STRATEGY AND PRODUCTIVITY

BA 11
Productions & Operations Management

Module 2: Strategy and Productivity

Learning Objectives: Define Mission & Strategy Identify & explain three strategic approaches to competitive advantage 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 productivity and explain why it is important to organizations Provide some of the reasons for poor productivity and some ways of improving it.

Hierarchy of Management Decisions

STRATEGIC

TACTICAL

OPERATIONAL

Why Some Organizations Fail?

Too much emphasis on short-term financial performance Failing to take advantage of strengths / opportunities Failing to recognize competitive threats Too much emphasis in product and service design and not enough on improvement Neglecting investments in capital and human resources Failing to establish good internal communications Failing to consider customer wants and needs Neglecting operations strategy

Missions & Strategies

An effective operations management effort must have a mission so it knows where it is going and a strategy so it knows how to get there Economic success, especially survival, is the result of identifying missions to satisfy customers wants and needs

Mission Statement

Is a precise description of what the organization does, the reason for its existence It is a definition of why the organization exists Provides details of what is done and answers the question What do we do? or What is our business?

Mission Statement - Sample

Organize the worlds information and make it universally accessible and useful.

We will provide branded products and services of superior quality and value that improve the lives of the worlds consumers

Mission Statement

The mission statement - basis for organizational goals, which provide more detail and describe the scope of the mission
Goals - serve as a foundation for the development of organizational strategies. These, in turn, provide the basis for strategies and tactics of the functional units of the organization.

Mission Statement

Once an organizations mission has been defined, each functional area within the firm determines its supporting mission
e.g.: OMs mission: To produce products consistent with the companys mission as the worldwide low-cost manufacturer

Strategy

When the mission is established, strategy and its implementation can begin Strategy is an organizations action plan or a game plan to achieve its mission

Strategy

How a firm intends to create and sustain value for its shareholders How you are going to get there Major components: Operations excellence Customer intimacy Product leadership
Shows how mission will be achieved Company has a business strategy Functional areas have strategies

Goals: destinations

Strategies: roadmaps

Tactics - are the methods and actions used to accomplish strategies

Strategic Management Process

Strategic Planning
Vision
External Analysis

Strategic Implementation

Mission

SWOT Analysis

Goals/ Objectives

Strategy Formulation

Strategy Implementation

Strategic Control

Internal Analysis

Long-term Mediumterm Shortterm

Corporate Business Functiona l

Budget Policy Procedur es

Strategy
Firms achieve missions in three conceptual ways:

Differentiation Cost Leadership Response

Better / Different Cheaper More responsive

Each of these strategies provides an opportunity to achieve competitive advantage

Strategy: Differentiation

Differentiation is concerned with providing uniqueness Differentiation should be thought of as going beyond both physical characteristics and service attributes to encompass everything about the product or service that influences the value that the customers derive from it e.g.: broad product line, product feature, after sales services, delivery & installation, experience differentiation

Strategy: Competing on Cost

Driver for low cost strategy: Effective utilization of facility: identify optimum size, to allow firms to spread overhead costs
Lowering costs does not mean sacrificing customers expectations of value Lower costs does not mean inferior quality

Strategy: Competing on Response

Response includes the entire range of values related to timely product development and delivery, reliable scheduling and flexible performance

ASPECTS of Response Strategy: 1. Flexible response ability to match changes in the marketplace where design innovations and volumes fluctuates substantially

Strategy: Competing on Response

2.

Reliability of scheduling or dependability

Quickness or speed

3.

Aims of an Operations Strategy

Support the higher strategies in achieving the organizations purpose. To provide superior performance in operations.

Its contents: The purpose of the operations, summarized in operations mission. An expanded series of goals and objectives. Plans and methods to achieve these goals.

Operations Strategy: Defined

Operations Strategy consists of all the long-term goals, plans, policies, culture, resources, decisions and actions that relate to its operations. The total pattern of decisions which shape the long term capabilities of any type of operation and their contribution to overall strategy. It is narrower in scope, dealing primarily with the operations aspect of the organization. Relates to Products, Processes, Methods, Operating Resources, Quality, Costs, Lead-Times and Scheduling

Operations Strategy

For operations strategy to be truly effective It is important to link it to organizations strategy. That is, both organizational strategy and operations strategy should not be formulated independently. Thus, can have a major influence on the competitiveness of an organization.

Operations purpose
-derived from higher strategies -transmitted via the business strategy -stated in operations mission

Operations Strategy
-details of operations purpose. goals and objectives - plans and methods

Internal features of operations

-under the control of operations managers.

External environment for operations

-outside the control of operations managers.

Factors within the organization but outside the operations

Factors outside the organization

Key Strategies for Operations

Quality-based strategies Focus on satisfying the customer by integrating quality into all phases of the organization Quality includes both products and processes such as design, production, and service after the sale Time-based strategies Gain competitive advantage by performing certain activities more quickly than competitors

Any questions?

Strategic Decisions
Long-term decisions, usually broad and address questions such as: How will we make the product? Where do we locate the facility or facilities? How much capacity do we need? Strategic decisions will impact the companys longrange effectiveness in terms of how it can align with customers needs. These decisions must be in alignment with corporate strategy.

Tactical Decisions
Intermediate-term decisions, such as: How many workers will we need? When do we need them? When should we have material delivered? Tactical planning primarily addresses how to efficiently schedule material and labor within the constraints of previously made strategic decisions. These tactical decisions become the operating constraints under which operational planning and control decisions are made.

Organizational Chart JG Summit

Organizational Chart URC

Operational Excellence
This strategy attempts to lead the industry in price and convenience by pursuing a focus on lean and efficient operations

Work to minimize costs by reducing overhead, eliminating intermediate production steps, reducing transaction costs, and optimizing business processes across functional and organizational boundaries
The focus is on delivering products/services to customers at competitive prices with minimal inconvenience

Customer Intimacy
Customer intimacy means continually tailoring and shaping products and services to fit an increasingly refined definition of the customer The approach is to combine detailed customer knowledge with operational flexibility (customization) Responding quickly to almost any need, from customizing a product to fulfilling special requests to create customer loyalty

Companies are willing to spend money now to build customer loyalty for the long-term, considering each customers lifetime value to the company, not the profit of any single transaction
Two things: responsiveness and flexibility

Product Leadership
Companies that pursue the discipline of product leadership strive to produce a continuous state of state-of-the-art products and services

The strength of product leaders lies in reacting to situations as they occur Product leaders act as their own competition. These firms continually make the products/services they have created obsolete

PRODUCTIVITY
One of the primary responsibilities of a manager is to achieve productive use of an organization's resources. The term productivity is used to describe this. Productivity is an index that measures output (goods and services) relative to the input (labor, materials, energy, and other resources) used to produce it. It is usually expressed as the ratio of output to input

PRODUCTIVITY MEASURES
= Partial =

= + = + +

PRODUCTIVITY MEASURES
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PRODUCTIVITY MEASURES
Labor Productivity Machine Productivity Capital Productivity Energy Productivity
Units of output per labor hour Units of output per shift Value-added per labor hour Units of output per machine hour machine hour Units of output per dollar input Dollar value of output per dollar input Units of output per kilowatt-hour Dollar value of output per kilowatt-hour

PRODUCTIVITY
Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity).

The choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to track improvements in labor productivity, then labor becomes the obvious input measure.
Partial measures are often of greatest use in operations management

PRODUCTIVITY
Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity).

The choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to track improvements in labor productivity, then labor becomes the obvious input measure.
Partial measures are often of greatest use in operations management

PRODUCTIVITY
Determine the productivity: a. Four workers installed 720 square yards of carpeting in eight hours.

PRODUCTIVITY
A machine produced 70 pieces in two hours. However, two pieces were unusable.

PRODUCTIVITY
Productivity measures are useful on a number of levels. For an individual department or organization, productivity measures can be used to track performance over time.

This allows managers to judge performance and to decide where improvements are needed. Productivity measures also can 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

PRODUCTIVITY
In essence, productivity measurements serve as scorecards of the effective use of resources. Business leaders are concerned with productivity as it relates to competitiveness Government leaders are concerned with national productivity because of the close relationship between productivity and a nation's standard of living. High levels of productivity are largely responsible for the relatively high standards of living enjoyed by people in industrial nations. Furthermore, wage and price increases not accompanied by productivity increases tend to create inflationary pressures on a nation's economy.

PRODUCTIVITY VARIABLES
These are the factors that are critical to productivity improvements Labor Capital Management

PRODUCTIVITY VARIABLE: Labor

Improvement in the contribution of labor to productivity is the result of a healthier, better educated and better nourished labor force To sum it up, the factors that improve labor productivity are: Appropriate basic education Proper diet Social overhead (transportation & sanitation)

PRODUCTIVITY VARIABLE: Capital

Human beings are tools-using animals, and capital investment provide those tools Capital investments are influenced by inflation and taxes mainly because both affect the cost of capital

PRODUCTIVITY VARIABLE: Mngt

Management is responsible for ensuring that labor and capital are effectively used to increase productivity Productivity improvements can happen through the use of knowledge and the application of technology

PRODUCTIVITY IN THE SERVICE SECTOR

Productivity of the service sector has proven difficult to improve because service sector work is: Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality