Competitiveness, Strategy, and Productivity€¦ · PPT file · Web view · 2014-06-11Overview. Three separate, but related concepts that are vitally important to business organizations:

PowerPoint Presentation

Competitiveness, Strategy, and Productivity

Chapter 2

MIS 373: Basic Operations Management

https://www.youtube.com/watch?v=zknLfU7GJIw

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Learning Objectives

After this lecture, students will be able to

List several ways that business organizations compete.

Discuss and compare organization strategy and operations strategy and explain why it is important to link the two.

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

Describe several factors that affect productivity.


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Overview

Three separate, but related concepts that are vitally important to business organizations:

Competitiveness

Strategy

Productivity


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Competitiveness

Competitiveness:

How effectively an organization meets the needs of customers relative to others that offer similar goods or services

Organizations compete over:

Price (Cost): WAL-MART

Quality: BMW

Response-time: UPS

Variety (Flexibility): DELL


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Operations Influence on Competitiveness

Product and service design

Cost

Location

Quality

Quick response

Flexibility

Inventory management

Supply chain management

Service

Managers and workers

Competitiveness


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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.


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Exercise

Name 10 ways that banks 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

Hierarchical Planning and decision making


Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics

Tactics

Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

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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,"


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Hierarchical Planning and decision making


Mission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics

Tactics

Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Wal-Mart To Go

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Mission and Goals

Mission

The reason for an organizations 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

Goals

Provide detail and the scope of the mission

Goals can be viewed as organizational destinations

Goals serve as the basis for organizational strategies


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Example Mission Statements

FedEx Mission Statement

http://about.van.fedex.com/mission-strategy-values

FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx 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.


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Strategy

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


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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


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Organizational Strategy

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

Responsiveness (time-based strategies)

Strategies that focus on the reduction of time needed to accomplish tasks

Differentiation: Variety

Focus on customization

Differentiation: Newness

Focus on innovation to create new products or services

Differentiation: Service

Focus on various aspects of service (e.g., helpful, reliable, etc)

Differentiation: Quality

focus on quality in all phases of an organization in order to achieve higher quality than competitors


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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


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Examples of Strategies

Organizational StrategyOperations StrategyExamples of Companies or ServicesLow PriceLow CostWal-MartSouthwest AirlinesResponsivenessShort processing timesOn-time deliveryMcDonalds restaurantsFedExDifferentiation:High QualityHigh performance design and/or high quality processingConsistent QualityBMW

Coca-ColaDifferentiation:NewnessInnovation3MAppleDifferentiation:VarietyFlexibilityVolumeBurger King (Have it your way)McDonalds (Buses Welcome)Differentiation:ServiceSuperior customer serviceDisneylandIBMDifferentiation:LocationConvenienceSupermarketsBanks, ATMs


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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 divisions revenues must come from products introduced in the last four years.

Over a 20-year period, 3Ms gross margin averaged 51% and the companys 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

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?

Wal-Mart

Southwest Airlines

McDonalds

FedEx

BMW

Coca-Cola

3M

Apple

Burger King

Disneyland

IBM

Supermarkets

Banks, ATMs

Strategy Formulation

Three common approaches

Michael Porter's five forces model

Environmental scanning (SWOT)

Balanced Scorecard


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Porter's five forces model


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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 tosubstitute Price-performancetrade-off of substitutes

BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Product differentiation Substitutes available Buyers' incentives

Source:

http://www.quickmba.com/strategy/porter.shtml

Porter on his five forces model

http://youtu.be/mYF2_FBCvXw?t=34s

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SWOT

Environmental scanning (SWOT)

Internal Factors

Strengths and Weaknesses

External Factors

Opportunities and Threats


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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.


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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.


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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.


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Scorecard

ObjectiveMeasureTargetImprove consumer satisfaction and loyalty by 20%Survey scoreUp 20%Delivery time< 4 days

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?

Lag measure

Leading measure

Balanced Scorecard


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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 organizations 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.


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Productivity

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 units performance over time

Judging the performance of an entire industry or country


Productivity

=

Outputs

Inputs

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wsj.com 1/12/2012

The Factory Floor Has a Ceiling on Job Creation

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.

Why does Productivity Matters?

Brynjolfsson, E., and Hitt, L. M. 1998. Beyond the productivity paradox. Communications of the ACM 41(8) 4955.

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.


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Measures of Productivity


Productivity

=

Outputs

Inputs

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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Examples of Partial Productivity Measures

Partial Productivity MeasuresExamplesLabor ProductivityUnits of output per labor hourUnits of output per shiftValue-added per labor hourMachine ProductivityUnits of output per machine hourCapital ProductivityUnits of output per dollar inputDollar value of output per dollar inputEnergy ProductivityUnits of output per kilowatt-hourDollar value of output per kilowatt-hour


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Exercise

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

What is the implication of an unitless measure of productivity?

Hint:

The key of this calculation is to convert all the elements to their dollar values.

Whats the dollar value of the

output / labor / material / overhead?

Productivity Growth

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


Productivity Growth = Current productivity Pervious productivity 100%Pervious productivity

Productivity Growth = 23 25 100%= 8%25

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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


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Health care Productivity

Kocher, Robert, and Nikhil R. Sahni. "Rethinking health care labor." New England Journal of Medicine 365.15 (2011): 1370-1372.

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

Health care Productivity

IBM Healthcare Industry: 2020 Vision

reduce tests and costs

personalized medicine

patient education & empowerment

adoption of new practices

drug effectiveness evaluation

risk prediction & prevention

http://www.youtube.com/embed/pHqtrrTaJKY?end=205

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Factors Affecting Productivity


Capital

Methods

Technology

Management

Quality

INCREASE: Calculators, Computers, Faxes, copiers, Internet search engines, Voice mail, cell phones, email

REDUCE:

inflexibility, high costs, mismatched operations, non-work activities

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Productivity & Technology

NPR 4/30/13 When It Comes To Productivity, Technology Can Hurt And Help

With instant messages buzzing, emails 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,

http://www.npr.org/blogs/alltechconsidered/2013/05/06/179072692/when-it-comes-to-productivity-technology-can-hurt-and-help

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Productivity Paradox

Brynjolfsson, E., and Hitt, L. M. 1998. Beyond the productivity paradox. Communications of the ACM 41(8) 4955.


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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

Improving Productivity

Develop productivity measures for all operations

Determine critical (bottleneck) operations

Develop methods/technologies for productivity improvements

Establish reasonable goals

Make it clear that management supports and encourages productivity improvement

Measure and publicize improvements

Dont confuse productivity with efficiency


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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.


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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

,

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$

$150,000

=

20130430_me_01

NPR

Blues

276394.66

Documents

Competitiveness, Strategy, and Productivity€¦ · PPT file · Web view · 2014-06-11Overview. Three separate, but related concepts that are vitally important to business organizations: