McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Chapter 2
Competitiveness, Strategy, and
Productivity
2-2
Cold Hard Fact
Better quality, higher productivity, lower costs,
and the ability to respond quickly to customer
needs are more important than ever and.
the bar is getting higher
2-3
Chapter Focus
Competitiveness
Strategy
Productivity
2-4
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
hat do customers want?
How can these customer needs best be satisfied?
2-5
Businesses Compete Using Operations
1. Product and service design
2. Cost
3. Location
4. Quality
5. Quick response
6. Flexibility
7. nventory management
8. Supply chain management
9. Service
10. Managers and workers
2-6
hy Some Organizations Fail
Neglecting operations strategy
Failing to take advantage of strengths and opportunities
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 and cooperation
Failing to consider customer wants and needs
2-7
Hierarchical Planning
Mission
Goals
Organizational Strategies
Tactics
Functional Strategies
2-8
Mission
Mission
The reason for an organization's existence
Mission statement
States the purpose of the organization
The mission statement should answer the question of
"hat business are we in?
2-9
McDonald's Mission Statement
McDonald's brand mission is to "be our customers' favorite place
and way to eat." Our worldwide operations have been aligned
around a global strategy called the PIan to Win centering on the
five basics of an exceptional customer experience -- People,
Products, Place, Price and Promotion. e are committed to
improving our operations and enhancing our customers' experience.
http://www.mcdonalds.com/corp/about/mcd_faq/student_research.html
2-10
Goals
The mission statement serves as the basis for
organizational goals
GoaIs
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Goals serve as the basis for organizational strategies
2-11
Strategies
Strategy
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
2-12
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
2-13
Core Competencies
Core Competencies
%e special attributes or abilities tat give an
organization a competitive edge
To be effective core competencies and
strategies need to be aligned
2-14
Sample Strategies
OrganizationaI
Strategy Operations Strategy
ExampIes of Companies or
Services
Low Price Low Cost U.S. first-class postage
al-Mart
High Quality High performance design
and/or high quality
processing
Consistent Quality
Sony TV
Lexus
Coca-Cola; electric power
Short Time Quick Response
On-time delivery
McDonald's Restaurants
Express mail
FedEx; One-hour photo
Newness nnovation 3M
Express mail
Variety Flexibility
Volume
Burger King (Have it your way)
McDonald's ("Buses elcome)
Service Superior customer service Disneyland
BM
Location Convenience Supermarkets
Mall Stores
2-15
Strategy Formulation
Effective strategy formulation requires taking
into account:
Core competencies
Environmental scanning
SOT
Successful strategy formulation also requires
taking into account:
Order qualifiers
Order winners
2-16
Operations Strategy
Operations strategy
The approach, consistent with organization
strategy, that is used to guide the operations
function.
2-17
Quality-Based Strategies
QuaIity-based strategy
Strategy 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
part of a cost reduction strategy
2-18
Time-Based Strategies
Time-based strategies
Strategies that focus on the reduction of time needed
to accomplish tasks
t 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
2-19
Time-Based Strategies
reas where organizations have achieved time
reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
2-20
gile Operations
gile operations
strategic approach for competitive advantage that
emphasizes the use of flexibility to adapt and prosper
in an environment of change
nvolves the blending of several core competencies:
Cost
Quality
Reliability
Flexibility
2-21
Productivity
Productivity
measure of the effective use of resources, usually
expressed as the ratio of output to input
Productivity measures are usefuI for
Tracking an operating unit's performance over time
Judging the performance of an entire industry or
country
2-22
hy Productivity Matters
High productivity is linked to higher standards of living
Higher productivity relative to the competition leads to
competitive advantage in the marketplace
For an industry, high relative productivity makes it less
likely it will be supplanted by foreign industry
2-23
Productivity Measures
Partial Measures
Output
Single Input
;
Ouput
Labor
;
Output
Capital
MultiIactor Measures
Output
Multiple Inputs
;
Ouput
Labor Machine
;
Output
Labor Capital Energy
Total Measure
Goods or services produced
All inputs used to produce them
Productivity
Output
Input
2-24
hat is the
multifactor
productivity?
Productivity Calculation Example
&nits produced: 5,500
Standard price: $35/unit
Labor input: 500 hours
Cost of Iabor of $25/hour
Cost of materiaIs: $5,000
Cost of overhead: 2x Iabor cost
2-25
Solution
MultiIactor Productivity
Output
Labor Material Overhead

5,000 units L$30/unit

(500 hours L$25/hour) $5,000 (2(500 hours L$25/hour))

4.12
hat is the implication of a unitless measure of productivity?
2-26
U.S. Multifactor Productivity
&S MuItifactor Productivity
(1975 - 2007)
80
85
90
95
100
105
110
115
1
9
7
5
1
9
7
7
1
9
7
9
1
9
8
1
1
9
8
3
1
9
8
5
1
9
8
7
1
9
8
9
1
9
9
1
1
9
9
3
1
9
9
5
1
9
9
7
1
9
9
9
2
0
0
1
2
0
0
3
2
0
0
5
2
0
0
7
Year
M
F
P

(
I
n
d
e
x
,

2
0
0
0

=

1
0
0
)
2-27
Productivity Growth
Productivity Growth
Current productivity - Previous productivity
Previous productivity
L100

Productivity Growth
23- 25
25
L100 8
Example: Labor productivity on the BC assembly line was 25 units per hour in
2006. n 2007, labor productivity was 23 units per hour. hat was the
productivity growth from 2006 to 2007?
2-28
MFP Growth - Non-Farm
MFP Growth in the Private Non-Farm Business Sector
19
04
06
11
13
0
1
2
3
4
5
1948-1973 1973-1990 1990-1995 1995-2000 2000-2007
A
v
e
r
a
g
e

A
n
n
u
a
I

P
e
r
c
e
n
t

C
h
a
n
g
e
2-29
MFP Growth - Manufacturing
2-30
Factors ffecting Productivity
Capital Capital
Methods Methods
Technology Technology Management Management
Quality Quality