Why Some Organizations Fail

 Too much emphasis on short-term financial

performance
 Failing to take advantage of strengths and
opportunities
 Failing to recognize competitive threats
 Neglecting operations strategy
 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
COMPETITIVENESS
Competitiveness
 Is the ability of a firm to produce goods
and services that successfully match the
market's needs
 Ability of a firm to offer products and
services that meet the quality standards of
the markets at prices that are competitive
and provide adequate returns on the
resources employed or consumed in
producing them.
Competitiveness
is the ability to provide products and
services as or more effectively and
efficiently than the relevant
competitors.
How effectively an organization meets
the wants and needs of customers
relative to others that offer similar
goods or services
 Businesses Compete Using
Marketing Mix
Identifying consumer wants and
needs
Pricing
Advertising and promotion
Businesses Compete Using Operations
 Product and service design
 Cost
 Location
 Quality
 Quick response
 Flexibility
 Inventory management
 Supply chain management
 Service
Competitive Priorities- The Edge
Four Key Operations Issues:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
All of the above? Some? Tradeoffs?
 Competing on Cost
 Offering product at a low price relative to
competition.
 Typically high volume products
 Often limit product range & offer little
customization
 May invest in automation to reduce unit costs
 Can use lower skill labor
 Probably uses product focused layouts
 Low cost does not mean low quality
 Competing on Quality
 Quality is often subjective and is defined
differently depending on who is defining it.
 Two major quality dimensions include
 High performance design:
 Superior features, high durability, & excellent
customer service
 Product & service consistency:
 Meets design specifications
 Close tolerances
 Error free delivery
 Quality needs to address
 Product design quality – product/service meets
requirements
 Process quality – error free products
 Competing on Time
 Time/speed one of most important competition
priorities
 The First that can deliver often wins the race
 Time related issues involve
 Rapid delivery:

 Focused on shorter time between order placement

and delivery
 On-time delivery:

 Deliver product exactly when needed every time

 Competing on Flexibility
 Business environment changes rapidly
 Companies must accommodate change by
being flexible
 Product flexibility:
 Easily switch production from one item to
another
 Easily customize product/service to meet
specific requirements of a customer
 Volume flexibility:
 Ability to ramp production up and down to
match market demands
 The Need for Trade-offs
 Decisions must emphasize priorities that
support business strategy
 Decisions often required trade offs
 Decisions must focus on order qualifiers and
order winners
 Which priorities are “Order Qualifiers”?
Must have excellent quality since everyone
expects it
 Which priorities are “Order Winners”?
All four priorities OR any of the
priorities which give the business a
competitive edge
 Order qualifiers
 Characteristics that customers perceive
as minimum standards of acceptability
to be considered as a potential purchase
 Order winners
 Characteristics of an organization’s
goods or services that cause it to be
perceived as better than the competition
Competitiveness Strategy
There are 3 basic competitive
strategies a firm can possess:
A firm pursuing a cost-leadership
strategy attempts to gain a
competitive advantage primarily by
reducing its economic costs below
that of its competitors.
This policy, once achieved, provides
high margins and a superior return on
investments.
 term used when a company
projects itself as the cheapest
manufacturer or provider of a
particular product or
commodity
 An approach businesses develops
by providing customers with
products unique, different and
distinct from products their
competitors may offer in the
marketplace.
What is the essence of
differentiation???
 A focus strategy is a method of
developing, marketing and selling
products to a niche market, which
could be a type of consumer, product line
or geographical area.
 A focus strategy would centre on the
expansion of marketing tactics for your
company while aiming to establish a new
relationship with your target audience.
Translating to Production Requirements
 Specific Operation requirements
include two general categories
 Structure – decisions related to the
production process, such as
characteristics of facilities used,
selection of appropriate technology, and
the flow of goods and services
 Infrastructure – decisions related to
planning and control systems of
operations
STRATEGY
Business/Functional Strategy
 Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics

relate to decision making
and distinctive competencies?
 Strategy
 Strategies
Plans for achieving organizational goals
 Mission
 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
 The methods and actions taken to accomplish
strategies
 Strategic Planning
 S P is the process of thinking through the
organisation’s current mission and
environment and setting a guide for
tomorrow’s decisions and results.
 It is premised on the fact that current
decisions are based on future conditions
and results.
 S P is a process, embodies a philosophy and
provides a linkage within the organisation.
 Operations Strategy Across the
Organization
Business strategy defines long-
term plan
Operations strategy support the
business strategy
Marketing strategy needs to fully
understand operations capability
Financial plans in effect support
operations activities.
 Operations Strategy
 Essential differences between operational
efficiency and strategy:
Operational efficiency is performing
tasks well, even better than
competitors
Strategy is a plan for competing in
the marketplace
Operations strategy ensures all
tasks performed are the right tasks
To Develop a Business Strategy
 Consider these factors and strategic
decisions:
 What business in the company in
(mission)
 Analyze and understand the market
(environmental scanning)
 Identify the company strengths (core
competencies)
Three Inputs to a Business Strategy
 Key Examples
 Mission: Dell Computer- “to be the most
successful computer company in the world”
 Environmental Scanning: political
trends, social trends, economic trends,
market place trends, global trends
 Core Competencies: strength of workers,
modern facilities, market understanding,
best technologies, financial know-how,
logistics
Developing an Operations Strategy
Operations Strategy: a plan for the design
and management of operations functions
 is developed after the business strategy
 focuses on specific capabilities which
give it a competitive edge – competitive
priorities
 An Operations Strategy
Operations Strategy: a plan for the
design and management of operations
functions
is developed after the business
strategy
focuses on specific capabilities which
give it a competitive edge –
competitive priorities
Operations Strategy – Designing the
Operations Function
Types of operations
 1. Volume Dimension
 These are operations driven by high volumes
e.g. Chibuku depend on high volumes not
differention therefore it needs to be repetitive
and produce standard type of products.
 Operations are repeatable.
 There is also specialization and
systematization.
 As a result of these processes there is
economies of scale which result in relatively
lower unit cost.
 2. Variety Dimension
 Greater variety of product or service is
emphasized so that people choose what
they want when variety is introduced.
 It therefore bring in flexibility in
production processes e.g. in the beverage
manufacturing firms change must be done
quickly so that wastage is avoided when
changing from one variety to another.
3. Variation Dimension
 Different patterns e.g. Automobile
industry – variation of the same make but
different in patterns.
 It is difficult to predict demand.
 Demand is guided by the pattern of
demand of related products.
4. Customer Contact Dimension
All business should have contact with
their customers.
Some have high contacts with their
customers especially the service
business e.g. banks.
Helps to appreciate their customers
and produces what the market is
willing to and able to consume.
 Role of Operations
i) Supporting business strategy
ii) Provide for capacity and capabilities
that will enable an organization to
achieve its goals
iii) To provide competitive advantages
iv) Drives the business for continuity
Strategic Planning for Production and
Operations
In a Production or Operations function, strategic
planning is the broad, overall planning that
precedes the more detailed operational planning.
It essentially involves:
 i) Planning for operations- establishing a
programme for action for converting resources
into goods or services.
 ii) Planning for the conversion system-
establishing a programme of action for
acquiring the necessary physical facilities to be
used in the conversion process
 Strategic Planning approaches for
Production/Operations
Three models can be identified:
Entrepreneurial model
 A strong, bold leader takes planning action on behalf of
the production/operations function.
Adaptive model
 A manager’s plan is formulated in a series of small
disjointed steps in reaction to the disjointed
environment.
Planning model
 Manager uses planning essentials and combines these
with the logical analysis of management science.
Although there are many strategies,
whatever operations strategy
formulated must be consistent with
the overall strategy of the
organisation.
Operations strategy utilises the
overall corporate approach planning
with special modifications resulting
from operations issues and
opportunities.
A strategic Planning model
 This is a general approach to strategic
planning where analysts assess the
environmental considerations together
with the organisation’s current production
and operations position.
 Environmental assessment forces
management to develop strategic options
for operations.
Strategic and Tactical decisions
for POM
1. Quality Strategy
Organization emphasizes on
quality as its marketing
positioning e.g. Pick and Pay.
Organizations must be able to
identify policies and procedures
that will enable them to achieve
the desired quality.
2. Product strategy
Actual transformation to come up with
the production - What should be done
to come up with the actual production
Productions should meet the needs of
the customers
The HR should be able to deliver/
produce the product
There is need to emphasize the role of
designing.
3. Process Strategy - Many processes are
available but an organization should choose
the process that best serves the achievement
of the originals goals.
 There is commitment of the organizations
resources which are long term and if one
chooses the wrong processes the
organizations will live to regret.
 Considered the following when choosing a
process- technology quality, people,
expense (running cost utilization of
equipment and maintenance).
4. Location Strategy
Before setting up a firm there is
need to deliberately think of the
location because this will
determine the successes of the
organization.
There is need to choose the
location which care otherwise
operations will be ineffective e.g.
Lupane University.
5. Layout Strategy
Physical placement of machinery in
relation to other e.g. processes –
finishing cannot be at the beginning
but should be deliberately be placed at
the end. Layout is also influenced by
capacity.
There is need to acquire machinery
with capacity of growth so that you do
not frustrate customers.
6. Human Resources Strategy
 These are integral part of all operations. It is
the most expensive of the design layout hence
the need to put the right people at the right
place.
 Consider the quality of working life i.e. people
need to be looked after as they spent more
time in the organization.
 There is need to identify talents and skills to
put in the organization
 Determine the cost to be incurred to have
quality personnel as they do not come out
cheaply.
7.Technology
Equipment required for operations
need to be updated.
There is need to form linkages i.e.
the ability to get technology from
others
establish relations with other
organizations which produce
what your organization makes.
8.Organisational Structure
There is need to have there right
and correct structure which is not
rigid so that it enhances strategy
execution.
There should be control and
coordination with HR department.
The rewarding system of the
organization should be favorable.
9. Cost
There are people who buy on the
basis of the cost of the product.
The lower the cost the more
conducive.
The organization should adopt a low
cost strategy in the market you want
to serve.
The cost of production should be
equivalent to the value of the
product.
10. Speed of Delivery
Those who deliver early will be
the first on the market “The
earliest bird catches the fattest
worm”.
There is need to reduce the
designing time so that the
organization delivers early.
11.Flexibility
Ability of a company to produce
variety- people do not want
uniform.
The operations should be
flexible to allow for any changes
without wasting company’s
resources
Productivity
 Productivity
 A measure of the effective use of resources,
usually expressed as the ratio of output to
input.
 It is a scorecard on effective resource use
 It can be expressed in terms of total factor
basis, multi-factor basis or on partial basis.
 Productivity ratios are used for
 Planning workforce requirements
 Scheduling equipment
 Financial analysis
 Productivity
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)

Outputs
Productivity=
Inputs
 Factors of Production
 The factors of production are resources
that are the building blocks of a firm/
economy;
 These are what companies use to produce
goods and services.
 Economists divide the factors of
production into four categories: land,
labour, capital and
entrepreneurship .
 Productivity
 In an economic sense, the inputs are:
1. Labour as managers, workers, and
externally purchased services,
2. Capital for land, facilities, and
equipment, machiner; and
3. Materials, including energy
requirements.
 Total Factor Productivity
Total Factor productivity is the year-
by-year change in the output where a
number of factors are taken into
consideration.
It is the attempt to construct a
productivity measure for an
aggregation of factors
 Economic productivity
Economic productivity ;
depends on pricing and demand.
If consumers require fewer
products than can be produced,
plants will not work at full
productive capacity.
 Measures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Outputs Outputs

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them
 Productivity Growth

Productivity Growth =

Current Period Productivity – Previous Period Productivity X 100%

Previous Period Productivity

 Example: Productivity
100,000 Units i. What is the
Produced labor productivity?

Sold for $15/unit ii. Calculate the

500 labor hours Multi-factor
productivity.
Labor rate: $9/hr
Cost of raw material: iii. Compute the
All Factor
$50,000
productivity?
Overhead: $20,500
 Example: i. Labor Productivity
 100,000 units / 500hrs = 200 units/hr

 (100,000 units * $15/unit) / 500hrs = $3

000/hr

 100,000 units / (500hrs * $9/hr) = 22.222

unit/$

 (100,000 units * $15/unit) / (500hrs *

$9/hr) = 333.33333
The last one is unit-less 66
 Example : All-Factor Productivity
Output
AFP = Labor + Materials + Overhead

(100,000 units) * ($15)

AFP =
(500)*($9) + ($50,000) + ($20,500)

AFP = 20.0

What does that mean to management

from Operations view point?
67
Interpreting Productivity Measures
 Other productivity measure questions:
 Is this partial productivity measurement
enough to make an investment decision?
 Is the Total Cost Productivity measure a
better reflection of year to year productivity.
Why?
 Should you also look at productivity
measures for the two major competitors for
comparison?
 Productivity measure provides
information on how the firm is doing
relative to what is critical to the firm
Interpreting Productivity Measures
 Productivity measures must be compared to
something, i.e. another year, a different company
 Raw productivity calculations do not tell the
complete story unless there are no major
structure differences.
 In a business e.g., it is obvious that some major
changes were taking place to yield productivity
rates year-to-year output/employee productivity
improvements. What changes could improve
sales per employee? Automation? Out sourcing?
Major re-design?
Productivity and the Service Sector
Measuring service sector
productivity is a unique challenge
Traditional measures focus on
tangible outcomes
Service industries primarily produce
intangible outcomes
Measuring intangibles is challenging
 Productivity improvements.
Some of the objectives of improvements in
productivity are:
1. Efficiency
2. Maximum output
3. Economy
4. Quality
5. Elimination of waste
6. Satisfaction of human beings through
increased employment, income and better
standard of living.
 Productivity in Manufacturing
versus Service Firms
 Productivity applies equally to the blue-
collar workforce as to people doing
intellectual work.
 In many developed countries, blue-collar
workers represent a small and declining
portion of the workforce and the dominant
workforce is represented by intellectual
work in service organizations.
 Productivity in Manufacturing
versus Service Firms
This change is explained by a change
from a manufacturing to service-based
economy in these countries.
The problem presented by this shift is
that productivity gains in the service
sector have lagged behind gains in the
manufacturing sector.
Productivity in Manufacturing
versus Service Firms
 Nobel Prize-winning economist Robert
Solow has said that we see computers
everywhere except in the productivity
statistics.
 That productivity measures do not seem to
show any impact from new computer and
information technologies has been
labelled the "productivity paradox".
Productivity in Manufacturing versus
Service Firms
The animating force for productivity
and wage growth in the new economy
will be the pervasive use of digital
electronic technologies.
This is expected to increase efficiency
and productivity, particularly in the
low-technology service sector.
 Productivity in Manufacturing versus
Service Firms
 However, there are many examples from leading-
edge service companies that have achieved notes
dramatic improvements in productivity while other
firms within the same industry have lagged.
 In many cases, these competing companies use the
same basic technology, pay the same wage rates, and
operate under the same basic labour agreement.
 This contradiction is often explained by lack of
intelligent focus in the use of new technologies.
Productivity in Manufacturing versus
Service Firms
 Several explanations have been advanced
to explain this lag, including ineffective
measures for services sector productivity
and macroeconomic factors, such as the
low savings rate while on the other hand
fear of job loss by manufacturing workers,
which motivates them to work harder and
smarter.
Productivity in Manufacturing versus
Service Firms
It is forecasted that with increased
learning, the digitization of the
economy in the 21st century will bring
in the kind of economic benefits that
mechanization brought in the 20th.
 Productivity in Manufacturing
versus Service Firms
 And this will be spurred by the "network effect"
– the more we use these technologies (e.g.,
Internet, smart cards, broadband and
telecommunications), the more applications
will be developed, and the more value they will
provide for users.
 Once this occurs, the productivity paradox
could very likely give way to a productivity and
wage boom.
 Practice Question 1
1. A company that makes shopping carts for supermarkets recently
purchased new equipment, which reduced the labor content needed to
produce the carts. Information concerning the old system (before adding
the new equipment) and the new system (after adding the new machines)
includes:
Old System New System
Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50

a) Compute labor productivity for both the Old System and the New System.
b) Compute AFP productivity for both the Old System and the New System.
c) Suppose production with old equipment was 30 units of cart A at a price of
$100 per cart, and 50 units of cart B at a price of $120. Also suppose that
production with new equipment is 50 units of cart A, at a price of $100 per
cart, and 30 units of cart B at a price of $120. Compare all-factor
productivity for the old and the new systems.
 Practice Question 2
A company has introduced a process improvement that reduces the
processing time for each unit and increases output by 25% with less material
but one additional worker.
Under the old process, five workers could produce 60 units per hour.
Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is
charged at 1.6 times direct labor cost. Finished units sell for $31 each.
a) Compute single factor productivity of labor in the old system.
(Compute it in four possible ways.)
b) Compute all factor productivity for both old and new systems.

Factor Old System New System

Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31
 Practice Question 3
A milk factory seeks advice from an external consulting company concerning its
business and production processes. The final consulting report describes several
steps to increase productivity including implementation of cutting-edge processing
techniques through more powerful filtering systems.

Existing System Proposed System

Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170

a) Calculate the labor productivity for the existing and the proposed system.
b) Find the All-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A milk sold at
$2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore,
assume that under the proposed system, processing will include 600 gallons
of Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at
$1.90/gallon. Compare all-factor productivity for both the existing and the new
system.
 Practice Question 4
 An insurance company has a group standard
in the claims department to process 1250
claims per day when fully staffed with 52
employees. Consider the following data and
compute labour productivity for each of the
last four weeks. What do the results suggest.
Week(5dys) Average Claims
employees processed
35 50 6250
36 51 6200
37 51 5850
38 51 5950
Levels of productivity and trends
Productivity can be viewed from the
level of the entire nation, individual,
industry or a unit of a business.
Operations managers should always
be aware of the productivity trends
and invest in activities that enhance
productivity in their operations.
 Quality and productivity
 Quality is the degree to which the design
specifications of the product /service are
appropriate to its function and use and the
degree to which a product or service conforms to
design specifications.
 Quality can affect the competitive position of an
organisation when products/services do not
meet customer specifications.
 There is a strong link between quality and
productivity. When quality increases so does
productivity.
A quality productivity strategy
 When quality is emphasised, economic
benefits accrue to the organisation in terms of
decreased waste, reworked products,
improved material usage and reduced
operations costs.
 Customers can also benefit in terms of reduced
prices which can increase market share.
 To employees this can result in increased job
security.
 Shareholders can benefit in terms of higher
profits and improved asset utilisation.
 Technology and mechanisation
The conversion process is the central
element of the production and
operations function.
It is present in most organisations and
varies across businesses.
Mechanisation is the process of
bringing about the use of equipment
and machinery in production and
operations.
 Technology and mechanisation
Most organisations today face the
decisions about the technology to use
and the degree of mechanisation.
Productivity and quality can improve
through the adoption of modern
technologies and increased
mechanisation.
Factors Affecting Productivity
 Capital
 Quality
 Technology
 Management
 Standardization
 Quality
 Infrastructural Obstacles
 Legal Obstacles
 Use of Internet
Other Factors Affecting Productivity
 Safety
 Shortage of skilled workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity
 Computer viruses
 Searching for lost or misplaced items
 Scrap rates
 New workers
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
Industry actions to increase Productive efficiency
 Technology transfer- adoption and adaptation of
production systems to more modern technological systems
and processes.
 Research and development across various sectors of the
economy.
 Value addition and beneficiation of minerals and
agricultural resources to increase quality raw materials.
 Increase industry capacity utilisation.
 Develop human capital and the necessary incentives to cope
with the new challenges and technology.
 Collaboration of Industries with universities to develop
appropriate skills.
 Collaboration of local industrial sectors with international
organisations.
 Conclusion
 Operation managers should play a key role
in strategy formulation.
 The vision and mission can formulate the
best strategy for use in the organization.
 There should be collaboration between
Marketing, Finance and Production.
 Production comes with quality which helps
the company to gain competitive
advantages
 Highlights
 Business Strategy is a long range plan and vision.
Each individual business function develop needs to
support the business strategy
 An organization develops its business strategy by
doing environmental scanning and considering its
mission and its core competencies.
 The role of operations strategy is to provide a long-
range plan for the use of the company’s resources
in producing the company’s primary goods and
services.
 The role of business strategy is to serve as an
overall guide for the development of the
organization’s operations strategy.
 Highlights cont’…
 The operations strategy focuses on developing
specific capabilities called competitive
priorities.
 There are four categories of competitive
priorities: cost, quality, time, and flexibility
 Technology can be sued by companies to gain a
competitive advantage and should be acquired
to support the company’s chosen competitive
priorities
 Productivity is a measure that indicates how
efficiently an organization is using its resources
 Productivity is computed as the ratio or
 Questions for discussion
 Examine the four types of operations
citing practical example on situations
they are implemented.
 Evaluate the Strategic and Tactical
decisions for POM in a manufacturing
entity of your choice.
 Examine the strategies that can be
employed to improve productivity of firm
of your choice.