Chapter 2

Competitiveness, Strategy, and Productivity

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2: Learning ObjectivesYou should be able to:

1. List the three primary ways that business organizations compete2. Explain five reasons for the poor competitiveness of some companies3. Define the term strategy and explain why strategy is important4. Discuss and compare organization strategy and operations strategy, and

explain why it is important to link the two5. Describe and give examples of time-based strategies6. Define the term productivity and explain why it is important to

organizations and countries7. Provide some reasons for poor productivity and some ways of improving

it

2-2Student Slides

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?

Student Slides 2-3

Businesses Compete Using Operations

1. Product and service design2. Cost3. Location4. Quality5. Quick response6. Flexibility7. Inventory management8. Supply chain management9. Service10. Managers and workers

2-4Student Slides

Hierarchical Planning

Mission

Goals

Organizational Strategies

Tactics

Functional Strategies

2-5Student Slides

Mission, Goals, and Strategy

• Mission– The reason for an organization’s existence

• 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

Student Slides2-6

Core CompetenciesCore Competencies

The special attributes or abilities that give anorganization a competitive edge

To be effective core competencies and strategies need to be aligned

Student Slides 2-7

Strategy FormulationEffective strategy formulation requires taking

into account:Core competenciesEnvironmental scanning

SWOTSuccessful strategy formulation also requires

taking into account:Order qualifiersOrder winners

2-8Student Slides

Operations Strategy• Operations strategy

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

Student Slides

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

2-9

Strategic OM Decision Areas

Student Slides

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

2-10

Time- and Quality-Based StrategiesTime-based strategies

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

Quality-based strategyStrategy 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

Student Slides 2-11

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 unit’s performance over

time– Judging the performance of an entire industry or

country

Student Slides 2-12

Productivity Measures

Student Slides

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=tyProductivi

2-13

Factors Affecting Productivity

Student Slides

Capital

Methods

Technology Management

Quality

2-14

Improving Productivity1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations

3. Develop methods for productivity improvements

4. Establish reasonable goals

5. Make it clear that management supports and encourages productivity improvement

6. Measure and publicize improvements

Don’t confuse productivity with efficiency

Student Slides 2-15