Chapter 2: Productivity, Competitiveness, and Strategy
Productivity: a measure of efficient use of resources, usually expressed as the ratio of output to input.
High productivity is linked to higher standards of living
– As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to
maintain high standards of living
Higher productivity relative to the competition leads to competitive advantage in the marketplace.
– Pricing and profit effects
For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry
– Productivity growth is a key factor in a country’s standard of living.
– Labour productivity is still the main measure used to gauge the performance of individuals and plants.
– Wage and price increases not accompanied by productivity increases tend to create inflationary pressure on
– Because of the large amount of trade with US, it is very important not to lose ground on productivity.
Despite massive investment in computers, the rate of productivity growth is now lower than it was before computers
– possibly measures of productivity are not sensitive enough to detect growth in the area of services where most
of the growth has occurred
– perhaps gains in productivity are still building and may become apparent in the next few years
– perhaps information technology is not the boom to productivity that it was anticipated to be
– differences exist in the productivity between services and goods manufacturing sectors, with the services sector
showing slower growth
– differences also exist within specific industries
– agriculture is more productive internationally for Canada than steel or automobile production due to investment
in technology and superior natural resources
A more productive company:
– enjoys lower costs
– can pass on savings in reduced prices
– can obtain a competitive edge
– enjoys better stock prices
– can offer employee profit-sharing plans based on productivity-improvement
– can rely on productivity-planning to maintain a long-term market advantage
Important internal performance measure for operations
– Single factor measures are usually expressed in “useful” terms: output per man hour (labor), output per machine
hour (equipment), output per square foot of space (facilities), etc.
– Performance measures
– Planning factors
– For multiple measures, the most common approach is to use $ as common unit of measure for multiple inputs
– Output in $ / Input in $ => an index (just a number, no units)
– Can be used to track productivity changes from period
General Factors Affecting Productivity: Methods, Capital, Quality, Management , Technology.
Factors Affecting Productivity
– Standardization: quality differences distorts standardization and measurement.
– Quality: no simple way to incorporate
– Use of Internet: playing games on the internet and checking emails reduces productivity.
– Computer viruses: negative impact of productivity.
– Searching for lost or misplaced items: it wastes time and negatively affects productivity.
– Scrap rates: inefficient use or resources.
– New workers: decrease at first
– Shortage of IT workers
– Layoffs: decreases productivity
– Labor turnover: decrease productivity if it is high. – Design of the workspace: having tools within easy reach boosts productivity
– Incentive plans that reward productivity boosts productivity
Outputs = goods and/or services produced by the operations system (measured in units or $) Productivitytputs
– Single input/single factor (e.g., labor, materials, capital, time) partial measure
– Multiple input/multifactor (e.g., labor + materials, in $) multi factor
– All inputs/total factor (total system productivity, in $) total measure
Total Outputs - Total Inputs = Value Added
– Develop productivity measures and use them
– Focus on critical operations (bottleneck operations)
– Develop methods for productivity improvements
– Establish reasonable goals for improvement
– Make it clear that management supports productivity improvement. Consider incentives to reward workers.
– Measure and publicize improvements
– Don’t confuse productivity with efficiency, use capital and technology appropriately. It is a better use of
Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer
similar goods or services.
Organizations can compete in a variety of ways. The most common bases for competition are:
Price: customer will pay for the cheapest if products are equal. So producers lower costs of goods and services
Quality: design, material, workmanshi