Page 20 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes There are two basic types of competitive advantage a firm can possess: low cost or differentiation.
The two basic types of competitive advantage combined with the scope of activities for which a
firm seeks to achieve them, lead to three internally consistent generic competitive strategies.
These strategies are:
1. Cost Leadership: 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.
2. Differentiation: In a differentiation strategy, a firm seeks to be unique in its industry
along some dimensions that are widely valued by buyers. It selects one or more attributes
that many buyers in an industry perceive as important, and uniquely positions itself to
meet those needs. Differentiation will cause buyers to prefer the company's product/
service over brands of rivals. An organization pursuing such a strategy can expect higher
revenues/margins and enhanced economic performance.

3. Focus Strategies: The generic strategy of focus rests on the choice of a narrow competitive
scope within an industry. The focuser selects a segment or group of segments in the
industry, or buyer groups, or a geographical market and tailors its strategy to serving
them to the exclusion of others. The attention of the organization is concentrated on a
narrow section of the total market with an objective of catering to service buyers in the
target niche market. The idea is that they will do a better job than the rivals, who service
the entire market. Each functional policy of the organization is built with this in mind.

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Caution The third type of competitive strategy, focus strategy, has two variants-cost focus
and differentiation focus. These strategies can be used by the organization to outperform
competition and defend its position in the industry.

1.7.1 Factor Productivity

Labour Productivity
Labour productivity is a single factor productivity measure (relating a measure of output to a
single measure of input). Labour productivity is the quantity of output produced by one unit of
production input in a unit of time. Average economic productivity is computed by dividing
output value by (time/physical) units of input. If the production process uses only one factor
(e.g., labour) this procedure gives the productivity of that factor, in this case, labour productivity.

Multiple Factor Productivity
Labour Productivity is only based on observations of volume product outputs and inputs for
labour. While the example illustrates the method for calculating productivity, it did not consider
that most operations have more than one input and more than one output. In an economic sense,
the inputs are:
1. Labour as managers, workers, and externally purchased services,
2. Capital for land, facilities, and equipment, and

3. Materials, including energy requirements.
The importance of these factors may vary widely for companies producing different products.
Multiple factor productivity accommodates more than one input factor and more than one
output factor when calculating overall productivity. With multiple factor productivity, the

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