Competitiveness, Strategy, and Productivity Y.-H. Chen, Ph.D. International College Ming-Chuan University

Business Goals Better quality Higher productivity Lower cost The ability to quickly respond to customer needs How to achieve these goals?

Competitiveness, Strategy, and Productivity Competitiveness: How effective an organization is in the marketplace compared with other organizations that offer similar products or services. Strategy: The plans that determine the direction an organization takes in pursuing its goals. Productivity: The effective use of resources.

Competitiveness How to achieve competitiveness? Identifying consumer wants and / or needs Pricing and quality Advertising and promotion

Operations and Competitiveness How do operations affect competitiveness? Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers and workers Supply chain management: coordinating internal and external operations (buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout the system. Managers and workers: They need to competent, motivated, and creative.

Why some organizations fail? Too much emphasis on short-term financial performance Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Neglecting operations strategy 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

Competitiveness Summary What customers want? What is the best way to satisfy those wants?

Strategies Plans for achieving organizational goals. Can be long term, intermediate term, or short term. Must be designed to support the organization’s missions and its goals.

Mission, Strategy, and Tactic Mission: The reason for existence for an organization. The basis for organizational goals. Mission Statement: A clear statement of purpose. (Table 2.1, p.39) Strategy: A plan (roadmap) for achieving organizational goals. Tactics: The methods or actions taken to accomplish strategies. Strategies include organizational strategies and functional strategies. Organizational strategies relate to the overall organization; functional strategies relate to the functional areas of the organization. Tactics provide guidance and direction for carrying out actual operations.

Mission, Strategy, and Tactics in Production / Operations Management Goals Organizational strategy Functional strategies Finance Marketing Operations Tactics operations

Mission, Strategy, and Tactic 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/Mission: 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

Strategy Formulation Take into account the realities of operations' strength and weakness. Capitalizing on strength and dealing with weakness. (This is generally ignored in a business.) SWOT approach (strength, weakness, opportunity, and threat) critically examines factors that could have either positive or negative effects.

SWOT Analysis Strength Domain knowledge. Breadth of solution. Business strategy. Opportunity Service to existing customers. Improve resource util. by integrating products. Strengths are our best weapons. Weakness Lack of trans. knowledge. Frequent change of strategy. Lack of customer references. Overlapped products. Threat Network effect of company X. Lack of product compatibility to legacy products. Multiple business acquisition consumes resource. Strengths and weaknesses have an internal focus and are typically evaluated by operations people. Threats and opportunities have an external focus and are typically evaluated by marketing people.

Strategy Examples Distinctive competencies Environmental scanning Technological change Order qualifiers and order winners Quality and time Outsourcing Globalization Quality Price Time Flexibility Differentiation

Distinctive Competencies The special attributes or abilities that give an organization a competitive edge. Price Quality Time Flexibility Service Location

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

Environmental Scanning Strategy External factors Economic conditions Political conditions Legal environment Technology Competition Markets Internal factors Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers Take into account what competitors are doing or planning to do.

Technological Change Strategy Technological changes occur in Products High-definition TV, improved computer chips, improved cellular telephone systems, and improved design of earthquake structures. Services Fast order processing and fast delivery. Processes Robotics, automation, computer-assisted processing, point-of-sale scanners, and flexible manufacturing systems. Benefits are competitive edge. Risks are incorrect choices, poor execution, and higher-than-expected operating costs.

Order Qualifiers and Order Winners Strategies 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

Quality and Time Strategies Quality-based strategies focus on satisfying customers by integrating quality into all phases of the organization. Time-based strategies focus on reducing the time required to accomplish various activities. The rationale is that, by reducing time, cost is generally less, productivity is higher, quality tends to be higher, product innovation appears on the market sooner, and customer service is improved. A company that can bring out new products three times faster than its competitors enjoys a huge advantage. Areas of time reduction include planning, product/service design, processing, delivery, and response for complaints.

Outsourcing Strategy Reduce overhead Gain flexibility Take advantage of suppliers’ expertise

Globalization Increased market share Risks May work only locally Political or social upheaval Coordination and management

Productivity Effective use of resources. An index that measures output relative to the input.

Productivity Reality Check? Productivity gains involves getting employees to work harder. False. The fact is that many productivity gains in the past have come from technological improvements. Productivity is the same as efficiency. Efficiency is a narrow concept that pertains to getting the most out of a given set of resources; productivity is a broader concept that pertains to effective use of overall resources. Examples of technology used to improve productivity are fax, computer, internet, automation, copier. Example: An efficiency perspective on mowing a lawn given a hand mower would focus on the best way to use the hand mower; a productivity perspective would include the possibility of using a power mower.

Productivity Productivity is directly related to Capital Quality Technology Management Productivity is directly related to Competitiveness Standard of living Inflation Productivity measures can be used to track performance over time. When improvements are needed. Productivity measures can be used to track performance over time. Firm: A firm requiring less input can charge a lower price and increase its market share. With the same price, the firm can have greater profit. Higher productivity improves the standard of living. Government: Wage and price increase not accompanied by productivity increases the inflationary pressures on a nation's economy. Productivity in service sector is difficult to measure due to its involvement with intellectual activities. Thus, the improvement of productivity in service is difficult to achieve. Examples are surgery, diagnosis, consulting, legal, customer service, repair.

Factors Affect Productivity methods, capital, quality, technology, and management. Examples: Standardization, Internet, computer viruses, scrap rate, new worker, safety, short of IT skill, layoff, labor turnover, workplace design, training, equipment breakdown, material shortage. Negative impacts on productivity: A low propensity to save and a high propensity to consume. Government regulations. Increasing demand for services. Managers are hesitant to commit funds for long periods of time because it reduces their flexibility to take advantages of other opportunities that might arise in the meantime.

Productivity Improvement Establish reasonable goals Develop productivity measures Look at the system as a whole Develop methods for achieving productivity improvement (e.g. quality circle) Management support Measure and publish results

Productivity Measures Partial measures output/(single input) Multi-factor measures output/(multiple inputs) Total measure output/(total inputs)

Productivity Measures Partial Output Output Output Output measures 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

Productivity Measure Example 10,000 Units Produced Sold for $10/unit 500 labor hours Labor rate: $9/hr Cost of raw material: $5,000 Cost of purchased material: $25,000 What is the labor productivity?

Productivity Measure Example, Labor Productivity 10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure (10,000 unit* $10/unit)/(500hrs* $9/hr) = 22.22

Productivity Measure Example, Multifactor Productivity MFP = Output Labor + Materials MFP = (10,000 units)*($10) (500)*($9) + ($5000) + ($25000) MFP = 2.90

Productivity Measure Example #1 Determine the productivity for these cases : Four workers installed 720 square yards of carpeting in eight hours. A machine produced 68 usable pieces in two hours.

Productivity Measure Example #1 Solution Four workers installed 720 square yards of carpeting in eight hours. A machine produced 68 usable pieces in two hours. 720 square yards 4 workers 720 square yards 4 workers x 8 hours/worker Productivity= or = 180 square yards/worker or 22.5 square yards/hour 68 pieces 2 hours Productivity= = 34 pieces/hour

Productivity Measure Example #2 Determine the multifactor productivity for the combined input using the following data: Output: 1760 units Input: Labor $1000, Material $520, Overhead $2000.

Productivity Measure Example #2 Solution Output: 1760 units Input: Labor $1000, Material $520, Overhead $2000. Multifactor Productivity Output Labor + Material + Overhead = 1760 units $1000 + $520 + $2000 = = 0.50 units/dollar

Productivity Measure Summary Calculation of multifactor productivity requires a common unit of measurement. It is best to treat productivities as approximate indicators rather than precise measurements.