Chapter 2 MIS 373 Basic Operations Management Learning Objectives After this lecture students will be able to List several ways that business organizations compete Discuss and compare organization strategy and operations strategy and explain why it is important to link the two ID: 532368
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Slide1
Competitiveness, Strategy, and Productivity
Chapter 2
MIS 373: Basic Operations ManagementSlide2
Learning Objectives
After this lecture, students will be able to
List several ways that business organizations compete.
Discuss
and compare organization strategy and operations strategy and explain why it is important to link the two
.Define the term productivity and explain why it is important to organizations and to countries.Describe several factors that affect productivity.
MIS 373: Basic Operations Management
2Slide3
Overview
Three separate, but related concepts that are vitally important to business organizations:Competitiveness
StrategyProductivity
MIS 373: Basic Operations Management
3Slide4
Competitiveness
Competitiveness:
How effectively an organization meets the needs of customers relative to others that offer similar goods or services
Organizations compete over:
Price (Cost
): WAL-MARTQuality: BMWResponse-time: UPSVariety (Flexibility): DELLMIS 373: Basic Operations Management
4Slide5
Operations’ Influence on Competitiveness
Product and service designCost
LocationQualityQuick responseFlexibilityInventory management
Supply chain management
Service
Managers and workersCompetitiveness
MIS 373: Basic Operations Management
5Slide6
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
.
MIS 373: Basic Operations Management
6Slide7
Exercise
Name 10 ways that banks 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
Hierarchical Planning and decision making
MIS 373: Basic Operations Management
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics
Tactics
Tactics
Operating
procedures
Operating
procedures
Operating
procedures
8Slide9
Wal-Mart Delivery Service Says to Amazon: 'Bring It'
wsj.com 10/19/2012In 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 customersNearly 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,…"
MIS 373: Basic Operations Management
9Slide10
Hierarchical Planning and decision making
MIS 373: Basic Operations Management
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
”
10Slide11
Mission and Goals
MissionThe reason for an organization’s
existenceMission statementStates the purpose of the organizationThe mission statement should answer the question of “What business are we in?”
The mission statement serves as the basis for organizational
goals
GoalsProvide detail and the scope of the missionGoals can be viewed as organizational destinationsGoals serve as the basis for organizational strategiesMIS 373: Basic Operations Management
11Slide12
Example Mission Statements
FedEx
Mission Statementhttp://
about.van.fedex.com/mission-strategy-values
FedEx Corporation will produce superior financial returns for its shareowners by providing
high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the
highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers.
Safety
will be the first consideration in all operations. Corporate activities will be conducted to the
highest ethical and professional standards
.
MIS 373: Basic Operations Management
12Slide13
Strategy
StrategyA plan for achieving organizational goalsServes as a roadmap for reaching the organizational destinations
Organizations haveOrganizational strategies
Overall strategies that relate to the entire organization
Support the achievement of organizational goals and mission
Functional level strategiesStrategies that relate to each of the functional areas and that support achievement of the organizational strategyMIS 373: Basic Operations Management
13Slide14
Tactics and Operations
TacticsThe methods and actions taken to accomplish strategies
The “how to” part of the processOperations
The actual “doing” part of the process
MIS 373: Basic Operations Management
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Organizational Strategy
Low PriceOutsource operations to countries with low labor cost
Use capital-intensive methods to achieve high output volume and low unit cost SpecializationFocus on narrow product lines or limited services to achieve higher quality
Responsiveness (time-based strategies)
Strategies that focus on the reduction of time needed to accomplish tasks
Differentiation: VarietyFocus on customizationDifferentiation: NewnessFocus on innovation to create new products or servicesDifferentiation: ServiceFocus on various aspects of service (e.g., helpful, reliable, etc)Differentiation
: Qualityfocus on quality in all phases of an organization in order to achieve higher quality than competitors
MIS 373: Basic Operations Management
15Slide16
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
MIS 373: Basic Operations Management16Slide17
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, ATMs
MIS 373: Basic Operations Management
17Slide18
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 Slide19
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?
Wal-Mart
Southwest Airlines
McDonald’s
FedEx
BMW
Coca-Cola
3M
Apple
Burger King
Disneyland
IBM
Supermarkets
Banks, ATMsSlide20
Strategy Formulation
Three common approachesMichael Porter's five forces model
Environmental scanning (SWOT)Balanced Scorecard
MIS 373: Basic Operations Management
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Porter's five forces model
MIS 373: Basic Operations Management
21
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
Source:
http
://www.quickmba.com/strategy/porter.shtmlSlide22
Porter
on his
five forces modelSlide23
SWOT
Environmental scanning (SWOT)Internal FactorsStrengths and Weaknesses
External FactorsOpportunities and Threats
MIS 373: Basic Operations Management
23Slide24
SWOT:
Key Internal Factors
Human Resources
Skills of workforce, expertise, experience, loyalty to the organization
Facilities and equipment
Capacities, locations, age, maintenance costsFinancial resourcesCash flow, access to additional funding, debt, cost of capitalCustomersLoyalty, wants and needs
Products and servicesExisting, 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.
MIS 373: Basic Operations Management
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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, warsLegal environmentAntitrust laws, regulations, trade restrictions, minimum wages laws, liability laws, labor laws, patentsTechnology
Innovations rate, future process technology, design technologyCompetition
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.
MIS 373: Basic Operations Management
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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.
MIS 373: Basic Operations Management
26
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 measureSlide27
Balanced Scorecard
MIS 373: Basic Operations Management
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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
edgeIdentify 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.
MIS 373: Basic Operations Management
28Slide29
Productivity
ProductivityA 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
Judging the performance of an entire industry or country
MIS 373: Basic Operations Management
Productivity
=
Outputs
Inputs
29Slide30
wsj.com 1/12/2012
“The Factory Floor Has a Ceiling on Job Creation ”
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.Slide31
Why does 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.MIS 373: Basic Operations Management
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Measures of Productivity
MIS 373: Basic Operations Management
Productivity
=
Outputs
Inputs
Partial
Output
Output
Output
Output
measures
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
32Slide33
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-hour
MIS 373: Basic Operations Management
33Slide34
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 implication of an
unitless
measure of productivity?
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?Slide35
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?
MIS 373: Basic Operations Management
Productivity Growth
=
Current productivity
− Pervious productivity
× 100%
Pervious productivity
Productivity Growth
=
23
− 25
× 100%
=
−8%
25
35Slide36
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 DifficultiesRetailorsQuality Versus
QuantityNurses
MIS 373: Basic Operations Management
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Health care Productivity
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
costSlide38
Health care Productivity
IBM Healthcare Industry: 2020
Vision
reduce tests and costs
personalized medicine
patient
education & empowerment
adoption of new practices
drug effectiveness evaluation
risk prediction
& preventionSlide39
Factors Affecting Productivity
MIS 373: Basic Operations Management
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
39Slide40
Productivity & 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, …Slide41
Productivity Paradox
Brynjolfsson, E., and
Hitt, L. M. 1998. Beyond the productivity paradox. Communications of the ACM 41(8) 49–55.
MIS 373: Basic Operations Management
41
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 adjustmentSlide42
Improving Productivity
Develop productivity
measures for all operations
Determine critical (
bottleneck
) operationsDevelop methods/technologies 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
MIS 373: Basic Operations Management
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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.
MIS 373: Basic Operations Management
43