Chapter 2

1. Chapter 2 Competitiveness, Strategy, and Productivity

2. Learning Objectives • You should be able to: • List the three primary ways that business organizations compete • Explain five reasons for the poor competitiveness of some companies • Define the term strategy and explain why strategy is important • Know methods for strategy formulation (SWOT, order qualifiers/order winners) • Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two • Definition of time/quality-basedstrategies • Define the term productivity (know how to calculate) and explain why it is important to organizations and countries • Provide some reasons for poor productivity and some ways of improving it Instructor Slides

3. Three separate, but related concepts that are vitally important to business organizations Competitiveness Strategy Productivity 2-3

4. Competitiveness • Competitiveness: • How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services 2-4

5. Failing to consider customer wants and needs Neglecting operations strategy Failing to take advantage of strengths and opportunities Failing to recognize competitive threats Too much emphasis on short-term financial performance at the expense of R&D Too much emphasis in 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 Why Some Organizations Fail 2-5

6. Identifying consumer wants and needs Identifying how these customer needs can best be satisfied Pricing Advertising and promotion Marketing’s Influence on Competitiveness 2-6

7. Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers and workers Operations’ Influence on Competitiveness 2-7

8. Planning and Decision Making Mission Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

9. http://www.youtube.com/watch?v=4e4Eft2G_i0

10. 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. • Wal-Mart also has been trying to compete with Amazon's prices inside its stores. In some, it has quietly begun matching the online retailer's prices when customers ask, a practice historically done only against local brick-and-mortar competitors. • 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," .

11. Planning and Decision Making Mission Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

12. 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 “What business are we in?” • The mission statement serves as the basis for organizational goals 2-12

13. Examples of Mission Statements • Microsoft: To help people and businesses through the world to realize their full potential • Nike: To bring inspiration and innovation to every athlete in the world. • Verizon: To help people and businesses communicate with each other. • Walt Disney: To be one of world’s leading producers and providers of entertainment and information. Instructor Slides

14. Planning and Decision Making “We save people money so they can live better” Mission Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

15. 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 2-15

16. Planning and Decision Making “We save people money so they can live better” Mission • consumer low prices • customer service • convenience • efficient, productive and sustainable solutions Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

17. Organizational Strategies • 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 2-17

18. Planning and Decision Making “We save people money so they can live better” 1. Become a truly global company; 2. Understand the business challenges that retailers will face and solve them; 3. Play an even bigger leadership role on social issues that matter to our customers; 4. Keep our culture strong everywhere. 6/4/2010 Mission • consumer low prices • customer service • convenience • efficient, productive and sustainable solutions Goals OrganizationalStrategies Developing our people; Driving the productivity loop; Winning in Global eCommerce; Reinvigorating our customer–focused culture. Leading on social and environmental issues. Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

19. Examples of Strategies • Lowcost • e.g., by Outsource operations to countries with low labor cost • Scale-basedstrategies • 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 • Newness • Focus on innovation to create new products or services • Flexibleoperations • Focus on quick response and/or customization • Service • Focus on various aspects of service (e.g., helpful, reliable, etc) • Sustainability • Focus on environmentally friendly and energy efficient operations • Quality-based strategies • focus on quality in all phases of an organization in order to achieve higher quality than competitors • Time-based strategies • Strategies that focus on the reduction of time needed to accomplish tasks • Agile operations • A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change

20. Effective strategy formulation requires taking into account: Core competencies Environmental scanning SWOT Order qualifiers Order winners Strategy Formulation 2-20

21. 1. Core Competencies • Core Competencies The special attributes or abilities that give an organization a competitive edge • To be effective core competencies and strategies need to be aligned 2-21

22. Environmental Scanning is necessary to identify Internal Factors Strengths and Weaknesses External Factors Opportunities and Threats 2. Environmental Scanning 2-22

23. 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. Key Internal Factors 2-23

24. Key External Factors 2-24 • 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.

25. Wal-Mart Strengths Efficient logistics - latest technology and inventory management processes Buying power Scale of operations Store network Weaknesses Declining prices and diminishing margins Online presence Public image (ethical issues) Opportunities Online business Global market Threats Competition Saturated US market SWOT 2-25

26. Order Qualifiers Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase Order Winners Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition Price, delivery reliability, delivery speed and quality can be order qualifiers or order winners and may change over time. Order Qualifiers & Order Winners 2-26

27. Planning and Decision Making “We save people money so they can live better” 1. Become a truly global company; 2. Understand the business challenges that retailers will face and solve them; 3. Play an even bigger leadership role on social issues that matter to our customers; 4. Keep our culture strong everywhere. 6/4/2010 Mission • consumer low prices • customer service • convenience • efficient, productive and sustainable solutions Goals OrganizationalStrategies Developing our people; Driving the productivity loop; Winning in Global eCommerce; Reinvigorating our customer–focused culture. Leading on social and environmental issues. Functional Goals Finance Strategies MarketingStrategies OperationsStrategies • reducing operating expenses • being as productive and efficient as possible • information systems, sourcing, business processes and shared service • investments to leverage additional opportunities in e–commerce Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

28. Operations Strategy • Operations strategy • The approach, consistent with organization strategy, that is used to guide the operations function. • But… Organization Strategy should take into account the realities of operations strengths and weaknesses 2-28

29. Planning and Decision Making Mission Goals OrganizationalStrategies Functional Goals Finance Strategies MarketingStrategies OperationsStrategies Tactics Tactics Tactics Operatingprocedures Operatingprocedures Operatingprocedures

30. 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 2-30

31. Mission, Organizational strategy, Operations strategy

32. 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 • Planning workforce requirements • Scheduling equipment • Financial analysis 2-32

33. “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.

34. Why does Productivity Matters? • High productivity is linked to higher standards of living -> Have more, work less. • Higher productivity relative to the competition leads to competitive advantage in the marketplace. • Manufacturing incorporates R&D -> competitive edge. • Manufacturing has beneficial side effect – service jobs. 2-34

35. Outputs Productivity = Inputs Productivity • Partial measures • output/(single input) • Multi-factor measures • output/(multiple inputs) • Total measure • output/(total inputs)

36. Outputs Productivity = Inputs Measures of Productivity Partial Output OutputOutputOutputmeasures 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

37. 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 dollar input Dollar value of output per dollar input Energy Productivity Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Examples of Partial Productivity Measures

38. Productivity Calculation Example 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 multifactorproductivity? 2-38

39. Solution What is the implication of an unitless measure of productivity? 2-39

40. 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? 2-40

41. Service Sector Productivity • Service sector productivity is difficult to measure and manage because • It involves intellectual activities • It has a high degree of variability 2-41

42. Factors Affecting Productivity Methods Capital Quality V INCREASE: Calculators, Computers, Faxes, copiers, Internet search engines, Voice mail, cell phones, email Technology Management REDUCE: inflexibility, high costs, mismatched operations, non-work activities 2-42

43. 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 • Don’t 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) 2-43

44. In-class Case Analysis • Please read the case “Hazel” on page 38, and write down your answer to questions: • Page 38, 2(b) inventory? • Page 38, 3(c) trade-off of launching website • Page 69, 1 • Write a mission statement for Hazel (one sentence) • Hand in after class (write down your full name) Instructor Slides

45. Answers • 1. Inventory: mowers, parts, fuel, lubricants, fertilizer, chemicals, tools, etc. • 2. Trade-offs: Risk involved in starting a new type of business using new technology and making it successful, learning curve involved in the area of e-commerce, additional work load, hiring of more employees in the area of Web design, computer programmers, etc. • 3. Competitive advantage: Her customers are her neighbors and friends. She has had personal relationships with many of her customers for years and they are going to want to help her as long as she does a good job. • 4. … Instructor Slides