1. Chapter 2: Competitiveness, Strategy, and Productivity
Department of Business Administration
FALL
Chapter 2: Competitiveness, Strategy, and Productivity

2. Outline: What You Will Learn . . .
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.
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.

3. The three topics. . .
Competitiveness, Strategy, and Productivity are three separete but related topics that are vitally important to business organizations.
Competitiveness relates to the effectiveness of an organization in the market place relatively to other organizations that offer similar products or services.
Strategy relates to the plans that determine how an organization pursues its goals.
Productivity relates to the effective use of resources and it has a direct impact on competitiveness.

4. Competitiveness Competitiveness:
Companies must be competitive to sell their goods and provide services in the market.
It is an important factor in determining whether a company succeeds or fails
Marketing influences competitiveness in several ways
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

5. Competitiveness Three main factors
Identifying consumer wants and needs
is a basic input organization’s decision making process and central to competitiveness
Pricing
is a key factor in consumer buying decision
Advertising and promotion
is a key element that informs potential consumers and attracts buyers

6. Competitiveness- The other important factors
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service and service quality
Managers and workers

7. Competitiveness -Important factors
product and service -special characteristics of product and service design is a key factor in consumer buying decisions.
innovation and the time to market are also key factors for new products and services.
cost of organization’s output is a key variable that influences pricing decisions and profit policies.
location is an important factor in term of transportation cost and convenience for customers.
quality is another key element that refers to materials, workmanship, design and service.
quick response is a key factor that can be a competitive advantage- quickly bring the new product or service into market.
flexibility is the ability to respond to changes for the market

8. Competitiveness -Important factors
Inventory management can be a competitive advantage by effectively matching supplies of goods with demand.
Supply chain management involves coordinating internal and external operations to achieve timely and cost-effectively delivery of goods throughout the system.
service is a key differentiator- after sale activities customers perceive as value-added such as delivery, warranty work and technical support
managers and workers are the people at the heart and soul of an organization (i.e. Skills and ideas).

9. Why Some Organizations Fail?
Organizations fail or perform poorly for a variety of resons. Being aware of such resons may help managers avoid making similar mistake. Some of the reasons are following:
Too much emphasis on short-term financial performance at the expense of research and development.
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

10. Two important questions?
The key questions are following:
What do the customers want?
What is the best way to satify those wants?
Operations must work with marketing to obtain information on the relative importance of the various items to each major customer or target market.
Understanding competitive issues can help managers develop successful strategies.

11. Strategy Plans for achieving organizational goals
The importance of strategies should not be overstated
Strategies can be
Long-term
Intermediate-term
Short-term
Strategies can be effective if they are designed well to support the organization’s mission and its goals:

12. Mission and Goals Mission Mission Statement Goals Strategies Tactics
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

13. Mission/Strategy/Tactics
How does mission, strategies and tactics relate to
decision making and distinctive competencies?
This slide is excluded from the exam

14. Planning and Decision Making
Figure 2.1
The overall relationship from
Mission to Operation is hierarchical
This slide is excluded from the exam
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
Marketing Strategies
Operations Strategies
Tactics
Tactics
Tactics
Operating procedures
Operating procedures
Operating procedures

15. Mission: Live a good life Goal: Successful career, good income
Strategy 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: The method how to finance college
Operations: Register, buy books, take courses, study, graduate, get job

16. Policies of Strategy
Low cost: outsource operations to the third world countries that have low labor costs.
Scale-based strategies: use the capital intensive methods to achieve high output volume and low unit cost.
Specialization: focus on norrow product lines or limited services to achieve higher quality.
Flexible operations: focus on quick response.
High quality: focus on achieving higher quality than competitors.
Service: focus on various aspects of service (e.g., helpful, courteous, reliable, etc.).

17. Policy Application of Strategy
Polices
Price
Quality
Time
Flexibility
Service
Location

18. Policy Application of Strategy
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

19. Global Strategy
Many companies realized that strategic decisions must be made with respect to globalization as it has increased.
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

20. Key External Factors of Global Strategy
Economic conditions: the general health, direction of the economy, inflation, deflation, interest rates, tax laws and tariffs.
Political conditions:favorable or unfavoable attitudes toward business, political stability or instability and wars.
Legal environment:government regulations, trade restriction, minimum wage law, labor law and patent.
Technology:product innovations and new design.
Competition: price, quality, special features and the ease of market entry.
Markets: size, location, brand loyalties, potential for growth, long-term stability, and demographics.

21. Key Internal Factors of Global Strategy
Human Resources: the skills and abilities of managers and workers, special talent, loyalty, dedication and experience.
Facilities and equipment: capacities, location, age, cost and replace.
Financial resources: funding, debt burden, cost of capital and cash flow.
Customers: loyalty and understanding of wants and needs.
Products and services: quality, design and potential for new products and services.
Technology:the ability to integrate new technology.
Suppliers: quality, flexibility, reliable and trustworthy in service.

22. Strategy Formulation
To formulate an effective strategy, senior managers must take into account the followings:
Distinctive competencies
The special attributes or abilities that give an
organization a competitive edge.
Environmental scanning
The considering of events and trends that present threats or opportunities for a company
SWOT-link between organizational and operations strategies
The is an approach shows strengths and weaknesses have an internal focus and evaluated by operation people. The threats and opportunities have external focus and evaluated by marketing people.

23. 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
This slide is excluded from the exam

24. Operations Strategy Operations strategy Quality-based strategies
The approach, consistent with organization strategy, that is used to guide the operations function.
Quality-based strategies
Focuses on maintaining or improving the quality of an organization’s products or services
Time-based strategies
Focuses on reduction of time needed to accomplish tasks

25. Time-based Strategies
JAN
FEB
MAR
APR
MAY
JUN
Planning
Processing
Changeover
On time!
Designing
Delivery
This slide is excluded from the exam

26. Strategic OM Decisions
Decision Area
Affects
Product and service design
Costs, quality liability and environmental
Capacity
Cost structure, flexibility
Process selection and layout
Costs, flexibility, skill level, capacity
Work design
Quality of work life, employee safety, productivity
Location
Costs, visibility
Quality
Ability to meet or exceed customer expectations
Inventory
Costs, shortages
Maintenance
Costs, equipment reliability, productivity
Scheduling
Flexibility, efficiency
Supply chains
Costs, quality, agility, shortages, vendor relations
Projects
Costs, new products, services, or operating systems
This slide is excluded from the exam

27. Efficiency Economic Efficiency
It refers to the ratio of outputs to input. This means that economic efficency is getting the most output from the least amount of inputs.
Organizational Efficiency
It is a ratio of product or service outputs to land, capital or labor inputs.
Efficiency (%) = (Output/Input)*100%
or realized output/expected output
A coffee shop makes 150 coffees per hour. How efficent is the operation as labor input produces 200 coffees per hour?
Efficiency (%) = (Output/Input)*100%
= (150/200)*100%
= 75%

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

29. Factors Affecting Productivity
Capital
Quality
Technology
Management

30. Other Factors Affecting Productivity
Standardization
Quality
Use of Internet
Computer viruses
Searching for lost or misplaced items
Scrap rates
New workers
Safety
Shortage of IT workers
Layoffs
Labor turnover
Design of the workspace
Incentive plans that reward productivity

31. Key Steps In 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

32. The difference between Productivity and efficiency
Productivity is based on how much is produced in a certain amount of time at the lowest possible cost. Or/
Productivity refers to the quantity of accomplishment within a given timeframe.
Efficiency is based on time spent in production. Or/
Efficiency refers to how many resources such as time, money, and energy are exerted for one unit of productivity.

33. Current Period Productivity – Previous Period Productivity
Productivity Growth
Current Period Productivity – Previous Period Productivity
Previous Period Productivity

34. Measures of Productivity
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

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

36. Example-Productivity
A company makes 7040 Units Produced and the costs are reported as follows: Cost of labor of $1,000, Cost of materials is $520 and Cost of overhead is $2000.
What is the multifactor productivity?
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)
$ $520 + $2000
MFP = 2.0 units per dollar of input

37. Example-Productivity Growth
If productivity increased from 80 to 84.
What is the productivity growth rate?
PGR = 80
X 100
PGR = 5%

38. Example-Productivity
Determine the productivity for the following case.
Four workers installed 720 sq yards of carpeting in eight hours
A machine produced 68 usable pieces in two hours
(a) Productivity= Yards of carpet installed
Labor hours worked
P = 720
4 x 8
P = 22.5 yards/ hours

39. Example-Productivity
(b) Productivity= Useable pieces
Production time
P = 68 2
P = 34 pieces/ hours

40. Example- Labor Productivity
A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in half an hour with four workers.
What is labor productivity?
Labor Productivity = Quantity produced
Labor hours
LP = 400
4 x (1/2)
LP = 200 cases/ labor hours

41. Example- Productivity-Growth
A ceramics company spent $ 3000 on a new kiln (oven) last year. It was planned that it would cut energy usage 25% over the old kiln. The manager of the company wants to check the energy savings of the new oven and to look other measures of their productivity whether the change really was beneficial. The company’s data are the following:
Explain whether the modification were beneficial or not
3000 (Last Year) (This Year)
Energy (kWh)
15000 (Last Year) (This Year)
Capital ($)
350 (Last Year) 375 (This Year)
Labor (hour)
4000 (Last Year) (This Year)
Production

42. Example- Productivity-Growth
P Labour 4000/350=11.42 (last year) 4000/375= (this year)
PCapital 4000/15000= /18000=0.222
PEnergy 4000/3000= /2600=1.54
Labour change = =-0.76
Labour Growth = ( )/11.42= -6.65%
Capital change = =
Capital Growth = ( )/0.266= %
Energy change = =0.21
Energy Growth = ( )/ 1.33=15.78%
The energy modifications did not generate the expected savings because energy growth increased whereas labour and capital productivity decreased. Energy productivity growth is 15.78% so it is still lower than the target one (i.e. 25%).

43. Example- MFP MFP = Output Labor cost + Materials cost + Overhead cost
Compute the MFP for an eight hour day where the usable output was 300 units, produced by three workers who used 600 pounds of materials. Workers have an hourly wage of $ 20, and materials cost is $ 1 per pound. Overhead is 1.5 times labor cost.
MFP = Output
Labor cost + Materials cost + Overhead cost
MFP = (300 units)
3x8x x1 + 3x8x20x1.5
MFP = units of output per dollar of input

44. Example- TFP
A firm has the following information for the last two years.
Factor
Year 1
Year 2
Revenue
100
120
Direct Labor 40 45
Materials 20 25
Overhead costs 10 15
Other costs 5
Total 75 90
Profit 30
Stocks 80 70
Buildings 50
If the capital cost and the inflation rate are 15% and 5% respectively; ( Inflation is not effective within the first year)
Calculate TFP for year 1 and 2.
Compute total labor productivity (TLP)

45. Example-TFP Second way: TFP for the two year...
100/ (0.15)(80+40)=100/93=1,075
Year 2
120/1,05*(( (0,15)(70+50))=1,058
Second way:
Year 2: (0,15)*(70+50)=18... ( )=90+18= *(0.05)= =113.4
120/113.4= 1.058
TFP= (1,058-1,075)/1,075=-%1,6

46. Example-TLP TLP for the two year...
Revenue
labor+Overhead
TLP
Year 1: 100/(40+10)=2
Year 2: 120/1,05*(45+15)=1,905
(1,905-2)/2=-%4,8
Second way:
60*0.05= = /63=1.905
Decrease in labor productivity may stem from different reasons. Eg. Cost of inputs, inflation, expenditure on machinery and building etc...

47. Thanks