Chapter 2 Learning Objectives List the several ways that business organizations compete Explain several reasons that business organizations fail Define the term mission and strategy ID: 243941
Download Presentation The PPT/PDF document "Competitiveness, Strategy, and Productiv..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Competitiveness, Strategy, and Productivity
Chapter 2Slide2
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
itSlide3
Overview
Three separate, but related concepts that are vitally important to business organizations:
Competitiveness
Strategy
ProductivitySlide4
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
?Slide5
Marketing’s Influence
Identifying consumer wants and/or needs
Pricing
Advertising and promotionSlide6
Operations
’
Influence
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and
workersSlide7
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 workersSlide8
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
.Slide9
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics
Tactics
Tactics
Operating
procedures
Operating
procedures
Operating
proceduresSlide10
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,…" Slide11
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics
Tactics
Tactics
Operating
procedures
Operating
procedures
Operating
procedures
“Wal-Mart To Go
”Slide12
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 goalsSlide13
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics
Tactics
Tactics
Operating
procedures
Operating
procedures
Operating
procedures
“We
save people money so they can live
better”Slide14
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Goals serve as the basis for organizational strategiesSlide15
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.aspSlide16
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics
Tactics
Tactics
Operating
procedures
Operating
procedures
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 Slide17
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 strategySlide18
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 processSlide19
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 competitorsResponsiveness (time-based strategies)
Strategies that focus on the reduction of time needed to accomplish tasksSlide20
Hierarchical Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics
Tactics
Tactics
Operating
procedures
Operating
procedures
Operating
proceduresSlide21
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 strategySlide22
Examples of Strategies
Organizational Strategy
Operations Strategy
Examples of Companies or Services
Low Price
Low Cost
Wal-Mart
Southwest Airlines
Responsiveness
Short processing times
On-time delivery
McDonald’s restaurants
FedEx
Differentiation:
High Quality
High performance design and/or high quality processing
Consistent Quality
BMW
Coca-Cola
Differentiation:
Newness
Innovation
3M
Apple
Differentiation:
Variety
Flexibility
Volume
Burger King (“Have it your way”)
McDonald’s (“Buses Welcome”)
Differentiation:
Service
Superior customer service
Disneyland
IBM
Differentiation:
Location
Convenience
Supermarkets
Banks, ATMsSlide23
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 division’s revenues must come from products introduced in the last four years.
Over a 20-year period, 3M’s gross margin averaged 51% and the company’s 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 Slide24
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?Slide25
Strategy Formulation
Approaches
Michael Porter's five forces model
Environmental scanning (SWOT)
Balanced Scorecard
Core competencies
Order qualifiers
Order winnersSlide26
Porter’s 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 Slide27
Porter on his five forces modelSlide28
SWOT
Environmental scanning (SWOT)
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and ThreatsSlide29
SWOT:
Key Internal Factors
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.Slide30
SWOT:
Key External Factors
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.Slide31
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
Objective
Measure
Target
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 measureSlide32
Balanced ScorecardSlide33
Steps in strategy formulation
Link strategy directly to the organization's mission or vision statement.
Assess strengths, weaknesses, threats and opportunities, and identify core competencies.
Core competencies
: The special attributes or abilities that give an organization a competitive edge
Identify order winners and order qualifiers.
Order winners
: Characteristics of an organization’s 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
Select one or two strategies (e.g., low cost, speed, customer service) to focus on.Slide34
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 analysisSlide35
“
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.Slide36
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?Slide37
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.Slide38
Why Productivity Matters?
Brynjolfsson
, E., and
Hitt
, L. M. 1998. Beyond the productivity paradox.
Communications of the ACM
41
(8) 49–55.
“
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
.
”Slide39
Measure of ProductivitySlide40
Examples of Partial Productivity Measures
Partial Productivity Measures
Examples
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-hourSlide41
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:
Hint
:
The key of this calculation is to convert all the elements to their dollar values.
What’s the dollar value of the output / labor / material / overhead?Slide42
Solution
What does this number mean?Slide43
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?Slide44
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
NursesSlide45
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 costSlide46
IBM Healthcare Industry: 2020 VisionSlide47
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 activitiesSlide48
Productivity and Technology
NPR 4/30/13
“
When 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, …Slide49
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) 49–55. Slide50
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)Slide51
Discussion
How do events affect productivity?
How does
the World Cup
impact
productivity?
World Cup Taking a Bite Out of Worker Productivity
Watching The World Cup Will Increase Office ProductivitySlide52
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.