MODULE 2

Competitiveness, Strategy, and Productivity

Learning Objectives:

OVERVIEW: • Understand the different ways to achieve

competitiveness in business
Every successful business has put emphasis on their
• Define the terms mission and strategy and
competitiveness, strategy, and productivity. This
explain why they are important
module will help you understand the formulation of
• Understand operations strategy and its
strategies to have competitive edge and ways to
relation to organizational strategies
measure productivity.
• Calculate and understand productivity

2.1 Competitiveness

Competitiveness relates to how effectively an organization meets the wants and needs of customers relative to others
that offer similar goods or services. Competitiveness is an important factor in determining whether a company prospers,
barely gets by, or fails.

Business compete using marketing and operations. To be competitive a business must have a good marketing programs
which includes the timely and proper identification of its consumers’ needs and wants in order to properly produce or
supply the right quantity and quality of goods or products. Every consumer would want a product with good quality at the
right price, part of marketing is to have a clear formula of producing quality goods at a competitive price. And of course,
what is marketing without the advertising and promotion of products? Good advertising will attract customers into the
business. Operations has a major influence on competitiveness through product and service design, cost, location, quality,
response time, flexibility, inventory and supply chain management, and service.

2.2 Mission and Strategies

Mission Strategy Tactics

▪ Mission: The reason for the existence of an organization.

▪ Mission statement: States the purpose of an organization.
▪ Goals: Provide detail and scope of the mission.
▪ Strategies: Plans for achieving organizational goals.
▪ Tactics: The methods and actions taken to accomplish strategies
Strategies provides focus for decision making, it can be at the overall level called organizational strategies or at the
department level called functional strategies. Functional strategies should support the overall strategies of the
organization, just as the organizational strategies should support the goals and mission of the organization. Some of the
strategies a business can employ one or any of the combination of low cost, scale-based strategies, specialization, flexible
operations, high quality, service, and sustainability.

The relationship of mission down to tactics is represented in a hierarchical manner as shown below.

Read example 1 in the book for illustration of strategy.

STRATEGY FORMULATION
• Core competencies
• Environmental scanning
• SWOT
• Order qualifiers
• Order winners

In formulation of strategies, most companies develop core competencies based on its market share and competitors. Core
competencies are those special attributes or abilities possessed by an organization that give it a competitive edge.
Environmental scanning involves keeping up to date with the current trends and events that could be open an opportunity
to the business or post a threat. One helpful tool in strategy formulation is the use of SWOT (strength, weakness,
opportunities, threats) Analysis. Strengths and weaknesses have an internal focus and are typically evaluated by
operations people. Threats and opportunities have an external focus and are typically evaluated by marketing people.
SWOT is often regarded as the link between organizational strategy and operations strategy.

Order qualifiers are those characteristics that potential customers perceive as minimum standards of acceptability for a
product to be considered for purchase. However, that may not be sufficient to get a potential customer to purchase from
the organization. Order winners are those characteristics of an organization’s goods or services that cause them to be
perceived as better than the competition. Technological change must also take into account when developing strategies
for this can present real opportunities and threats to an organization.

Read the internal and external factors in strategy formulation in the reference book
 2.3 Operations Strategy
Operations strategy is an approach, consistent with the organization strategy, that is used to guide the operations
function. It relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling.
Organizational and operations strategy must be formulated interdependently. To avoid conflict between the two
strategies, it is important that the managers work with functional units to formulate strategies that is consistent with
organizational. And at top level, the formulation of organizational strategies must take into account the realities of
operations’ strengths and weaknesses, capitalizing on strengths and dealing with weaknesses. A well designed and
executed operations strategy has a major influence in the business’s competitive edge.

Traditional strategies of business organizations have tended to emphasize cost minimization or product differentiation.
While not abandoning those strategies, many organizations have embraced strategies based on quality and/or time.
Quality-based strategies focus on maintaining or improving the quality of an organization’s products or services. Time-
based strategies focus on reduction of time needed to accomplish tasks.

2.4 Implications of organization strategy for operations management

Organization strategy has a major impact on operations and supply chain management strategies. Some of the
implications of organizational strategy to operations management is presented below.

2.5 Productivity
Productivity is a measure of the effective use of resources, usually expressed as the ratio of output to input. Productivity
is a key factor in the cost of goods and services. Increases in productivity can become a competitive advantage for a high
productivity will result to lower costs. Productivity growth also impacts the nation in economical terms. Productivity
increases add value to the economy while keeping inflation in check.
Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor
productivity), or on all inputs (total productivity). Presented below are the formulas.

Read Example 2 and Example 3 in the reference book for illustration

Productivity measures are useful in tracking performance over time. For a department or an organization, the
productivity measures can facilitate a control and feedback, if for example productivity decreased compared to last
period, the management can take appropriate analysis and improvement on its operations. Productivity can also be
used to judge the performance of an entire industry or the productivity of a country as a whole. These productivity
measures are aggregate measures.

❖ FACTORS AFFECTING PRODUCTIVITY

There are many factors that affects productivity. Methods, capital, quality, technology, and management are the
general factors affecting productivity. The method of production affects the productivity in a way that complex
methods may require more time and resources. Capital includes the human capital(workforce) and physical capital
(machineries and equipment). Effective management to operations will contribute to increase in productivity.
Technology must be used cautiously, without careful planning, technology can actually reduce productivity, especially
if it leads to inflexibility, high costs, or mismatched operations.

❖ IMPROVING PRODUCTIVITY

• Develop productivity measures

• Determine critical (bottleneck) operations
• Develop methods for productivity improvements
• Establish reasonable goals
• Get management support
• Measure and publicize improvements
• Don’t confuse productivity with efficiency

Reference used:

William J. Stevenson, Production Operations Management

Additional Readings:

Production Operations Management Chapter 2 by William J. Stevenson

Exercise 1: True/False

________1. An example of a strategic operations management decision is the choice of where to locate.
________2. A mission statement should provide a guide for the formulation of strategies for the organization.
________3. A business that is rated highly by their customers for service quality will tend to be more profitable
than a business that is rated poorly.
________4. Productivity tends to be only a very minor factor in an organizations ability to compete.
________5. An example of a tactical operations management decision is determining employment levels

Exercise 2: Short Answer

A catering company prepared and served 300 meals at an anniversary celebration last week using eight workers. The week
before, six workers prepared and served 240 meals at a wedding reception.

a. For which event was the labor productivity higher? Explain.

b. What are some possible reasons for the productivity differences?

Exercise 3:

A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that
reduces the labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the
company used five workers, who produced an average of 80 carts per hour. Workers receive $10 per hour, and machine
cost was $40 per hour. With the new equipment, it was possible to transfer one of the workers to another department,
and equipment cost increased by $10 per hour while output increased by four carts per hour.

a. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity.
b. Compute the multifactor productivity under each system. Use carts per dollar cost (labor plus equipment) as the
measure.

c. Comment on the changes in productivity according to the two measures, and on which one you believe is the more
pertinent for this situation.

Exercise 4:

Assume you are building a foot spa parlor. Formulate your business mission down to tactics.