Competitiveness, Strategy, and Productivity
Competitiveness, Strategy, and Productivity
Chapter 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
Overview
Three separate, but related concepts that are vitally important
to business organizations:
Competitiveness
Strategy
Productivity
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?
Marketings Influence
Identifying consumer wants and/or needs
Pricing
Advertising and promotion
Operations Influence
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers
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
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.
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
MarketingStrategies
OperationsStrategies
Tactics
Tactics
Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
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,"
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
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
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
MarketingStrategies
OperationsStrategies
Tactics
Tactics
Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
We save people money so they can live better
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Goals serve as the basis for organizational strategies
The Eller Example
Mission Statement
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
http://ugrad.eller.arizona.edu/about/mission.asp
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
MarketingStrategies
OperationsStrategies
Tactics
Tactics
Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
consumer low prices
customer service
convenience
efficient, productive and sustainable solutions
We save people money so they can live better
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
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
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
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
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance Strategies
MarketingStrategies
OperationsStrategies
Tactics
Tactics
Tactics
Operatingprocedures
Operatingprocedures
Operatingprocedures
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
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
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?
Strategy Formulation
Approaches
Michael Porter's five forces model
Environmental scanning (SWOT)
Balanced Scorecard
Core competencies
Order qualifiers
Order winners
Porters 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
tosubstitute Price-performancetrade-off of substitutes
BUYER POWER Bargaining leverage Buyer volume Buyer information
Brand identity Price sensitivity Product differentiation
Substitutes available Buyers' incentives
Porter on his five forces model
SWOT
Environmental scanning (SWOT)
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats
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.
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.
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.
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
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.
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
Planning workforce requirements
Scheduling equipment
Financial analysis
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.
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?
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.
Why 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.
Measure of Productivity
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
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 multifactor productivity?
Hint:
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?
Solution
What does this number mean?
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?
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
Productivity of Healthcare
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
IBM Healthcare Industry: 2020 Vision
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
Productivity and 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,
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. 1998. Beyond the productivity
paradox. Communications of the ACM 41(8) 4955.
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
Dont 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)
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 OfficeProductivity
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.
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
=
ty
Productivi
Multifactor Productivity
=
Output
Labor
+
Material
+
Overhead
Overhead
+
Material
+
Labor
Output
=
ty
Productivi
r
Multifacto
$25/hour))
hours
(2(500
+
$5,000
+
$25/hour)
hours
(500
$30/unit
units
5,000
=
3.5294
=
500
,
42
$
$150,000
=
Productivity Growth
=
Current productivity
-
Previous productivity
Previous productivity
100
%
Productivity Growth
=
23
-
25
25
100
%
=
-
8
%
20130430_me_01
NPR
Blues
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