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
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A. 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.
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).
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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
1. Identifying sources of funds and applications of funds.
2. Capital and Financial Investments.
3. Financial Leverage ( Debt to Equity) and
4. Capital structure.
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
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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
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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.
8. 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
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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.
Mission
Goals
Organizational Strategies
Functional Goals
Finance Operations Marketing
Strategies Strategies Strategies
Tactics Tactics Tactics
Operating Operating Operating
procedures procedures procedures
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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
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: Register, buy books, take courses
study, graduate, apply & get job
Examples of Strategies
1. Low cost ( Cost Leadership/Economical )
2. Scale-based strategies ( Critical Value)
3. Specialization ( Specific characteristics)
4. Flexible operations ( To change production design of products on the same
infrastructure)
5. High quality ( exceeds customer requirements and satisfactions)
6. 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
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