CHAPTER 2: Competitiveness, Strategy, and Productivity
Revised Course Notes: Johanna de Boer: BUSI 2603U F07
2-1
Chapter 2 Outline
What is competitiveness? How business organizations compete with one another? What is Mission, Vision, Strategy? Operations strategy (nine major decision making categories in Operations Management) Quality and time strategies Calculating productivity Productivity in the service sector Factors affecting productivity
2-2
What is Competitiveness?
How effective an organization is in the marketplace compared to other organizations that offer similar goods or service.
2-3
Competitiveness Continued..
Variety
Business organizations compete to one another in a variety of ways
Price
Differentiation
Quality
Timeliness
Customer Service
Location
2-4
How do Business Organizations Compete with one another?
Product or Service Attributes
Price Quality Variety
Timeliness Customer Service
Competency
Low cost High performance Customization
Rapid Delivery Super Customer Service
Examples of companies, Goods, or Services
Real Canadian Superstore, Costco, Westjet Sony TV, Lexus, Mercedes Hospital Emerge Room, Machine Shop
Fast Food (ie McDonalds, Burger King) , Purolator Hotels, Banks, Airlines
Location
Convenience
Supermarkets, Gas Stations
2-5
What is “Successful” Competing?
The determination of what customers want. Meeting or exceeding those expectations.
How do we achieve this?
2-6
Through Strategy!...
(but what is that and what does it entail?)
Vision: The shared perception of the organization's future Mission: The reason for existence for an organization Goals and Objectives: Provide details/substance to the overall misssion. (SMART) Strategy: A plan for achieving organizational mission/vision/goals. (a roadmap)
•Tactics: Medium term objectives, methods, and actions taken •Mission Statement: A clear statement of purpose
to accomplish strategies
Chapter02-PI4
2-7
Example
Rita 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
Live a good life
Successful career, good income
Strategy
Tactics
Obtain diploma, a degree
Select a school, select a major in which she has competency
Operations Register, buy books, take courses, study, graduate, get job
2-8
Understanding Strategy
Organizational: Provision of the overall direction of the company (Strategic) Operational: Guides the operational aspects of the company and is narrower in scope. (Tactical)
2-9
Planning and Decision Making
Mission
Goals Organizational strategy
Functional strategies
Finance
Marketing Operations
Tactics
Tactics
Tactics Operations operations
2-10
Finance operations
Marketing operations
Operations Strategy
DECISION-MAKING CATEGORY
Facility Capacity
DESCRIPTION
How to specialize each facility (by market, product, or process) Size of plants and major equipment
Vertical Integration Vendor relations
Product Mix
Cost, coordination, and control of the supply chain Using competitive arm’s length or cooperative close relationship
Rate of new products introduction
Process Types Human resources
Product Quality
Use the product-process matrix to select a process Appraise, select, motivate, promote and reward the workers/staff
How to measure quality, tools used to check for quality
Infrastructure
Choosing a computerized planning and control system, choosing the type of production/delivery system, etc
2-11
Formulation of Operational Strategy
Link the business strategy to the operational strategy (determination of operational requirements) Audit of Operations (SWOT) Customer Segmentation Product Segmentation Assess degree of focus at each “plant”.
OPERATIONAL STRATEGY
2-12
Operational Strategy
A major influence on the competitiveness of an organization.
Successful Companies Use: •Distinctive Competencies: The special attributes or abilities that give an organization a competitive edge (trade-offs and setting priorities). •Quality-Based Strategies •Time-Based Strategies
2-13
Quality and Time Strategies
Traditional strategies of business organizations have tended to emphasize cost minimization or product differentiation. Quality-based strategies:
Focuses on maintaining or improving the quality of an organization’s products or services Quality at the source
Focuses on reduction of time needed to accomplish tasks (develop new products or services and market them, respond to a change in customer demand, etc)
2-15
Time-based strategies
Time-Based Strategy
JAN
Planning Designing Processing Changeover Delivery On time!
FEB
MAR
APR
MAY
JUN
2-16
Productivity
Productivity: A measure of efficient use of resources, usually expressed as the ratio of output to input.
A Simple Calculation…
Productivity = Outputs Inputs
2-17
Productivity Growth Calculation
Productivity Growth = Current Period Productivity - Previous Period Productivity Previous Period Productivity
FOR EXAMPLE….
If productivity increased from 80 to 84, the growth rate would be calculated as follows:
84 - 80 80 = .05 or 5%
2-18
Productivity Measures
Single Input (Partial Productivity) More than one Input (Multifactor Productivity) All Inputs (Total Productivity)
units Output L - hour ; Machine Labour Output r : Output Labour Machine Output units Output M - hour ; Energy units kilowatt - hour Energy units $
Partial measure Multifacto measure Total measure
Output units ; $ Labour Material
units All inputs used to produce output $
((Table 2-3; P40 in text))
2-19
Labor Productivity
Units of output depends on the type of job performed.
FOR EXAMPLE….
Square meters of carpet installed Labour Hours Number of Offices Cleaned # of Shifts = Sq Meters of carpet installed/Labour Hour
= # of Offices Cleaned/Shift
2-20
Calculating Labour Productivity
10,000 units were produced. They were sold for $10/unit. 500 labour hours were used and the labour rate is $9/hr. Cost of raw materials was $5,000. Cost of purchased material was $25,000.
What is the labour productivity (expressed in units per labour hour)? What is the total productivity (expressed in units per $)?
2-21
(Partial and Total)
Labour productivi Total productivi ty ty Output Labour hours Output 10 , 000 500 units 20 L - hour 10 , 000 10 , 000
All
inputs
units 0 . 29 500 9 5 , 000 25 , 000 34 ,500 $
10,000 units were produced. They were sold for $10/unit. 500 labour hours were used and the labour rate is $9/hr. Cost of raw materials was $5,000. Cost of purchased material was $25,000.
2-22
(Multifactor)
A greeting card company produced 6,000 cards in one day. Labour cost was $500, material cost was $250 and overhead was $725.
What is the multifactor productivity?
Multifactor = =
= =
Quantity Labour Cost + Material Cost + Overhead 6000 cards $500+$250+$725
6000 $1475 4.07 cards per dollar input
2-23
About Productivity
Productivity growth is a key factor in a country’s standard of living. Labour productivity is still the main measure used to gauge the performance of individuals and plants. Wage and price increases not accompanied by productivity increases tend to create inflationary pressure on economy. Because of the large amount of trade with US, it is very important not to lose ground on productivity.
2-24
Productivity in the Service Sector
Service Productivity is more difficult to measure than manufacturing productivity for two main reasons:
Difficult to find a measure of output (activities with a high degree of variability in both output and input for example: medical diagnosis, legal services, arts, painting). Sometimes the measures of output result in misleading conclusions (measure the productivity of a hospital by the number of patient-days of care provided).
2-25
Factors Affecting Productivity
Methods, Capital, Quality, Technology, Management
Misconception that workers are the main determinant of productivity.
Productivity gains in the past have come mainly from technological improvements: automation, computers, bar codes, scanners, satellites, fiber optics, Internet, e-mail, text processing, spreadsheets, software, etc.
2-26
Improving Productivity
Develop productivity measures Determine critical (bottleneck) operations
Operation 10 units A hour
Operation
10 units B hour
Bottle neck 15 units hour Operation
Operation
10 units C hour
2-27
Improving Productivity Continued…
Develop methods for productivity improvements Establish reasonable goals Reward workers for productivity improvement Measure and publicize improvements Don’t confuse productivity with efficiency
2-28
To Review:
•At the Back of the Chapter: •Problems •Key Terms •Chapter Summary •Discussion and Review (Tutorials) •Calculations: •Productivity - Partial, Multifactor, and Total
2-29