Chapter 2: Competitiveness, Strategy, and Productivity

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Chapter 2 Competitiveness, Strategy, and
Productivity

• MBA 4th semester
• Institute of Management Studies, University of
  Peshawar

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INTRODUCTION
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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.

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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 marketplace 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.

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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

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Competitiveness

• Identifying consumer wants and needs
• is a basic input organizations 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

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Competitiveness-Important factors

• Product and service design
• Cost
• Location
• Quality
• Quick response
• Flexibility
• Inventory management
• Supply chain management
• Service and service quality
• Managers and workers

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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 organizations 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

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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).

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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
• Failing to recognize competitive threats
• 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

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Two important questions?

• 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

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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 organizations mission and
  its goals

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Mission and Goals

• Mission
• 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

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Mission/Strategy/Tactics

• How does mission, strategies and tactics relate
  to
• decision making and distinctive competencies?

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Planning and Decision Making

Figure The overall relationship from Mission to
Operation is hierarchical
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
MarketingStrategies
OperationsStrategies
Tactics
Tactics
Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
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Strategy Example

• ASAD is a high school student. HE 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 Select a college and a major
• how to finance college
• Operations Register, buy books, take
  courses, study, graduate, get job

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Examples of Strategies

• 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.).

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Strategy and Tactics

• Distinctive Competencies
• The special attributes or abilities that give an
• organization a competitive edge.
• The most effective organizations use an approach
  that develops distinctive competencies based on
  customer needs and wants.
• Strategy Factors
• Price
• Quality
• Time
• Flexibility
• Service
• Location

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Examples of Operations Strategies

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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

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Key External Factors

• Economic conditions the general health,
  direction of the economy, inflation, deflation,
  interest rates, tax laws and tariffs.
• Political conditionsfavorable or unfavoable
  attitudes toward business, political stability or
  instability and wars.
• Legal environmentgovernment regulations, trade
  restriction, minimum wage law, labor law and
  patent.
• Technologyproduct 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.

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Key Internal Factors

• 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.
• Technologythe ability to integrate new
  technology.
• Suppliers quality, flexibility, reliable and
  trustworthy in service.

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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.
  

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Strategy Formulation

• Order qualifiers
• Characteristics that customers perceive as
  minimum standards of acceptability to be
  considered as a potential purchase
• Order qualifiers are key criteria that make the
  product or service eligible by the customers as a
  source of purchase.
• Order winners
• Characteristics of an organizations goods or
  services that cause it to be perceived as better
  than the competition

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Example of Order Winners and Qualifiers

• Buyers of industrial chemicals expect a certain
  level of purity.
• Once the purity requirement has been satisfied,
  how-ever, other performance dimensions such as
  cost, delivery speed, and flexibility will be
  used to determine the best source.
• From the suppliers perspective product quality
  is the order qualifier and delivery speed, and
  flexibility are order winners.

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Operations Strategy

• Operations strategy
• 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 organizations products or services
• Time-based strategies
• Focuses on reduction of time needed to accomplish
  tasks

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Time-based Strategies

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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
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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)

Outputs
Productivity

Inputs
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Factors Affecting Productivity
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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

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Key Steps In Productivity

• Develop productivity measures
• Develop methods for productivity improvements
• Establish reasonable goals
• Get management support
• Measure and publicize improvements
• Dont confuse productivity with efficiency

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Productivity Growth

Current Period Productivity Previous Period
Productivity Previous Period Productivity
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Measures of Productivity

• Partial Output Output Output
  Outputmeasures 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

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Partial Productivity Measures

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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) 1000 520 2000
MFP 2.0 units per dollar of input
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Example-Productivity Growht

• If productivity increased from 80 to 84.
• What is the productivity growth rate?

PGR 84-80 80
X 100
PGR 5
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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
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Example-Productivity

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

• 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 companys data are the
  following
• Explain whether the modification were beneficial
  or not

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Example- Labor Productivity

• Labour 4000/35011.42 (last year) 4000/37510.66
  (this year)
• Capital 4000/150000.266 4000/180000.222
• Energy 4000/30001.33 4000/26001.54
• Labour change 10.66-11.42-0.76
• Labour Growth (10.66-11.42)/11.42 -6.66
• Capital change 0.222-0.266 - 0.044
• Capital Growth (0.222-0.266)/0.266 - 16.54
• Energy change 1.54-1.330.21
• Energy Growth (1.54-1.33)/ 1.3315.78
• 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).

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Example- MFP

• 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) 3x8x20 600x1 3x8x20x1.5
MFP 0.167 units of output per dollar of input
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