McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Chapter 2 Competitiveness, Strategy, and Productivity

2-2 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

2-3 Chapter Focus Competitiveness Strategy Productivity

2-4 Competitiveness 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 What do customers want? How can these customer needs best be satisfied?

2-5 Keys that business use to compete with one another 5 Price: the amount a customer must pay for the product or service. Quality: it relates to the buyers perception of how well the product or service will serve its purpose. Product differentiation: refers to any special features that cause a G or S to be perceived by the buyer as more suitable than a competitors product or service Lecturer: Ahmed El Rawas

2-6 Keys that business use to compete with one another 6 Flexibility: is the ability to respond to changes. Time: refers to a number of different aspects of an org operation, one is how quickly a product or service is delivered to a customer, another is how quickly new product or service are developed and brought to the market. Lecturer: Ahmed El Rawas

2-7 Why Some Organizations Fail Neglecting operations strategy Failing to take advantage of strengths and opportunities Failing to recognize competitive threats and weaknesses Neglecting investments in capital and human resources Failing to establish good internal communications and cooperation Failing to consider customer wants and needs

2-8 Hierarchical Planning Mission Goals Organizational Strategies Tactics Functional Strategies

2-9 Mission –The reason for an organization’s existence Mission statement –States the purpose of the organization –The mission statement should answer the question of “What business are we in?”

2-10 Goals The mission statement serves as the basis for organizational goals Goals –Provide detail and the scope of the mission –Goals serve as the basis for organizational strategies

2-11 Strategies Strategy –A plan for achieving organizational goals Serves as a roadmap for reaching the organizational objectives –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

2-12 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

2-13 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

2-14 Sample Strategies Organizational StrategyOperations Strategy Examples of Companies or Services High QualityHigh performance design and/or high quality processing Consistent Quality Sony TV Lexus Coca-Cola; electric power Short TimeQuick Response On-time delivery McDonald’s Restaurants Express mail FedEx; NewnessInnovationmicrosoft Express mail VarietyFlexibility Volume Burger King (Have it your way”) McDonald’s (“Buses Welcome”) ServiceSuperior customer serviceDisneyland IBM LocationConvenienceSupermarkets Mall Stores

2-15 Strategy Formulation Effective strategy formulation requires taking into account: –Core competencies –Environmental scanning SWOT Successful strategy formulation also requires taking into account: –Order qualifiers –Order winners

2-16 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

2-17 Environmental Scanning is necessary to identify –Internal Factors Strengths and Weaknesses –External Factors Opportunities and Threats Environmental Scanning

2-18 Economic conditions Political conditions Legal environment Technology Competition Markets Key External Factors

2-19 Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers Key Internal Factors

2-20 Quality-Based Strategies Quality-based strategy –Strategy that focuses on quality in all phases of an organization Pursuit of such a strategy is rooted through –Trying to overcome a poor quality reputation –Desire to maintain a quality image

2-21 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

2-22 Time-Based Strategies Areas where organizations have achieved time reductions: –Planning time –Product/service design time –Processing time –Delivery time –Response time for complaints

2-23 Productivity Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input. Productivity is a measure of output from a production process, per unit of input.

2-24 Productivity –A measure of the effective use of resources, usually expressed as the ratio of output to input Productivity measures are useful for –Tracking an operating unit’s performance over time –Judging the performance of an entire industry or country

2-25 Productivity Measures

2-26 Labor Productivity is the ratio of (the real value of) output to the input of labor. Where possible, hours worked, rather than the numbers of employees, is used as the measure of labor input. Specifically, how many goods or services are produced within one working hour. With an increase in part-time employment, hours worked provides the more accurate measure of labor input. Labor productivity should be interpreted very carefully if used as a measure of efficiency. In particular, it reflects more than just the efficiency or productivity of workers.

2-27 Labor Productivity Labor productivity is the ratio of output to labor input; and output is influenced by many factors that are outside of workers' influence, including the nature and amount of capital equipment which is used to produce other commodities, introduction of new technologies, agricultural resources and management practices. There is an inverse relationship between the demand for labor and the wage rate that a business needs to pay for each additional worker employed. When the wages per worker are less, then labor becomes relatively cheaper than for example using capital equipment and it becomes more profitable for the business to take on more employees.

2-28 Multifactor Productivity is the ratio of the real value of output to the combined input of labor and capital. The Standard “neo-classical” labor market theory assumes that businesses seek to maximize profits. They will therefore search in the long run for the mix of factors of production (labor and capital) that produces the required level of output as efficiently as possible for the lowest possible total cost. Sometimes this measure is referred to as total factor productivity. In principle, multifactor productivity is a better indicator of efficiency. It measures how efficiently and effectively the main factors of production - labor and capital - combine to generate output

2-29 What is the multifactor productivity? Productivity Calculation Example Units produced: 5,500 Standard price: $35/unit Labor input: 500 hours Cost of labor of $25/hour Cost of materials: $5,000 Cost of overhead: 2x labor cost

2-30 Solution What is the implication of a unitless measure of productivity?

2-31 Question (1) 31 The following table contains productivity information for may and June 2001 for a company of landscaping service. May June Output Plants, flower Gasoline Wages Maintenance Measure the productivity and find the change in productivity that occurred between may and June. Lecturer: Ahmed El Rawas

2-32 Answer Question no (1) 32 Productivity for may = output / input 800 / ( ) = 1.07 Productivity for June= output / input 1200 / ( ) = 1.08 The change between may and June productivity increases by 0.01 Lecturer: Ahmed El Rawas

2-33 Question (2) 33 The weekly output of a fabrication process is 400 units. The standard selling price is L.E 125 per unit. Assume the number of workers are 15, each work 40 hours a week and hourly wage of L.E 15. material cost is L.E 50 per unit and overhead charged at the rate of 2000 plus 10% of the labor cost. Compute: 1- labor productivity. 2- multifactor productivity. Lecturer: Ahmed El Rawas

2-34 Answer for Question (2) 34 Labor productivity= output / labor input. 400 x 125 / ( 15 x 40 x 15 )= 5.6 Total productivity= total output / total input 400 x 125 / ( 15 x 40 x 15 ) + ( 50 x 400 ) + ( % x ( 15 x 40 x 15 )= 1.57 Lecturer: Ahmed El Rawas

2-35 productivity growth At the national level, productivity growth raises living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth is important to the firm because it means that the firm can meet its (perhaps growing) obligations to customers, suppliers, workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place

2-36 Productivity Growth Example: Labor productivity on the ABC assembly line was 23 units per hour in In 2007, labor productivity was 25 units per hour. What was the productivity growth from 2006 to 2007?

2-37 Growth - Non-Farm

2-38 Growth - Manufacturing

2-39 Importance of national productivity growth Productivity growth is a crucial source of growth in living standards. Productivity growth means more value is added in production and this means more income is available to be distributed. At a firm or industry level, the benefits of productivity growth can be distributed in a number of different ways: 1.to the workforce through better wages and conditions 2.to shareholders through increased profits and dividend distributions 3.to customers through lower prices 4.to the environment through more environmental protection 5.to governments through increases in tax payments (which can be used to fund social and environmental programs).

2-40 Sources of productivity growth In the most immediate sense, productivity is determined by: 1.the available technology or know-how for converting resources into outputs desired in an economy; and 2.the way in which resources are organized in firms and industries to produce goods and services. Average productivity can improve as firms move toward the best available technology; plants and firms with poor productivity performance cease operation; and as new technologies become available. Firms can change organizational structures (e.g. core functions and supplier relationships), management systems and work arrangements to take the best advantage of new technologies and changing market opportunities. A nation's average productivity level can also be affected by the movement of resources from low-productivity to high-productivity industries and activities.

2-41 Factors Affecting Productivity Capital Methods Technology Management Quality

2-42 Improving Productivity 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