Competitiveness, Strategy, and Productivity Chapter 2
Transcript
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Competitiveness, Strategy, and Productivity Chapter 2
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Learning Objectives List the several ways that business
organizations compete Explain several reasons that business
organizations fail Define the term mission and strategy and explain
why they are important Discuss and compare organization strategy
and operations strategy, and explain why it is important to link
the two Describe and give examples of time-based strategies Define
the term productivity and explain why it is important to
organizations and countries Provide some reasons for poor
productivity and some ways of improving it
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Overview Three separate, but related concepts that are vitally
important to business organizations: Competitiveness Strategy
Productivity
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Competitiveness Competitiveness: How effectively an
organization meets the 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?
Operations Influence Product and service design Cost Location
Quality Quick response Flexibility Inventory management Supply
chain management Service Managers and workers
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Exercise Discuss in pairs to name 5 ways that grocery stores
compete for customers. Hint: consider operations influence on
competitiveness Product and service design Cost Location Quality
Quick response Flexibility Inventory management Supply chain
management Service Managers and workers
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Why Some Organizations Fail Neglecting operations strategy.
Failing to take advantage of strengths and opportunities, and/or
failing to recognize competitive threats. Putting too much emphasis
on short-term financial performance at the expense of research and
development. Placing too much emphasis on 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 among different
functional areas. Failing to consider customer needs.
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Hierarchical Planning and Decision Making Mission Goals
Organizational Strategies Functional Goals Finance Strategies
Marketing Strategies Operations Strategies Tactics Operating
procedures
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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. UPS will pick up the goods and
deliver them to customers 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,"
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Hierarchical Planning and Decision Making Mission Goals
Organizational Strategies Functional Goals Finance Strategies
Marketing Strategies Operations Strategies Tactics Operating
procedures Wal-Mart To Go
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Mission The reason for an organizations 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
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Hierarchical Planning and Decision Making Mission Goals
Organizational Strategies Functional Goals Finance Strategies
Marketing Strategies Operations Strategies Tactics Operating
procedures We save people money so they can live better
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Goals Provide detail and the scope of the mission Goals can be
viewed as organizational destinations Goals serve as the basis for
organizational strategies
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The Eller Example Mission Statement The Eller College of
Management's Undergraduate Program is committed to building and
maintaining working relationships with our students, faculty,
recruiters, alumni, and volunteers predicated on mutual respect and
responsibility. We strive to nurture student success through
innovation and value-added personalized programs. The following
core competencies are emphasized within our program: knowledge,
skills, ethical behavior, positive attitude, and creativity. Goals
http://ugrad.eller.arizona.edu/about/mission.asp
http://ugrad.eller.arizona.edu/about/mission.asp
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Hierarchical Planning and Decision Making Mission Goals
Organizational Strategies Functional Goals Finance Strategies
Marketing Strategies Operations Strategies Tactics Operating
procedures consumer low prices customer service convenience
efficient, productive and sustainable solutions We save people
money so they can live better Reinvesting big in American
manufacturing - buying an additional U.S. made products helping
suppliers to bring on- shore U.S. production support good jobs - at
Wal- Mart, entry level jobs lead to bigger jobs - employing
thousands of veterans and more workers in general 1/17/2013
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Organizational 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
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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
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Examples of Strategies Low Price outsource operations to
countries with low labor cost 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 Variety Focus on customization Newness Focus on innovation
to create new products or services Service Focus on various aspects
of service (e.g., helpful, reliable, etc) Sustainability Focus on
environmentally friendly and energy efficient operations Quality
focus on quality in all phases of an organization in order to
achieve higher quality than competitors Responsiveness (time-based
strategies) Strategies that focus on the reduction of time needed
to accomplish tasks
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Hierarchical Planning and Decision Making Mission Goals
Organizational Strategies Functional Goals Finance Strategies
Marketing Strategies Operations Strategies Tactics Operating
procedures
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Operations strategy The organizational strategy provides the
overall direction for the organization. It is broad in scope,
covering the entire organization. Operations strategy is narrower
in scope, dealing primarily with the operations aspect of the
organization. Operations strategy relates to products, processes,
methods, operating resources, quality, costs, lead times, and
scheduling. In order for operations strategy to be truly effective,
it is important to link it to organization strategy
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Examples of Strategies Organizational StrategyOperations
Strategy Examples of Companies or Services Low PriceLow
CostWal-Mart Southwest Airlines ResponsivenessShort processing
times On-time delivery McDonalds restaurants FedEx Differentiation:
High Quality High performance design and/or high quality processing
Consistent Quality BMW Coca-Cola Differentiation: Newness
Innovation3M Apple Differentiation: Variety Flexibility Volume
Burger King (Have it your way) McDonalds (Buses Welcome)
Differentiation: Service Superior customer serviceDisneyland IBM
Differentiation: Location ConvenienceSupermarkets Banks, ATMs
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3M Founded in 1902, 3M started out in the mining business as
the Minnesota Mining and Manufacturing Company. 3M launched the 15
percent program in 1948. a program at 3M that allows employees to
use a portion of their paid time to chase rainbows and hatch their
own ideas. Thirty Percent Rule, 30% of each divisions revenues must
come from products introduced in the last four years. Thirty
Percent Rule Over a 20-year period, 3Ms gross margin averaged 51%
and the companys return on assets averaged 29%. Mission 3M is a
science and technology company that creates. For decades, 3M
scientists and engineers have developed products that solve
problems. 3M is also a company that cares improving lives each day.
The mission of 3Mgives: To Improve Every Life through Innovative
Giving in Education, Community and the Environment mirroring our
corporate vision: 3M Technology Advancing Every Company 3M Products
Enhancing Every Home 3M Innovation Improving Every Life
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Exercise Name three companies that are not in the examples I
gave, and describe their core organizational strategies in terms of
the following options: Low Price Specialization Responsiveness
Differentiation: Quality Differentiation: Newness Differentiation:
Variety Differentiation: Service Go online and find the mission
statements of the three companies. Are their strategies aligned
with their mission statements?
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Strategy Formulation Approaches Michael Porter's five forces
model Environmental scanning (SWOT) Balanced Scorecard Core
competencies Order qualifiers Order winners
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Porters Five Forces Model SUPPLIER POWER Supplier concentration
Importance of volume to supplier Differentiation of inputs Impact
of inputs on cost or differentiation Switching costs of firms in
the industry Presence of substitute inputs Threat of forward
integration Cost relative to total purchases in industry THREAT OF
NEW ENTRANTS Barriers to Entry Absolute cost advantages Proprietary
learning curve Access to inputs Government policy Economies of
scale Capital requirements Brand identity Switching costs Access to
distribution DEGREE OF RIVALRY Exit barriers Industry concentration
Fixed costs/Value added Industry growth Intermittent overcapacity
Product differences Switching costs Brand identity Diversity of
rivals Corporate stakes THREAT OF SUBSTITUTES Switching costs Buyer
inclination to substitute Price-performance trade-off of
substitutes BUYER POWER Bargaining leverage Buyer volume Buyer
information Brand identity Price sensitivity Product
differentiation Substitutes available Buyers' incentives
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Porter on his five forces model
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SWOT Environmental scanning (SWOT) Internal Factors Strengths
and Weaknesses External Factors Opportunities and Threats
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SWOT: Key Internal Factors 1.Human Resources Skills of
workforce, expertise, experience, loyalty to the organization
2.Facilities and equipment Capacities, locations, age, maintenance
costs 3.Financial resources Cash flow, access to additional
funding, debt, cost of capital 4.Customers Loyalty, wants and needs
5.Products and services Existing, potential for new ones
6.Technology Existing, ability to integrate new and its impact on
current and future operations 7.Suppliers Relationships,
dependency, quality, flexibility, service 8.Other Labor relations,
company image, distribution channels etc.
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SWOT: Key External Factors 1.Economic conditions Health and
directions of the economy, inflation, deflation, interest rates,
taxes, tariffs. 2.Political conditions Attitude towards business,
political stability, wars 3.Legal environment Antitrust laws,
regulations, trade restrictions, minimum wages laws, liability
laws, labor laws, patents 4.Technology Innovations rate, future
process technology, design technology 5.Competition Number and
strength of competitors, basis of competitions (price, quality
etc.) 6.Markets Size, location, brand loyalty, ease of entry,
growth potential, long term stability, demographics.
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Balanced Scorecard The idea of Balanced Scorecard (BSC) is to
move away from a purely financial perspective of the organization
and integrate other perspectives such as customers, internal
business processes, and learning and growth. Scorecard
ObjectiveMeasureTarget Improve consumer satisfaction and loyalty by
20% Survey score Up 20% Delivery time < 4 days Balanced
Financial How should we appear to our shareholders? Consumer How
should we appear to our customers? Internal Business Process What
business process must we excel at? Learning & Growth How will
we sustain our ability to change/improve? Lag measure Leading
measure
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Balanced Scorecard
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Steps in strategy formulation 1.Link strategy directly to the
organization's mission or vision statement. 2.Assess strengths,
weaknesses, threats and opportunities, and identify core
competencies. Core competencies: The special attributes or
abilities that give an organization a competitive edge 3.Identify
order winners and order qualifiers. Order winners: Characteristics
of an organizations goods or services that cause it to be perceived
as better than the competition Order qualifiers: Characteristics
that customers perceive as minimum standards of acceptability for a
product or service to be considered as a potential for purchase
4.Select one or two strategies (e.g., low cost, speed, customer
service) to focus on.
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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 units performance
over time Planning workforce requirements Scheduling equipment
Financial analysis
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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.
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Discussion Why maintaining a high level of productivity is
important? Hints: How does it affect the economy? How does it
influence the organization? How does it change our lives?
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Why Productivity Matters? High productivity is linked to higher
standards of living Higher productivity relative to the competition
leads to competitive advantage in the marketplace. Pricing and
profit effects Manufacturing incorporates R&D -> competitive
edge. Manufacturing has beneficial side effect > service
jobs.
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Why Productivity Matters? Brynjolfsson, E., and Hitt, L. M.
1998. Beyond the productivity paradox. Communications of the ACM
41(8) 4955. Productivity growth determines our living standards and
the wealth of nations. This is because the amount a nation can
consume is ultimately closely tied to what it produces. By the same
token, the success of a business generally depends on its ability
to deliver more real value for consumers without using more labor,
capital, or other inputs.
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Measure of Productivity
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Examples of Partial Productivity Measures Partial Productivity
Measures Examples Labor ProductivityUnits of output per labor hour
Units of output per shift Value-added per labor hour Machine
ProductivityUnits of output per machine hour Capital
ProductivityUnits of output per dollar input Dollar value of output
per dollar input Energy ProductivityUnits of output per
kilowatt-hour Dollar value of output per kilowatt-hour
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Exercise 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 multifactor
productivity? Hint: The key of this calculation is to convert all
the elements to their dollar values. Whats the dollar value of the
output / labor / material / overhead?
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Solution What does this number mean?
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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?
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Service Sector Productivity Service sector productivity is
difficult to measure and manage because It involves intellectual
activities It has a high degree of variability Measurement
Difficulties Retailors Quality Versus Quantity Nurses
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Productivity of Healthcare Kocher, Robert, and Nikhil R. Sahni.
"Rethinking health care labor." New England Journal of Medicine
365.15 (2011): 1370-1372. Of the $2.6 trillion spent in 2010 on
health care in the United States, 56% consisted of wages for health
care workers. the output is the volume of activity including all
encounters, tests, treatments, and surgeries per unit of cost
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IBM Healthcare Industry: 2020 Vision
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Factors Affecting Productivity Capital Methods Technology
Management Quality INCREASE: Calculators, Computers, Faxes,
copiers, Internet search engines, Voice mail, cell phones, email
REDUCE: inflexibility, high costs, mismatched operations, non-work
activities
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Productivity and Technology NPR 4/30/13 When It Comes To
Productivity, Technology Can Hurt And HelpWhen It Comes To
Productivity, Technology Can Hurt And Help With instant messages
buzzing, emails pinging and texts ringing, how can employers
increase productivity in the workplace? Software companies are
tackling the problem, tracking employees' computer time to find
ways to improve their efficiency. Desk workers, creative
workers,
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Productivity Paradox IT investment does not appear to have a
strong impact on productivity. Explanations for the Paradox
Mismeasurement of outputs and inputs, ATMs reduce the number of
checks banks process so, by some measures, banking output and
productivity decrease. The increases in convenience ATMs have
created go uncounted in conventional productivity metrics, while
their costs are counted. Lags due to learning and adjustment
Brynjolfsson, E., and Hitt, L. M. 1998. Beyond the productivity
paradox. Communications of the ACM 41(8) 4955.
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Improving Productivity 1.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
7.Dont 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)
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Discussion How do events affect productivity? How does the
World Cup impact productivity? World Cup Taking a Bite Out of
Worker Productivity World Cup Taking a Bite Out of Worker
Productivity Watching The World Cup Will Increase Office
Productivity Watching The World Cup Will Increase Office
Productivity
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Key Points Competitive pressure often means that business
organizations must frequently assess their competitors' strengths
and weaknesses, as well as their own, to remain competitive.
Strategy formulation is critical because strategies provide
direction for the organization, so they can play a role in the
success or failure of a business organization. Functional
strategies and supply chain strategies need to be aligned with the
goals and strategies of the overall organization. The three primary
business strategies are low cost, responsiveness, and
differentiation. Productivity is a key factor in the cost of goods
and services. Increases in productivity can become a competitive
advantage.