Unit 2 - Competitiveness, Strategy, and Productivity - A company may outsource a portion of its

operation to achieve lower costs, higher

Lesson 1. How companies compete and why productivity, or better quality.
companies fail. 3. Location - can be important in terms of cost and
convenience for customers.
COMPETITIVENESS - Companies must be competitive - Location near inputs can result in lower input
to sell their goods and services in the marketplace. costs.
- Location near markets can result in lower
• Competitiveness is an important factor in determining transportation costs and quicker delivery times.
whether a company prospers, barely gets by, or fails. - Convenient location is particularly important in
Business organizations compete through some the retail sector.
combination of their marketing and operations functions. 4. Quality - it refers to materials, workmanship, design,
• Marketing influences competitiveness in several ways, and service.
including identifying consumer wants and needs, pricing, - Consumers judge quality in terms of how well
and advertising and promotion. they think a product or service will satisfy its
intended purpose.
1. Identifying consumer wants and/or needs is a - Customers are generally willing to pay more for
basic input in an organization’s decision-making a product or service if they perceive the product
process, and central to competitiveness. The ideal is to or service has a higher quality than that of a
achieve a perfect match between those wants and competitor.
needs and the organization’s goods and/or services. 5. Quick response - can be a competitive advantage.
2. Price and quality are key factors in consumer buying - One way is quickly bringing new or improved
decisions. It is important to understand the trade-off products or services to the market. Another is
decision consumers make between price and quality. being able to quickly deliver existing products
3. Advertising and promotion are ways organizations and services to a customer after they are
can inform potential customers about features of their ordered, and still another is quickly handling
products or services, and attract buyers. customer complaints.
6. Flexibility - is the ability to respond to changes.
Operations has a major influence on competitiveness - Changes might relate to alterations in design
through product and service design,cost, location, features of a product or service, or to the volume
quality, response time, flexibility, inventory and supply demanded by customers, or the mix of products
chain management, and service. Many of these are or services offered by an organization.
interrelated. - High flexibility can be a competitive advantage in
a changeable environment.
1. Product and service design - it should reflect joint 7. Inventory management - can be a competitive
efforts of many areas of the firm to achieve a match advantage by effectively matching supplies of goods with
between financial resources, operations capabilities, demand.
supply chain capabilities, and consumer wants and 8. Supply chain management - it involves coordinating
needs. Special characteristics or features of a product or internal and external operations (buyers and suppliers)
service can be a key factor in consumer buying to achieve timely and cost-effective delivery of goods
decisions. throughout the system.
- Other key factors include innovation and the 9. Service - might involve after-sale activities customers
time-to-market for new products and services. perceive as value-added, such as delivery, setup,
2. Cost - of an organization’s output is a key variable warranty work, and technical support.
that affects pricing decisions - Or it might involve extra attention while work is
and profits. Cost-reduction efforts are generally ongoing in progress, such as courtesy, keeping the
in business organizations. customer informed, and attention to details.
- Service quality can be a key differentiator; and it
● Productivity (discussed later in the chapter) is is one that is often sustainable.
an important determinant of cost. Organizations - Moreover, businesses rated highly by their
with higher productivity rates than their customers for service quality tend to be more
competitors have a competitive cost advantage. profitable, and grow faster, than businesses that
are not rated highly.
10. Managers and workers - are the people at the heart
and soul of an organization, and if they are competent
and motivated, they can provide a distinct competitive
edge by their skills and the ideas they create.
- One often overlooked skill is answering the
telephone. How complaint calls or requests for
information are handled can be a positive or a
negative. If a person answering is rude or not
helpful, that can produce a negative image.
- Conversely, if calls are handled promptly and
cheerfully, that can produce a positive image
and, potentially, a competitive advantage.

Why Some Organizations Fail

Organizations fail, or perform poorly, for a variety of

reasons. Being aware of those reasons can help
managers avoid making similar mistakes. Among the
chief reasons are the following:
1. Neglecting operations strategy.
2. Failing to take advantage of strengths and
opportunities, and/or failing to recognize competitive
threats.
3. Putting too much emphasis on short-term financial
performance at the expense of research and
development.
4. Placing too much emphasis on product and service
design and not enough on process design and
improvement.
5. Neglecting investments in capital and human
resources.
6. Failing to establish good internal communications and
cooperation among different functional areas.
7. Failing to consider customer wants and needs.

The key to successfully competing is to determine what

customers want and then directing efforts toward
meeting (or even exceeding) customer expectations.
Two basic issues must be addressed.
• First: What do the customers want? (Which items on
the preceding list of the ways business organizations
compete are important to customers?)
• Second: What is the best way to satisfy those wants?

Operations must work with marketing to obtain

information on the relative importance of the various
items to each major customer or target market.
Understanding competitive issues can help managers
develop successful strategies.