Competitiveness, Strategy, and Productivity
Learning Objectives § § 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. Define the term productivity and explain why it is important to organizations and to countries. 2
Competitiveness How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services 3
Competitiveness Strategies § Differentiation – better or at least different § Cost - cheaper § Quick response – more responsive 4
Businesses Compete Using Marketing § Identifying consumer wants and needs § Pricing § Advertising and promotion 5
Businesses Compete Using Operations § Product and service design § Cost § Location § Quality § Quick response 6
Businesses Compete Using Operations (cont. ) § § § Flexibility Inventory management Supply chain management Service and service quality Managers and workers 7
Why Some Organizations Fail § Too much emphasis on short-term financial performance § Failing to take advantage of strengths and opportunities § Neglecting operations strategy § Failing to recognize competitive threats SWOT = Strengths, Weaknesses, Opportunities and Threats 8
Why Some Organizations Fail § 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 9
Mission/Strategy/Tactics Mission Strategy Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies? 10
Strategy § 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 11
Planning and Decision Making Mission Goals Organizational Strategies Functional Goals Finance Strategies Tactics Operating procedures Marketing Strategies Tactics Operating procedures Operations Strategies Tactics Operating procedures 12
Strategy Example Ratana is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably Mission: § Goal: § Strategy: § Tactics: § Operations: Live a good life Successful career, good income Obtain a college education Select a college and a major Register, buy books, take courses, study, graduate, get job 13
Examples of Strategies § Low cost - outsourcing § Scale-based strategies - capital intensive method for high volume production § Specialization - focus on narrow product line for higher quality § Flexible operations - customization § High quality – focus on higher quality than competitors § Services – focus on various aspect of services 14
Strategy and Tactics § Strategy Factors § § § Price – low cost Quality – consistent quality, high quality Time – rapid delivery, on-time delivery Flexibility – variety, volume Service – customer services Location - convenience Distinctive Competencies The special attributes or abilities that give an organization a competitive edge. 15
Strategy Formulation § § § Distinctive competencies Environmental scanning SWOT Order qualifiers Order winners 16
Strategy Formulation § Order qualifiers § Characteristics that customers perceive as minimum standards of acceptability to be considered as a potential purchase § Order winners § Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition 17
Key External Factors § § § Economic conditions Political conditions Legal environment Technology Competition Markets 18
Key Internal Factors § § § § Human Resources Facilities and equipment Financial resources Customers (loyalty, understanding) Products and services Technology Suppliers 19
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 20
Quality and Time Strategies § Quality-based strategies § § Focuses on maintaining or improving the quality of an organization’s products or services Quality at the source § Time-based strategies § Focuses on reduction of time needed to accomplish tasks 21
Time-based Strategies JAN FEB MAR APR MAY JUN Planning Designing Processing Changeover On time! Delivery 22
Global Strategy § Strategic decisions must be made with respect to globalization § What works in one country may not work in another § Strategies must be changed to account for these differences § Other issues § Political, social, legal, cultural and economic differences 23
Four International Operations Strategies International High Cost Reduction Considerations Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 24
Four International Operations Strategies Cost Reduction Considerations High International Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 25
Four International Operations Global Strategies Strategy High Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Examples Caterpillar U. S. Steel Otis Harley Davidson Elevator International Strategy þ Import/export or license existing product Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 26
Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 27
Four International Operations Multidomestic Strategies Strategy High þ Use existing þ Standardized product domestic model þ Economies of scale þ Cross-cultural learning globally Examples Texas þ Franchise, joint Instruments Caterpillar Otis Elevator ventures, subsidiaries Cost Reduction Considerations Global Strategy International Strategy Examples Heinz Examples Mc. Donald’s U. S. Steel Harley Davidson The Body Shop Hard Rock Cafe þ Import/export or license existing product Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 28
Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy þ Import/export or license existing product Multidomestic Strategy þ Use existing domestic model globally þ Franchise, joint ventures, subsidiaries Examples U. S. Steel Harley Davidson Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 29
Four International Operations Transnational Strategies Strategy High þ Move material, people, ideas Examples across national Texas Instruments Caterpillar boundaries Otis Elevator þ Economies of scale þ Cross-cultural International Strategy Multidomestic Strategy þ Use existing learning þ Import/export or domestic model globally Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning license existing product Examples Coca-Cola Nestlé Examples U. S. Steel Harley Davidson Low þ Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 30
Four International Operations Strategies High Transnational Strategy þ Standardized product þ Economies of scale þ Cross-cultural learning Cost Reduction Considerations Global Strategy þ Move material, people, ideas across national boundaries þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy Examples Coca-Cola Nestlé þ Import/export or license existing product Multidomestic Strategy þ Use existing domestic model globally þ Franchise, joint ventures, subsidiaries Examples U. S. Steel Harley Davidson Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation) 31
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 32
Productivity § Partial measures § output/(single input) § Multi-factor measures § output/(multiple inputs) § Total measure § output/(total inputs) Outputs Productivity = Inputs 33
Productivity Growth = Current Period Productivity – Previous Period Productivity 34
Input Output - Input Labor Output Machine Raw materials Electricity / water / etc. Capital Products Processes Or Services Inventory Others 35
Measures of Productivity Partial measures Multifactor measures Total measure Output Labor Output Machine Capital Output Labor + Machine Output Energy Output Labor + Capital + Energy Goods or Services Produced All inputs used to produce them 36
Examples of Partial Productivity Measures Labor Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Machine Productivity Units of output per machine hour Capital Productivity Units of output per capital input Money value of output per money input Energy Productivity Units of output per kilowatt-hour money value of output per kilowatt-hour 37
Example 3 7040 Units Produced Cost of labor of $1, 000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? 38
Example 3 Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units) $1000 + $520 + $2000 MFP = 2. 0 units per dollar of input 39
Process Yield § Process yield is the ratio of output of good product to input § Defective product is not included in the output § Service example: § Ratio of cars rented to cars available to rent 40
Factors Affecting Productivity Capital Quality Technology Management 41
Other Factors Affecting Productivity § § § § Standardization Quality Use of Internet Computer viruses Searching for lost or misplaced items Scrap rates New workers 42
Other Factors Affecting Productivity § § § § Safety Shortage of IT workers Layoffs Labor turnover Design of the workspace Incentive plans that reward productivity Outsourcing 43
Outsourcing § Higher productivity in another company is a key reason organizations outsource work § Improving productivity may reduce the need for outsourcing 44
Improving Productivity § Develop productivity measures § Determine critical (bottleneck) operations § Develop methods for productivity improvements § Establish reasonable goals § Get management support § Measure and publicize improvements § Don’t confuse productivity with efficiency 45
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