MGT-530: – Module 02/CT 01

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Competitiveness, Strategy, and Productivity

Chapter 2

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You should be able to:

LO 2.1 List several ways that business organizations compete

LO 2.2 Name several reasons that business organizations fail

LO 2.3 Define the terms mission and strategy and explain why they are important

LO 2.4 Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two

LO 2.5 Describe and give examples of time-based strategies

LO 2.6 Define the term productivity and explain why it is important to organizations and to countries

LO 2.7 Describe several factors that affect productivity

Chapter 2: Learning Objectives

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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

LO 2.1

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This chapter focuses on three separate, but related ideas that are vitally important to business organizations

Competitiveness

Strategy

Productivity

Chapter Focus

LO 2.1

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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?

LO 2.1

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Identifying consumer wants and/or needs

Pricing and quality

Advertising and promotion

Marketing’s Influence

LO 2.1

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Product and service design

Cost

Location

Quality

Quick response

Flexibility

Inventory management

Supply chain management

Service

Managers and workers

Businesses Compete Using Operations

LO 2.1

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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 R&D

Too much emphasis in 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

Failing to consider customer wants and needs

Why Some Organizations Fail

LO 2.2

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Hierarchical Planning

Mission

Goals

Organizational strategies

Tactics

Functional strategies

LO 2.3

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Mission

The reason for an organization’s existence

It answers the question “What business are we in?”

Goals

Provide detail and the scope of the mission

Goals can be viewed as organizational destinations

Strategy

A plan for achieving organizational goals

Serves as a roadmap for reaching the organizational destinations

The organizational strategy guides the organization by providing direction for, and alignment of, the goals and strategies of the functional units

The organizational strategy is a major success/failure factor

Mission, Goals, and Strategy

LO 2.3

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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?”

LO 2.3

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FedEx Mission Statement

FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.

LO 2.3

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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

LO 2.3

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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

LO 2.3

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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

LO 2.3

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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

LO 2.3

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Organizational Strategy	Operations Strategy	Examples of Companies or Services
Low Price	Low cost	U.S. first-class postage Wal-Mart
Responsiveness	Short processing times On-time delivery	McDonald’s restaurants FedEx
Differentiation: High Quality	High performance design and/or high quality processing Consistent quality	Sony TV Coca-Cola
Differentiation: Newness	Innovation	3M, Apple
Differentiation: Variety	Flexibility Volume	Burger King (Have it your way”) McDonald’s (“Buses Welcome”)
Differentiation: Service	Superior customer service	Disneyland IBM
Differentiation: Location	Convenience	Supermarkets; mall stores

Sample Operations Strategies

LO 2.4

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Effective strategy formulation requires taking into account:

Core competencies

Environmental scanning

SWOT

Successful strategy formulation also requires taking into account:

Order qualifiers

Order winners

Strategy Formulation

LO 2.4

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Order qualifiers

Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase

Order winners

Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition

Strategy Formulation (cont.)

LO 2.4

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Environmental scanning is necessary to identify

Internal factors

Strengths and weaknesses

External factors

Opportunities and threats

Environmental Scanning

LO 2.4

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Economic conditions

Political conditions

Legal environment

Technology

Competition

Markets

Key External Factors

LO 2.4

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Human resources

Facilities and equipment

Financial resources

Customers

Products and services

Technology

Suppliers

Other

Key Internal Factors

LO 2.4

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Operations Strategy

Operations strategy

The approach, consistent with organization strategy, that is used to guide the operations function

LO 2.4

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Strategic OM Decision Areas

Decision Area	What the Decisions Affect
Product and service design	Costs, quality, liability, and environmental issues
Capacity	Cost, structure, flexibility
Process selection and layout	Costs, flexibility, skill level needed, 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

LO 2.4

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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 desire to catch up with the competition

A part of a cost reduction strategy

Quality-Based Strategies

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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

Time-Based Strategies

LO 2.5

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Areas where organizations have achieved time reductions:

Planning time

Product/service design time

Processing time

Changeover time

Delivery time

Response time for complaints

Time-Based Strategies (cont.)

LO 2.5

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Agile Operations

Agile operations

A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change

Involves the blending of several core competencies:

Cost

Quality

Reliability

Flexibility

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The Balanced Scorecard Approach

A top-down management system that organizations can use to clarify their vision and strategy and transform them into action

Develop objectives

Develop metrics and targets for each objective

Develop initiatives to achieve objectives

Identify links among the various perspectives

Finance

Customer

Internal business processes

Learning and growth

Monitor results

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The Balanced Scorecard

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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

LO 2.6

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Why Productivity Matters

High productivity is linked to higher standards of living

As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living

Higher productivity relative to the competition leads to competitive advantage in the marketplace

Pricing and profit effects

For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry

LO 2.6

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Productivity Measures

LO 2.6

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What is the

multifactor productivity?

Productivity Calculation Example

Units produced: 5,000

Standard price: $30/unit

Labor input: 500 hours

Cost of labor: $25/hour

Cost of materials: $5,000

Cost of overhead: 2x labor cost

LO 2.6

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Solution

What is the implication of an unitless measure of productivity?

LO 2.6

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Productivity Growth

Example: Labor productivity on the ABC assembly line was 25 units per hour in 2014. In 2015, labor productivity was 23 units per hour. What was the productivity growth from 2014 to 2015?

LO 2.6

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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

Where products are involved

Ratio of output of good product to the quantity of raw material input

Where services are involved, process yield measurement is often dependent on the particular process:

Ratio of cars rented to cars available for a given day

Ratio of student acceptances to the total number of students approved for admission

Service Sector Productivity

LO 2.6

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Factors Affecting Productivity

Capital

Methods

Technology

Management

Quality

LO 2.7

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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

LO 2.7

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Partial Measures

Output

Single Input

;

Ouput

Labor

;

Output

Capital

Multifactor Measures

Output

Multiple Inputs

;

Ouput

Labor

Machine

;

Output

Labor

Capital

Energy

Total Measure

Goods or services produced

All inputs used to produce them

Input

Output

Productivi

Multifactor Productivity

Output

Labor

Material

Overhead

$25/hour))

hours

(2(500

$5,000

$25/hour)

hours

(500

$30/unit

units

5,000

3.5294

500

$150,000

Productivity Growth

Current productivity

Previous productivity

100

Productivity Growth

100