MODULE 2 3.

Location can be important in terms of

Competitiveness, Strategy, and Productivity cost and convenience for customers.
Convenient locations could also lessen
costs.
A Cold Hard Fact
4. Quality refers to materials, workmanship,
Better quality, higher productivity, lower costs,
design, and service. Consumers judge
and the ability to respond quickly to customer
quality in terms of how well they think a
needs are more important than ever, and…
product or service will satisfy its intended
the bar is getting higher
purpose.
5. Quick response can be a competitive
Competitiveness advantage.
● Companies must be competitive to sell ○ One way is quickly bringing new or
their goods and services in the improved products or services to
marketplace. the market.
● How effectively an organization meets the ○ Another is being able to quickly
wants and needs of customers relative to deliver existing products and
others that offer similar goods or services. services to a customer after they
● Business organizations compete through are ordered, and still another is
some combination of price, delivery time, quickly handling customer
and product or service differentiation complaints
(marketing and operations functions). 6. Flexibility is the ability to respond to
○ What do customers want? changes. High flexibility can be a
○ How can these customer needs competitive advantage in a changeable
best be satisfied? environment.
Marketing Influence 7. Inventory management can be a
● Identifying consumer wants and/or competitive advantage by effectively
needs is a basic input in an organization’s matching supplies of goods with demand.
decision-making process, and central to 8. Supply chain management involves
competitiveness. The ideal is to achieve a coordinating internal and external
perfect match between those wants and operations (buyers and suppliers) to
needs and the organization’s goods and/or achieve timely and cost-effective delivery
services. of goods throughout the system.
● Pricing and quality are key factors in 9. Service might involve after-sale activities
consumer buying decisions. It is important customers perceive as value-added, such
to understand the trade-off decision as delivery, setup, warranty work, and
consumers make between price and technical support. Service quality can be a
quality key differentiator.
● Advertising and promotion are ways ○ Moreover, businesses rated highly
organizations can inform potential by their customers for service
customers about features of their products quality tend to be more profitable,
or services, and attract buyers and grow faster, than businesses
that are not rated highly
Business Compete Using Operations 10. Managers and workers are the people at
1. Product and service design should reflect the heart and soul of an organization, and
joint efforts of many areas of the firm to if they are competent and motivated, they
achieve a match between financial can provide a distinct competitive edge by
resources, operations capabilities, supply their skills and the ideas they create
chain capabilities, and consumer wants
and needs Why Some Organizations Fail
2. Cost of an organization’s output is a key 1. Neglecting operations strategy
variable that affects pricing decisions and 2. Failing to take advantage of strengths and
profits. opportunities and/or failing to recognize
○ Productivity is an important competitive threats
determinant of cost. Organizations 3. Too much emphasis on short-term
with higher productivity rates than financial performance at the expense of
their competitors have a R&D
competitive cost advantage.

@adrnglp | 1
 4. Too much emphasis in product and service ● The organizational strategy guides the
design and not enough on process design organization by providing direction for,
and improvement and alignment of, the goals and strategies
5. Neglecting investments in capital and of the functional units
human resources ● The organizational strategy is a major
6. Failing to establish good internal success/failure factor
communications and cooperation
7. Failing to consider customer wants and There are three basic business strategies:
needs ● Low cost
● Responsiveness
The key to successfully competing is to determine ● Differentiation from competitors
what customers want and then directing efforts
toward meeting (or even exceeding) customer
expectations. Two basic issues must be addressed.
1. What do the customers want? (Which
items on the preceding list of the ways
business organizations compete are
important to customers?)
2. What is the best way to satisfy those
wants?

Operations must work with marketing to obtain

information on the relative importance of the
various items to each major customer or target
market.

Mission, Goals, and Strategy

Mission
● The reason for an organization’s existence Strategies and Tactics
● It is expressed in its mission statement Strategy
○ States the purpose of the If you think of goals as destinations, then
organization strategies are the roadmaps for reaching the
○ The mission statement should destinations.
answer the question of “What ● Strategies provide focus for decision
business are we in?” making.
● A mission statement serves as the basis for ● Generally speaking, organizations have
organizational goals. overall strategies called organizational
● Mission VS Vision strategies, which relate to the entire
○ Mission: describes the present organization.
○ Vision: describes future state ● They also have functional strategies,
which relate to each of the functional areas
Goals of the organization.
● Provide detail and the scope of the mission ○ The functional strategies should
● Goals serve as a foundation for the support the overall strategies of the
development of organizational strategies. organization, just as the
● These, in turn, provide the basis for organizational strategies should
strategies and tactics of the functional support the goals and mission of
units of the organization. the organization.
● Goals can be viewed as organizational
destinations Tactics
● Should be SMART: Specific, Measurable, Tactics are the methods and actions used to
Attainable, Relevant, and Time-based accomplish strategies.
● They are more specific than strategies, and
Strategy they provide guidance and direction for
● A plan for achieving organizational goals carrying out actual operations, which need
○ Serves as a roadmap for reaching the most specific and detailed plans and
the organizational destinations decision making in an organization.

@adrnglp | 2
It should be apparent that the overall relationship To formulate an effective strategy, senior
that exists from the mission down to actual managers must take into account the core
operations is hierarchical. competencies of the organizations, and they
must scan the environment.
Hierarchical Planning ● They must determine what competitors
1. Mission are doing, or planning to do, and take that
2. Goals into account.
3. Organizational Strategies ● They must critically examine other factors
4. Functional Strategies that could have either positive or negative
5. Tactics effects. This is sometimes referred to as the
SWOT approach (strengths, weaknesses,
Tactics and Operations opportunities, and threats).
Tactics ● Strengths and weaknesses have an
● The methods and actions taken to internal focus and are typically evaluated
accomplish strategies by operations people. Threats and
● The “how to” part of the process opportunities have an external focus and
Operations are typically evaluated by marketing
● The actual “doing” part of the process people. SWOT is often regarded as the link
between organizational strategy and
Core Competencies operations strategy.
Generally speaking, strategy formulation takes
into account the way organizations compete and An alternative to SWOT analysis is Michael
a particular organization’s assessment of its own Porter’s five forces model, which takes into
strengths and weaknesses in order to take account the threat of new competition, the threat
advantage of its core competencies—those of substitute products or services, the bargaining
special attributes or abilities possessed by an power of customers, the bargaining power of
organization that give it a competitive edge. suppliers, and the intensity of competition.
● To be effective core competencies and
strategies need to be aligned In formulating a successful strategy, organizations
must take into account both order qualifiers and
order winners.
The most effective organizations use an approach ● Order qualifiers are those characteristics
that develops core competencies based on that potential customers perceive as
customer needs as well as on what the minimum standards of acceptability for a
competition is doing. Marketing and operations product to be considered for purchase.
work closely to match customer needs with However, that may not be sufficient to get
operations capabilities. a potential customer to purchase from the
organization.
Sample Operations Strategies ● Order winners are those characteristics of
an organization’s goods or services that
cause them to be perceived as better than
the competition.

Environmental Scanning
Environmental scanning is the monitoring of
events and trends that present either threats or
opportunities for the organization.
● Generally these include competitors’
activities; changing consumer needs; legal,
economic, political, and environmental
issues; the potential for new markets; and
the like.

Another key factor to consider when developing

Strategy Formulation
strategies is technological change, which can
Strategy formulation is almost always critical to
present real opportunities and threats to an
the success of a strategy.
organization.

Environmental scanning is necessary to identify

@adrnglp | 3
 ● Internal factors - Strengths and 7. Suppliers. Supplier relationships,
weaknesses dependability of suppliers, quality,
● External factors - Opportunities and flexibility, and service are typical
threats considerations.
8. Other. Other factors include patents, labor
Key External Factors relations, company or product image,
1. Economic conditions. These include the distribution channels, relationships with
general health and direction of the distributors, maintenance of facilities and
economy, inflation and deflation, interest equipment, access to resources, and
rates, tax laws, and tariffs. access to markets.
2. Political conditions. These include
favorable or unfavorable attitudes toward After assessing internal and external factors and
business, political stability or instability, an organization’s distinctive competence, a
and wars. strategy or strategies must be formulated that will
3. Legal environment. This includes antitrust give the organization the best chance of success.
laws, government regulations, trade
restrictions, minimum wage laws, product Supply Chain Strategy
liability laws and recent court experience, ● A supply chain strategy specifies how the
labor laws, and patents. supply chain should function to achieve
4. Technology. This can include the rate at supply chain goals. The supply chain
which product innovations are occurring, strategy should be aligned with the
current and future process technology business strategy.
(equipment, materials handling), and
design technology. Sustainability Strategy
5. Competition. This includes the number ● Society is placing increasing emphasis on
and strength of competitors, the basis of corporate sustainability practices in the
competition (price, quality, special form of governmental regulations and
features), and the ease of market entry. interest groups. For these and other
6. Markets. This includes size, location, brand reasons, business organizations are or
loyalties, ease of entry, potential for should be devoting attention to
growth, long-term stability, and sustainability goals. To be successful, they
demographics. will need a sustainability strategy
Global Strategy
Key Internal Factors ● As globalization increased, many
1. Human resources. These include the skills companies realized that strategic
and abilities of managers and workers, decisions with respect to globalization
special talents (creativity, designing, must be made
problem solving), loyalty to the
organization, expertise, dedication, and Operations Strategy
experience. The organization strategy provides the overall
2. Facilities and equipment. Capacities, direction for the organization. It is broad in scope,
location, age, and cost to maintain or covering the entire organization.
replace can have a significant impact on ● Operations strategy is narrower in scope,
operations. dealing primarily with the operations
3. Financial resources. Cash flow, access to aspect of the organization.
additional funding, existing debt burden, ● Operations strategy relates to products,
and cost of capital are important processes, methods, operating resources,
considerations. quality, costs, lead times, and scheduling.
4. Customers. Loyalty, existing relationships,
and understanding of wants and needs are In order for operations strategy to be truly
important. effective, it is important to link it to organization
5. Products and services. These include strategy; that is, the two should not be formulated
existing products and services, and the independently
potential for new products and services.
6. Technology. This includes existing
technology, the ability to integrate new
technology, and the probable impact of
technology on current and future
operations.

@adrnglp | 4
Operations strategy productivity, or time, all of which benefit
● The approach, consistent with from higher quality.
organization strategy, that is used to guide
the operations function Time-based strategies
● Focus on reducing the time required to
Examples of Strategies accomplish various activities (e.g., develop
Traditional Strategies new products or services and market
● Cost minimization them, respond to a change in customer
● Product differentiation demand, or deliver a product or perform a
service).
New Strategies ● By doing so, organizations seek to improve
● Quality-based strategies service to the customer and to gain a
○ Focuses on quality in all phases of competitive advantage over rivals who
an organization take more time to accomplish the same
○ Quality at the source tasks
● Time-based strategies ● Time-based strategies focus on reducing
○ Focuses on reduction of time the time needed to conduct the various
needed to accomplish tasks. activities in a process.
● The rationale is that by reducing time,
Strategic OM Decision Areas costs are generally less, productivity is
Operations management people play a strategic higher, quality tends to be higher, product
role in many strategic decisions in a business innovations appear on the market sooner,
organization. and customer service is improved.

Organizations have achieved time reduction in

some of the following:
● Planning time: The time needed to react
to a competitive threat, to develop
strategies and select tactics, to approve
proposed changes to facilities, to adopt
new technologies, and so on.
● Product/service design time: The time
needed to develop and market new or
Two factors that tend to have universal strategic redesigned products or services.
operations importance relate to quality and time ● Processing time: The time needed to
produce goods or provide services. This
Quality and Time Strategies can involve scheduling, repairing
Traditional strategies of business organizations equipment, methods used, inventories,
have tended to emphasize cost minimization or quality, training, and the like.
product differentiation. While not abandoning ● Changeover time: The time needed to
those strategies, many organizations have change from producing one type of
embraced strategies based on quality and/or time. product or service to another. This may
involve new equipment settings and
Quality-based strategies attachments, different methods,
● Focus on maintaining or improving the equipment, schedules, or materials.
quality of an organization’s products or ● Delivery time: The time needed to fill
services. orders.
● Quality is generally a factor in both ● Response time for complaints: These
attracting and retaining customers. might be customer complaints about
● Quality-based strategies may be motivated quality, timing of deliveries, and incorrect
by a variety of factors. They may reflect an shipments. These might also be
effort to overcome an image of poor complaints from employees about
quality, a desire to catch up with the working conditions (e.g., safety, lighting,
competition, a desire to maintain an heat or cold), equipment problems, or
existing image of high quality, or some quality problems.
combination of these and other factors.
● Interestingly enough, quality-based
strategies can be part of another strategy
such as cost reduction, increased

@adrnglp | 5
Agile Operations The four perspectives are intended to balance not
Agile operations is a strategic approach for only financial and nonfinancial performance, but
competitive advantage that emphasizes the use also internal and external performance as well as
of flexibility to adapt and prosper in an past and future performance.
environment of change. ● This approach can also help organizations
● Agility involves a blending of several focus on how they differ from the
distinct competencies such as cost, quality, competition in each of the four areas if
and reliability along with flexibility. their vision is realized
● Processing aspects of flexibility include
quick equipment changeovers, Balanced Scorecard Examples
scheduling, and innovation. Product or
service aspects include varying output
volumes and product mix

The Balanced Scorecard Approach

The Balanced Scorecard (BSC) is a top-down
management system that organizations can use
to clarify their vision and strategy and transform
them into action.
● It was introduced in the early 1990s by
Robert Kaplan and David Norton, and it
has been revised and improved since then.
● The idea was to move away from a purely
Productivity
financial perspective of the organization
One of the primary responsibilities of a manager
and integrate other perspectives such as
is to achieve productive use of an organization’s
customers, internal business processes,
resources. The term productivity is used to
and learning and growth.
describe this.
● Using this approach, managers develop
● Productivity is an index that measures
objectives, metrics, and targets for each
output (goods and services) relative to the
objective and initiatives to achieve
input (labor, materials, energy, and other
objectives, and they identify links among
resources) used to produce it.
the various perspectives. Results are
● It is usually expressed as the ratio of output
monitored and used to improve strategic
to input:
performance results.
● Identify links among the various
perspectives
○ Finance
○ Customer
○ Internal business processes Productivity has important implications for
○ Learning and growth business organizations and for entire nations.
● For nonprofit organizations, higher
productivity means lower costs; for
profit-based organizations, productivity is
an important factor in determining how
competitive a company is.
● For a nation, the rate of productivity
growth is of great importance. Productivity
growth is the increase in productivity from
one period to the next relative to the
productivity in the preceding period. Thus,

Why Productivity Matters

● High productivity is linked to higher
standards of living
○ As an economy replaces
manufacturing jobs with lower

@adrnglp | 6
 productivity service jobs, it is more productivity was 23 units per hour. What was the
difficult to maintain high standards productivity growth from 2014 to 2015?
of living
● Higher productivity relative to the
competition leads to competitive
Productivity measures also can be used to judge
advantage in the marketplace
the performance of an entire industry or the
○ Pricing and profit effects
productivity of a country as a whole.
● For an industry, high relative productivity
● These productivity measures are
makes it less likely it will be supplanted by
aggregate measures.
foreign industry
● In essence, productivity measurements
serve as scorecards of the effective use of
Productivity Measures resources.

Service Sector Productivity

Service productivity is more problematic than
manufacturing productivity. In many situations, it
is more difficult to measure, and thus to manage,
because it involves intellectual activities and a
Calculations of multifactor productivity measure high degree of variability. Think about medical
inputs and outputs using a common unit of diagnoses, surgery, consulting, legal services,
measurement, such as cost. For instance, the customer service, and computer repair work. This
measure might use cost of inputs and units of the makes productivity improvements more difficult
output: to achieve. Nonetheless, because service is
becoming an increasingly large portion of our
economy, the issues related to service productivity
will have to be dealt with. It is interesting to note
that government statistics normally do not
Note: The unit of measure must be the same for include service firms.
all factors in the denominator ● Service sector productivity is difficult to
measure and manage because
Productivity Calculation Example ○ It involves intellectual activities
○ It has a high degree of variability
● A useful measure related to productivity is
process yield
○ Where products are involved
■ Ratio of output of good
product to the quantity of
raw material input
What is the multifactor productivity? ○ Where services are involved,
process yield measurement is often
Solution: dependent on the particular
process:
■ Ratio of cars rented to cars
available for a given day
■ Ratio of student
acceptances to the total
number of students
approved for admission

Factors Affecting Productivity

Numerous factors affect productivity. Generally,
Productivity Growth they are methods, capital, quality, technology, and
management.

A commonly held misconception is that workers

Example: Labor productivity on the ABC assembly are the main determinant of productivity.
line was 25 units per hour in 2014. In 2015, labor According to that theory, the route to productivity
gains involves getting employees to work harder.

@adrnglp | 7
However, the fact is that many productivity gains
in the past have come from technological
improvements.

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
Don’t confuse productivity with efficiency.
● Efficiency is a narrower concept that
pertains to getting the most out of a fixed
set of resources;
● productivity is a broader concept that
pertains to effective use of overall
resources.

@adrnglp | 8