INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Strategy

<< INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Decision Making

INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System >>

Production and Operations Management MGT613

Lesson 03

Meanings of Competitiveness, Strategy and Productivity

We are already familiar with these three terms, for the sake of easy reference, let us revisit their

definitions

1. Competitiveness refers to an aggressive willingness to compete

2. Strategy is an elaborate and systematic plan of action with defined resources and

3. Productivity refers to the ratio of the quantity and quality of units produced to the labor per

unit of time or simply ratio of output to input

How

Organization

Compete

against

each

other

Businesses since the beginning of time have competed against each other. On the basis of competition,

various types of market exist for nearly all lines of products and services. We already know that

absolute monopoly and perfect competition type of markets are not that pervasive, yet businesses try to

avoid perfect competition and strive to go for absolute monopoly so they can enjoy no competition and

exploit the customer sentiments for buying. We can identify the following common and widespread

ways in which organizations can compete against other organizations.

1. Price: In our day to day routine observations, we often see that a lower price would attract more

customers provided the product or service fulfils its intended use. Lower price helps an

organization to increase its customer base.

2. Quality is an important dimension by which superior raw materials as well as high Skillman

ship would ensure that product manufactured or service developed is offered to the customer

with something extra. That something extra is nothing else but Quality. Quality is always

offered free of cost, we will discuss this when we study in details Quality Management and

Total Quality Management.

3. Product Differentiation refers to special features that make the product or service look more

suitable to the customers like an automobile manufacturer decides to provide GPS system to

selected customer at an additional price etc.

4. Flexibility is the ability to respond to changes. It may refer to changes in target sales, product

feature like adding GPS device to all automobiles

5. Time refers to the period required to provide a product or service to a customer from the

moment the order is booked to the delivery, also time required to rectify a shortcoming or

mistake

Competitiveness

Competitiveness is how effectively an organization meets the needs and requirements of customers

relative to other (Competitors) organizations that offer similar goods or services

The key to successfully competing against the organizations competitors or rivals is to answer these two

questions diligently

I. What do the Customers Want?

II. How can our business deliver the required Value to the customers?

The first question begets a natural and logical answer which is that the customers want Value. Similarly

the second question also asks for a logical answer which is the way organizations would deliver value to

the customer as per the understanding of the organization. If an organization can understand that Value

is always the tradeoff between performance and cost then it can adopt various means to provide value to

the customer.

Production and Operations Management MGT613

Mathematically speaking value equals the performance (of the product or service) divided by cost.

Most organizations have different measurement rules attached in measurement of quality, speed and

flexibility.

Value= Performance/Cost= (Quality +Speed+ Flexibility)/Cost_______ Eq. 1

The equation above also captures the product differentiation concept, which in reality is an important

dimension of quality. The concept of quality would be covered at a later stage, towards the middle of the

semester.

We can also say that, the customer is measuring performance with the help of Quality, Speed and

Flexibility for the price or cost he is willing to pay.

The point worth noting is that in most of the cases the three factors of performance would not be

weighed equally in some cases, quality would be more important than speed or flexibility etc. We can

thus make use of an important concept of assigning weights so the equation changes to

Value= (w1 x Quality + w2 x Speed+ w3 X Flexibility) / Cost_______Eq.2

Where w1, w2 and w 3 are different weights and if they all have same value then equation 2 reduces to

equation 1 again. IN other words, equation 2 is not only generic but more reflective of performance

measurement of an organization.

Different organizations assign different means to obtain the value of these weights by developing in-

house or a consultant derived Performance Measurement Model (PMM). This can be used to obtain an

overall performance score by measuring the success of a manufacturing company in its operational

activities. The developed PMM measures a company's level of performance in critical dimensions and

combines these performance scores to obtain a ranking score. A set of critical dimensions and their sub-

components is fully defined, and performance scorecards are developed to guide the assignment of

performance scores. Performance scores are assigned according to the level of intensity of a

manufacturing company's investments, practices, actions or infrastructures in the critical dimensions.

How Organizations can gain Competitive Advantage

As Students of Organization Management, we can look at value in terms of the three important

functions of any organization to see how organizations can gain competitive advantage

1. Marketing

2. Finance

3. Operations

A. Businesses Gain Competitive Advantage by using Market based strategies

1. Identifying consumer wants and needs

2. Pricing

3. Advertising and promotion

B. Businesses Gain Competitive Advantage by using Finance based strategies

Identifying sources of funds and applications of funds.

Capital and Financial Investments.

Financial Leverage ( Debt to Equity) and

Capital structure.

Production and Operations Management MGT613

C. Businesses Gain Competitive Advantage by using Operations based strategies

1. Product and service design. The design is not only the starting point but allows certain features

to be added which makes your product or service favorable to the customer.

2. Cost or Cost Leadership, offers the product or service at an economical price

3. Location refers to the Convenient point of sales, it can be a petrol pump (services) with an

attached convenience store

4. Quality should always match the price and service.

5. Quick response aka Also known as Agility and an organization on this basis is often known as

Agile Organization)

6. Flexibility. Flexibility change the car model from sedan to coupe based on your marketing

divisions inputs.

7. Inventory management. Maintain safety stocks and critical spares.

8. Supply chain management. Develop and sustain an active and strong chain between suppliers

and end customers.

9. Service .After sales service, owning the customers issue as your own, a concept which has

failed PK in its quest for foreign market penetration.

Throughout the semester our aim would be to identify and understand different types of strategies

which have been exploited to the fullest by various organizations and adopted religiously as their

actual Operational strategies companies. This has helped these organizations to gain competitive

advantage over their counterparts.

Common Reasons why Organizations Fail

We can identify certain familiar reasons why Organizations fail to achieve a competitive advantage and

end up loosing out to their competitors. These reasons are universal in nature and find the same footing

in Pakistan as well as any other place in the world.

1. Too much emphasis on short-term financial performance. Quite often, cost cutting, profit

maximizing at the cost of social responsibility or employee motivation is a failed strategy

pursued by organizations, which just hastens their status to oblivion.

2. Failing to take advantage of strengths and opportunities. This is in reality failing to hold on

to proven successful strategies or core competencies. Sometimes a change in leadership

leads to change in strategy, where just for the sake of glory and high profits, organizations

forget their core competence and opt for strategies and tactic which cause their downfall.

3. Failing to recognize competitive threats. This reason is the exact opposite of failure to make

use of the organizations strengths. Quite often organizations decide to pursue status quo and

ends up bringing no new product or service or even no innovation in its existing product or

service line leading to lack of customer satisfaction, decline in profits and finally being

declared a failure.

4. Neglecting operations strategy. This is definitely the most important reason of failure;

organizations often end up employing non productive techniques which lead to inconsistent

and failed operations. Absence of an Operations Strategy leads to

5. Too much emphasis in product and service design and not enough on improvement.

Differentiation in terms of service and product, American companies in 1980s did that they

never introduced incremental refinements rather went for big changes and thus lost to

Japanese competitors.

6. Neglecting investments in capital and human resources. A total disregard to use the best

resource. Capital and human resources in the long run make or break an organization.

7. Failing to establish good internal communications. Matrix organizations or hierarchy or

such a strong structure that often the structure does not allow communication.

Production and Operations Management MGT613

Failing to consider customer wants and needs. This is actually indicative of an

organizations lack of marketing research skills. This also shows that there is no respect to

Customer Relationship Management Concept and certainly no respect to the customer.

Mission/Strategy/Tactics

Most of the organizations tend to answer the question that how does mission, strategies and tactics relate

to their decision making and attaining distinctive competencies? Organizations over the years have

mastered the art and technique of developing a vision and a mission statement, which helps them to

come with functional strategies and practical tactics by which they can make judicious decisions and

attain distinctive competencies

Mission

Strategy

Tactics

2. Strategy

1. Strategies are Plans for achieving organizational goals

Mission is the reason for existence for an organization

Mission Statement answers the question "What business are we in?"

Goals provide detail and scope of mission

Tactics are the methods and actions taken to accomplish strategies

2. Concept of Strategy for a Pakistani Automobile manufacturer

Strategies are plans for achieving organizational goals

Mission is to provide BEST AUTOMOBILES to individuals as well as BUSINESS

organizations of Pakistan

Mission Statement is to give you safe wheels to move around"

Goals are to provide utility, and heavy equipment mobiles.

Tactics consist of employing TQM methods to accomplish strategies

Planning and Decision Making

Planning and decision making concepts make use of setting a mission, goal, strategy and achieving the

end result through some effective and practical tactic. In hierarchical order the organization first makes

or develops a mission and employ tactics by developing operational procedures.

Strategy Example

You are a business student at Virtual University of Pakistan. You would like to have a career in

business, have a good job, and earn enough income to live comfortably

Production and Operations Management MGT613

Mission

Goals

Organizational Strategies

Functional Goals

Finance Operations

Marketing

Strategies Strategies

Strategies

Tactics

Operating

procedures

Mission:

Live a good life

·Goal:

Successful career, good income

·Strategy:

Obtain a Business Degree from VU.

·Tactics:

Select a business field of your interest and high market value

·Operations:

study, graduate, apply & get job

Examples of Strategies

Low cost ( Cost Leadership/Economical )

Scale-based strategies ( Critical Value)

Specialization ( Specific characteristics)

Flexible operations ( To change production design of products on the same infrastructure)

High quality ( exceeds customer requirements and satisfactions)

Service ( meets minimum standard specifications)

Distinctive Competencies

The special attributes or abilities that give an organization a competitive edge.

1. Price

2. Quality

3. Time

4. Flexibility

5. Service

6. Location

Table of Contents: