1. Competitiveness, Strategy, and Productivity
Chapter 2

2. Learning Objectives
List the several ways that business organizations compete
Explain several reasons that business organizations fail
Define the term mission and strategy and explain why they are important
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 countries
Provide some reasons for poor productivity and some ways of improving it

3. Overview
Three separate, but related concepts that are vitally important to business organizations:
Competitiveness
Strategy
Productivity

4. Competitiveness Competitiveness:
How effectively an organization meets the 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?

5. Marketing’s Influence
Identifying consumer wants and/or needs
Pricing
Advertising and promotion

6. Operations’ Influence
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers

7. Exercise
Discuss in pairs to name 5 ways that grocery stores compete for customers.
Hint: consider operations’ influence on competitiveness
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers

8. Why Some Organizations Fail
Neglecting operations strategy.
Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats.
Putting too much emphasis on short-term financial performance at the expense of research and development.
Placing too much emphasis on product and service design and not enough on process design and improvement.
Neglecting investments in capital and human resources.
Failing to establish good internal communications and cooperation among different functional areas.
Failing to consider customer needs.

9. Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
Marketing Strategies
Operations Strategies
Tactics
Tactics
Tactics
Operating procedures
Operating procedures
Operating procedures

10. Wal-Mart Delivery Service Says to Amazon: 'Bring It‘ wsj
Wal-Mart Delivery Service Says to Amazon: 'Bring It‘ wsj.com 10/19/2012
In its latest bid to take on … Amazon.com this holiday season, Wal-Mart is promising same-day delivery in some cities for orders placed online. Called Wal-Mart To Go, the service costs $10 regardless of the size of the order.
The products will be shipped from the company's stores, not from a warehouse or distribution center. … Wal-Mart is betting that its network of thousands of stores, combined with an improved online presence … can help it compete head to head with Amazon, which has increasingly stressed fast, free or low-cost deliveries.
UPS will pick up the goods and deliver them to customers
Nearly half of Wal-Mart's online sales now come from purchases customers make online and pick up at a store, … "We have a unique advantage because we have the national footprint of stores combined with our online site that enable programs like site to store, pay with cash or pick up today,…"

11. Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
“Wal-Mart To Go”
Functional Goals
Finance Strategies
Marketing Strategies
Operations Strategies
Tactics
Tactics
Tactics
Operating procedures
Operating procedures
Operating procedures

12. 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?”
The mission statement serves as the basis for organizational goals

13. Hierarchical Planning and Decision Making
“We save people money so they can live better”
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
Marketing Strategies
Operations Strategies
Tactics
Tactics
Tactics
Operating procedures
Operating procedures
Operating procedures

14. Goals Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Goals serve as the basis for organizational strategies

15. The Eller Example Mission Statement Goals
The Eller College of Management's Undergraduate Program is committed to building and maintaining working relationships with our students, faculty, recruiters, alumni, and volunteers predicated on mutual respect and responsibility. We strive to nurture student success through innovation and value-added personalized programs. The following core competencies are emphasized within our program: knowledge, skills, ethical behavior, positive attitude, and creativity.
Goals

16. Hierarchical Planning and Decision Making
Reinvesting big in American manufacturing - buying an additional U.S. made products
helping suppliers to bring “on-shore “U.S. production
“support good jobs” - at Wal-Mart, “entry level jobs lead to bigger jobs” - employing thousands of veterans – and more workers in general
1/17/2013
“We save people money so they can live better”
Mission
consumer low prices
customer service
convenience
efficient, productive and sustainable solutions
Goals
Organizational Strategies
Functional Goals
Finance Strategies
Marketing Strategies
Operations Strategies
Tactics
Tactics
Tactics
Operating procedures
Operating procedures
Operating procedures

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

19. Examples of Strategies
Low Price
outsource operations to countries with low labor cost
use capital-intensive methods to achieve high output volume and low unit cost
Specialization
Focus on narrow product lines or limited services to achieve higher quality
Variety
Focus on customization
Newness
Focus on innovation to create new products or services
Service
Focus on various aspects of service (e.g., helpful, reliable, etc)
Sustainability
Focus on environmentally friendly and energy efficient operations
Quality
focus on quality in all phases of an organization in order to achieve higher quality than competitors
Responsiveness (time-based strategies)
Strategies that focus on the reduction of time needed to accomplish tasks

20. Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
Marketing Strategies
Operations Strategies
Tactics
Tactics
Tactics
Operating procedures
Operating procedures
Operating procedures

21. Operations strategy
The organizational strategy provides the overall direction for the organization. It is broad in scope, covering the entire organization.
Operations strategy is narrower in scope, dealing primarily with the operations aspect of the organization. Operations strategy relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling.
In order for operations strategy to be truly effective, it is important to link it to organization strategy

22. Examples of Strategies
Organizational Strategy
Operations Strategy
Examples of Companies or Services
Low Price
Low Cost
Wal-Mart
Southwest Airlines
Responsiveness
Short processing times
On-time delivery
McDonald’s restaurants
FedEx
Differentiation:
High Quality
High performance design and/or high quality processing
Consistent Quality
BMW
Coca-Cola
Newness
Innovation 3M
Apple
Variety
Flexibility
Volume
Burger King (“Have it your way”)
McDonald’s (“Buses Welcome”)
Service
Superior customer service
Disneyland
IBM
Location
Convenience
Supermarkets
Banks, ATMs

23. 3M
Founded in 1902, 3M started out in the mining business as the Minnesota Mining and Manufacturing Company.
3M launched the 15 percent program in 1948.
a program at 3M that allows employees to use a portion of their paid time to chase rainbows and hatch their own ideas.
Thirty Percent Rule, 30% of each division’s revenues must come from products introduced in the last four years.
Over a 20-year period, 3M’s gross margin averaged 51% and the company’s return on assets averaged 29%.
Mission
3M is a science and technology company that creates. For decades, 3M scientists and engineers have developed products that solve problems. 3M is also a company that cares – improving lives each day. The mission of 3Mgives: To Improve Every Life through Innovative Giving in Education, Community and the Environment – mirroring our corporate vision:
3M Technology Advancing Every Company
3M Products Enhancing Every Home
3M Innovation Improving Every Life

24. Exercise
Name three companies that are not in the examples I gave, and describe their core organizational strategies in terms of the following options:
Low Price
Specialization
Responsiveness
Differentiation: Quality
Differentiation: Newness
Differentiation: Variety
Differentiation: Service
Go online and find the mission statements of the three companies. Are their strategies aligned with their mission statements?

25. Strategy Formulation Approaches Michael Porter's five forces model
Environmental scanning (SWOT)
Balanced Scorecard
Core competencies
Order qualifiers
Order winners

26. Porter’s Five Forces Model
SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry
THREAT OF NEW ENTRANTS Barriers to Entry Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution
DEGREE OF RIVALRY Exit barriers Industry concentration Fixed costs/Value added Industry growth Intermittent overcapacity Product differences Switching costs Brand identity Diversity of rivals Corporate stakes
THREAT OF SUBSTITUTES Switching costs Buyer inclination to substitute Price-performance  trade-off of substitutes
BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Product differentiation Substitutes available Buyers' incentives

27. Porter on his five forces model

28. SWOT Environmental scanning (SWOT) Internal Factors External Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats

29. SWOT: Key Internal Factors
Human Resources
Skills of workforce, expertise, experience, loyalty to the organization
Facilities and equipment
Capacities, locations, age, maintenance costs
Financial resources
Cash flow, access to additional funding, debt, cost of capital
Customers
Loyalty, wants and needs
Products and services
Existing, potential for new ones
Technology
Existing, ability to integrate new and its impact on current and future operations
Suppliers
Relationships, dependency, quality, flexibility, service
Other
Labor relations, company image, distribution channels etc.

30. SWOT: Key External Factors
Economic conditions
Health and directions of the economy, inflation, deflation, interest rates, taxes, tariffs.
Political conditions
Attitude towards business, political stability, wars
Legal environment
Antitrust laws, regulations, trade restrictions, minimum wages laws, liability laws, labor laws, patents
Technology
Innovations rate, future process technology, design technology
Competition
Number and strength of competitors, basis of competitions (price, quality etc.)
Markets
Size, location, brand loyalty, ease of entry, growth potential, long term stability, demographics.

31. Balanced Scorecard
The idea of Balanced Scorecard (BSC) is to move away from a purely financial perspective of the organization and integrate other perspectives such as customers, internal business processes, and learning and growth.
Lag measure
Balanced
Financial
How should we appear to our shareholders?
Consumer
How should we appear to our customers?
Internal Business Process
What business process must we excel at?
Learning & Growth
How will we sustain our ability to change/improve?
Scorecard
Objective
Measure
Target
Improve consumer satisfaction and loyalty by 20%
Survey score
Up 20%
Delivery time
< 4 days
Leading measure

32. Balanced Scorecard

33. Steps in strategy formulation
Link strategy directly to the organization's mission or vision statement.
Assess strengths, weaknesses, threats and opportunities, and identify core competencies.
Core competencies: The special attributes or abilities that give an organization a competitive edge
Identify order winners and order qualifiers.
Order winners: Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition
Order qualifiers: Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase
Select one or two strategies (e.g., low cost, speed, customer service) to focus on.

34. Productivity Productivity Productivity measures are useful for
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
Planning workforce requirements
Scheduling equipment
Financial analysis

35. “The Factory Floor Has a Ceiling on Job Creation ” wsj.com 1/12/2012
Factories have been producing more with fewer workers.
Output for each hour of work, or productivity, is up an extraordinary 40% as factories have adopted new technologies and production processes.

36. Discussion Why maintaining a high level of productivity is important?
Hints:
How does it affect the economy?
How does it influence the organization?
How does it change our lives?

37. Why Productivity Matters?
High productivity is linked to higher standards of living
Higher productivity relative to the competition leads to competitive advantage in the marketplace.
Pricing and profit effects
Manufacturing incorporates R&D -> competitive edge.
Manufacturing has beneficial side effect –> service jobs.

38. Why Productivity Matters?
Brynjolfsson, E., and Hitt, L. M Beyond the productivity paradox. Communications of the ACM 41(8) 49–55.
“Productivity growth determines our living standards and the wealth of nations. This is because the amount a nation can consume is ultimately closely tied to what it produces. “
“By the same token, the success of a business generally depends on its ability to deliver more real value for consumers without using more labor, capital, or other inputs.”

39. Measure of Productivity

40. Examples of Partial Productivity Measures
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
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

41. Exercise Units produced: 5,000 Standard price: $30/unit
Hint:
The key of this calculation is to convert all the elements to their dollar values.
What’s the dollar value of the output / labor / material / overhead?
Units produced: 5,000
Standard price: $30/unit
Labor input: hours
Cost of labor: $25/hour
Cost of materials: $5,000
Cost of overhead: 2x labor cost
What is the multifactor productivity?
Hint:

42. Solution
What does this number mean?

43. Productivity Growth
Example: Labor productivity on the ABC assembly line was 25 units per hour in In 2010, labor productivity was 23 units per hour. What was the productivity growth from 2009 to 2010?

44. Service Sector Productivity
Service sector productivity is difficult to measure and manage because
It involves intellectual activities
It has a high degree of variability
Measurement Difficulties
Retailors
Quality Versus Quantity
Nurses

45. Productivity of Healthcare
Kocher, Robert, and Nikhil R. Sahni. "Rethinking health care labor." New England Journal of Medicine (2011):
Of the $2.6 trillion spent in 2010 on health care in the United States, 56% consisted of wages for health care workers.
the “output” is the volume of activity — including all encounters, tests, treatments, and surgeries — per unit of cost

46. IBM Healthcare Industry: 2020 Vision

47. Factors Affecting Productivity
Methods
Capital
Quality
INCREASE: Calculators, Computers, Faxes, copiers, Internet search engines, Voice mail, cell phones,
Technology
Management
REDUCE:
inflexibility, high costs, mismatched operations, non-work activities

48. Productivity and Technology
NPR 4/30/13 “When It Comes To Productivity, Technology Can Hurt And Help”
With instant messages buzzing, s pinging and texts ringing, how can employers increase productivity in the workplace? Software companies are tackling the problem, tracking employees' computer time to find ways to improve their efficiency.
Desk workers, creative workers, …

49. Productivity Paradox
IT investment does not appear to have a strong impact on productivity.
Explanations for the Paradox
Mismeasurement of outputs and inputs,
ATMs reduce the number of checks banks process so, by some measures, banking output and productivity decrease.
The increases in convenience ATMs have created go uncounted in conventional productivity metrics, while their costs are counted.
Lags due to learning and adjustment
Brynjolfsson, E., and Hitt, L. M Beyond the productivity paradox. Communications of the ACM 41(8) 49–55.

50. Improving Productivity
Develop productivity measures for all operations
Determine critical (bottleneck) operations
Develop methods for productivity improvements
Establish (reasonable) goals
Make it clear that management supports and encourages productivity improvement
Measure and publicize improvements
Don’t confuse productivity with efficiency
Efficiency = getting the most out of a fixed set of resources
Productivity = effective use of overall resources (e.g., upgrading equipment)

51. Discussion How do events affect productivity?
How does the World Cup impact productivity?
World Cup Taking a Bite Out of Worker Productivity
Watching The World Cup Will Increase Office Productivity

52. Key Points
Competitive pressure often means that business organizations must frequently assess their competitors' strengths and weaknesses, as well as their own, to remain competitive.
Strategy formulation is critical because strategies provide direction for the organization, so they can play a role in the success or failure of a business organization.
Functional strategies and supply chain strategies need to be aligned with the goals and strategies of the overall organization.
The three primary business strategies are low cost, responsiveness, and differentiation.
Productivity is a key factor in the cost of goods and services. Increases in productivity can become a competitive advantage.