar is getting higher

5. Case: Smartphone U.S. Mobile Phone Carrier Mobile Phone Operating System Provider

6. Competitiveness How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services. • Organizations compete through some combination of their marketing and operations functions

7. Businesses Compete Using Marketing • Identifying consumer wants and/or needs • Basic input in decision making • Central to competitiveness • Pricing • Key factor in consumer buying decision • Trade-off with other aspects • Advertising and promotion • Ways to inform and attract customers

8. Compete Using Operations • Product & service design • Cost • Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers & workers

9. Why Some Organizations Fail • Neglecting operations strategy • Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats • Too much emphasis on short-term financial performance at the expense of research and development • 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 • Failing to consider customer wants and needs

10. GM

11. Ford • Ford sold Aston Martin on March 12, 2007. • Ford sold Jaguar and Land Rover to Tata Motors of India in March 2008. • In November 2008 it reduced its 33.4% controlling interest in Mazda of Japan, to a 13.4% non-controlling interest. • Ford sold Volvo to Zhejiang Geely Holding Group of China in 2010. • By the end of 2010, Ford discontinued Mercury.

12. What do the customers want? What is the best way to satisfy those wants? Keys to Successfully Competing Understanding competitive issues can help managers develop successful strategies.

13. Is it a Strategic, Tactical, or Operational issue?

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

15. Mission Mission The reason for the existence of an organization Mission statement States the purpose of the organization The mission statement should answer the question of “What business are we in?” 's mission is to organize the world's information and make it universally accessible and useful.

16. Goals 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

17. Strategies Strategy A plan for achieving organizational goals Serves as a roadmap for reaching the organizational destinations Organizations have Organizational strategies Overall strategies that relate to the entire organization Support the achievement of organizational goals and mission Functional level strategies Strategies that relate to each of the functional areas and that support achievement of the organizational strategy

18. Tactics and Operations Tactics The methods and actions taken to accomplish strategies The “how to” part of the process Operations The actual “doing” part of the process

19. Hierarchical Structure

20. Example 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 a job

21. Core Competencies Core Competencies The special attributes or abilities that give an organization a competitive edge To be effective, core competencies and strategies need to be aligned

22. 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 Subway Supermarkets Service Superior customer service Disneyland Nordstroms Location Convenience Banks, ATMs Examples of operation strategies Table 2.2

23. Strategy Formulation Successful strategy formulation requires taking into account: Order qualifiers Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase A car which passes the highway safety test Order winners Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition A car with 50 miles per gallon: Toyota Prius

24. Strategy Formulation Effective strategy formulation requires taking into account: Core competencies Environmental scanning SWOT

25. Environmental scanning: The considering of events and trends that present threats or opportunities for a company Environmental Scanning is necessary to identify SWOT Internal Factors Strengths and Weaknesses External Factors Opportunities and Threats Environmental Scanning

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

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

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

29. Quality-Based Strategies Quality-based strategy Strategy that focuses on quality in all phases of an organization Pursuit of such a strategy is rooted in a number of factors: Trying to overcome a poor quality reputation Desire to maintain a quality image A part of a cost reduction strategy

30. Time-Based Strategies Time-based strategies Strategies that focus on the reduction of time needed to accomplish tasks It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved

31. Time-Based Strategies Areas where organizations have achieved time reductions: Planning time Product/service design time Processing time Changeover time Delivery time Response time for complaints

32. Productivity

33. Output Productivity = Input Productivity Productivity is 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. • Input: labor, material, energy, and others. • Output: goods and services.

34. Computing Productivity Partial Output OutputOutputOutputmeasures 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 Business, Industry, Country

35. Partial Productivity Measures Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity Machine Productivity Units of output per machine hour Capital Productivity Units of output perdollar input Dollar value of output perdollar input Energy Productivity Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

36. Example 1 • 10,000 Units Produced • Sold for $10/unit • 500 labor hours • Labor rate: $9/hr • Cost of overhead: $5,000 • Cost of material: $25,000 What is the labor productivity?

37. Solutions to Example 1 • Output : 10,000 units • Input : 500 hours • Laborproductivity= 10,000 / 500 = 20 units/ hours = units/hour • What is the unit of the productivity number? • MFP (multifactor productivity) = output / (labor + material + overhead) =(10,000 units*$10/unit ) / (500 hours*$9/hour + $25,000 + $5,000) • MFP = 2.9 $/$

38. Shopping Cart Production Example Labor Productivity Before: After: Prior to New Equipment Workforce: 5 workers Output: 80 carts/hr Labor: $10/hr Machine: $40/hr With New Equipment Workforce: 4 workers Output: 84 carts/hr Labor: $10/hr Machine: $50/hr 80 carts/hr 5 workers = 16 carts per worker per hour 84 carts/hr 4 workers = 21 carts per worker per hour

39. Shopping Cart Production Example Multifactor Productivity Before: After: Prior to New Equipment Workforce: 5 workers Output: 80 carts/hr Labor: $10/hr Machine: $40/hr With New Equipment Workforce: 4 workers Output: 84 carts/hr Labor: $10/hr Machine: $50/hr 80 carts/hr $10/hr  5 + $40/hr = 0.89 carts/$ 84 carts/hr $10/hr  4 + $50/hr = 0.93 carts/$

40. Service Sector Productivity Service sector productivity is difficult to measure and manage because It involves intellectual activities It has a high degree of variability A useful measure related to productivity is process yield

41. Bottleneck Operation Wooden barrel theory: the capacity of a barrel is determined not by the longest wooden bar, but by the shortest.

42. Recap • order qualifiers • order winners • SWOT • productivity • partial productivity • multifactor productivity • competitiveness • mission • goals • tactics • operations strategy • core competencies • environmental scanning