Chapter 02 – Competitiveness, Strategy, and Productivity
CHAPTER 02
COMPETITIVENESS, STRATEGY, AND PRODUCTIVITY
Teaching Notes
The topics covered in this chapter can be used to help get your course in OM off to an interesting start.
Most of your students are aware that U.S. firms are having a difficult time competing with foreign firms
in both the domestic and international markets. Many of them have grown up using products produced by
foreign firms on an everyday basis and they have developed a great deal of respect for the quality of their
products. Students are probably as familiar with names like Minolta, Honda, Toyota, Sony, BP Oil, Nestlé
& BIC as they are with Ford, GM, GE, IBM, Texaco, Hershey, and Parker.
I think students will relate to the fact that companies must be productive to be competitive and that to be
competitive they must have some well thought out approach, plan, or strategy on how to achieve this
position. In other words, students will be able to understand why it is important to learn what productivity
really is, how we measure it, what factors affect it, and how firms can improve their productivity.
Students will become aware that business firms compete with each other in a variety of ways and will
study the key competitive factors, which are of primary concern in today’s global business environment.
Finally, the students will focus on operations strategy with special attention being given to some of the
newer strategies based on quality, time, and lean production systems.
Reading: Why Productivity Matters
1. Higher productivity relative to competitors is very important for a nation because it provides the
nation with a competitive advantage in the marketplace. Productivity increases add value to the
2. In general, service jobs have lower productivity than their manufacturing counterparts do because
service productivity is very difficult to measure and, consequently, difficult to improve. In many
3. Higher productivity allows companies to undercut competitors’ prices to improve their market
share, or to realize higher profit margin at the same price level. Relative higher productivity also
Chapter 02 – Competitiveness, Strategy, and Productivity
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Reading: Dutch Tomato Growers Productivity Advantage
1. The factors that enable Dutch tomato growers to achieve much higher productivity than Italian
2. The Dutch growers’ supply chain is an important factor because a Dutch trading company works
closely with supermarket chains in Europe so that farmers are able to sell their output in high
volume, which enables Dutch farmers to match supply and demand closely.
Answers to Discussion and Review Questions
1. They would be helpful in the sense that they would give U.S. manufacturers time to step up the
use of industrial robots and other measures, which would make them better able to compete in
2. Business organizations compete with one another in a variety of ways. Key among these ways are
price, quality, product differentiation, flexibility, and delivery time.
3. Characteristics such as price, quality, delivery speed, delivery reliability all can be order
qualifiers or order winners. It is important to determine the set of order qualifier and order winner
4. One store that many of us shop at is Wal-Mart. In the last decade, Wal-Mart has been growing
steadily and gaining market share. There are numerous reasons why Wal-Mart has been
successful in a very competitive market. Wal-Mart’s ability to provide a very wide variety of
5. The balanced scorecard is a top-down management system that helps managers focus attention on
strategic issues related to finance, internal processes, customers, and learning and growth.
6. Strategy is the basic approach used by an organization to achieve its goal. Tactics are the methods
and actions that are taken to accomplish strategies and carry out operations.
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Education.
12. It appears that Boeing can concentrate on selling its smaller airplanes in larger volumes to smaller
airline companies. The advantage of producing smaller airplanes is the fact that Boeing can
13. a. Interest rate on savings.
b. Interest rate on checking and CDs.
c. Loan rates.
14. Technology usually works best when processing requirements are uniform. Therefore, reducing
the variability provides more opportunities for implementing technology.
15. Answers will vary. Examples of companies with time based-strategies include fast-food
restaurants, overnight package delivery companies, and universities offering undergraduate
degrees in less time than the standard four years. Companies with quality-based strategies include
high-end hotels, manufacturers of luxury automobiles, and high-end retailers.
Taking Stock
1. Top and senior management should be involved in formulating organizational strategy. However,
2. Competitive trade-offs that may arise in a fast-food restaurant include price vs. quality and cost
vs. customer service. (If we have too few cashiers, customer waiting time will increase and
3. a. Technology can improve competitiveness by improved product and service offerings, more
efficient processing, a better Web site, more efficient order processing, better communication,
easier and more effective coordination of supply chains, automatic billing, and automatic
error checking.
b. Computers and the related automation of various company or manufacturing functions and
the Internet can assist in improving productivity by reducing processing time for activities.
Chapter 02 – Competitiveness, Strategy, and Productivity
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Education.
Critical Thinking Exercises
1. The “productivity paradox” refers to massive investment in information technology that occurred
2. The automated processing would give a much higher labor productivity ratio than the manual
processing would. We could use multifactor productivity as a more meaningful measure.
3. Focusing solely on efficiency may result in overlooking potential major productivity gains that
4. Although sending a note to Dom’s boss might be perceived by some as disloyal, Sam would be
5. Student answers will vary (see Chapter 1 for examples). Other examples could include any two of
the following:
a. Discontinuing safety training to save on training costs and boost the company’s share price
would violate the Utilitarian Principle due to the increased potential for worker accidents.
b. Requiring buyers within a company to purchase materials illegally would violate the Rights
Principle due to the unethical nature of the buying process imposed upon the buyers.
c. Awarding a bid to a friend’s company that was not the lowest cost bidder would violate the
Fairness Principle due to the different standards applied to bidders.
Chapter 02 – Competitiveness, Strategy, and Productivity
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Solutions
1. a. Anniversary = 300 / 8 = 37.5 meals/worker; Wedding = 240 / 6 = 40 meals/worker.
and worker skills/experience.
2.
Week
Crew Size
Yards Installed
1
4
96
2
3
72
3
4
92
4
2
50
5
3
69
6
2
52
Notes:
Labor Productivity per Worker = Yards Installed / Crew Size
We can determine the Average Labor Productivity per Worker for each crew size as follows:
Crew Size of 2: (25 + 26) / 2 = 25.5
Crew Size of 3: (24 + 23) / 2 = 23.5
Crew Size of 4: (24 + 23) / 2 = 23.5
A crew size of 2 seems to work best with an Average Labor Productivity per Worker = 25.5 yards
installed per worker.
3.
Week
Output
Number
of
Workers
Material
(lbs.)
Labor
Cost
Overhead
Cost
Material
Cost
Total
Cost
MFP
1
30,000
6
450
2,880
4,320
2,700
9,900
3.03
2
33,600
7
470
3,360
5,040
2,820
11,220
2.99
3
32,200
7
460
3,360
5,040
2,760
11,160
2.89
4
35,400
8
480
3,840
5,760
2,880
12,480
2.84
Notes:
Labor Cost = Number of Workers x 40 hours x $12/hour
Overhead Cost = Labor Cost x 1.50
Material Cost = Material (lbs.) x $6/lb.
Total Cost = Labor Cost + Overhead Cost + Material Cost
Multifactor Productivity (MFP) = Output / Total Cost (rounded to two decimals)
Multifactor productivity dropped steadily from a high of 3.03 to a low of 2.84.