Chapter 2
Strategy, Operations, and
Global Competitiveness
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Introduction
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General Motors
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Highly competitive automobile Industry
Market share eroding
Rebate strategy
Weakness in product offerings (8
brands) Toyota (2 brands)
Long lead time to redesign
What is a sustainable market share?
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Flat Panel TVs
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Large profit margins ($8 billion 2004)
Asian manufacturers (LG Electronics
and Royal Philips, Sony and Samsung,
and Matsushita)
North America’s Dell
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American Steel Industry
(Nucor)
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Only domestic steelmaker to remain
profitable.
Nucor pursued unique strategies
relative to other major players.
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Minimills used electric arc furnaces.
Implementing strip casting, new
production process that should require
little additional processing.
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Examples Illustrate
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Shortage of employees often necessitates
need to improve productivity.
Increased competition (especially foreign
competition) another reason why
companies seek to improve their
productivity.
Improving productivity is often dependent
on new technologies.
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Top Management
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Responsible for making and keeping
organization competitive.
Develops business strategy
 provides direction and vision
 guides short- and long-term decisions
 must consider international competition
All functional areas and business processes
must support the business strategy.
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Business Strategy
A set of well defined objectives, plans,
and policies for the organization to
successfully compete in its markets,
domestic and global.
The business strategy needs to be
divided into functional strategies,
throughout the organization, that are
aligned and support the overall
business strategy.
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Global Competitiveness
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Long-term viability of a firm
Short-term success in terms of market
share or profitability
Since 1970s, imports to the US have
grown faster than exports from the US
US is biggest debtor nation in world
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The United States’ Merchandise Trade
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Exchange Rates
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US competitiveness reflected in value
of dollar relative to other currencies
As US increases its imports relative to
its exports, a surplus of US dollars
accumulates abroad reducing the
desirability of holding US dollars
Price adjusted broad dollar index
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Purchasing Power of the Dollar
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Implications of Exchange Rate
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A large value of the price adjusted
broad dollar index indicates a strong
dollar making it easier for Americans to
afford imports.
A weaker value of the price adjusted
broad dollar index makes American
products more competitive in foreign
markets.
Economic relationship can be
mediated by government actions.
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International Markets and Producers
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Three Major Trading Regions
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Europe
North America
Pacific Rim
Previously firms classified as domestic,
exporters, or international
Now have global firms, joint ventures,
foreign subsidiaries
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Three Major Trading Regions
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Reasons to Produce Offshore
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Circumvent governmental regulations
Avoid effects of currency fluctuations
Avoid fees and quotas
Placate local customers
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Generating New Product Ideas
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Research and Development (R & D) primarily
responsible for developing new product
ideas.
Research is divided into two types: pure and
applied.
Pure research is working with basic
technology to develop new knowledge.
Applied research is attempting to develop
new knowledge along particular lines.
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R & D Con’t
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Development is the attempt to utilize
the findings of research.
The development end of R & D is more
on the application side and often
consists of modifications or extensions
to existing outputs.
Currently the development effort is
much larger than the research effort.
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Alternatives to Research
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Imitation of a proven idea (second-tomarket strategy).
Purchase of someone else’s idea.
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Outright purchase is becoming extremely
popular where bring a new product to
market can cost huge sums.
In addition to product research there is
also process research (i.e. how to
produce research).
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Disruptive Technologies
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An example of a disruptive technology
currently playing out is the impact that
the Web is having on graduate
business education.
e-mail
Computers in the classroom
Using the Web at work to shop
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Commercialization
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Refers to the process of moving an
idea from concept to market.
Shorter life cycles.
Increasingly competitive marketplace.
Globalization.
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Measures of Commercialization
Capabilities
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Time to market
Range of markets
Number of markets
Breadth of technologies
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Measures of Commercialization
Capabilities
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Once appropriate measures for
assessing commercialization have
been established, organizations can
begin working toward improving them.
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Make commercialization a top priority
Set goals and benchmarks
Build cross-functional teams
Promote hands-on management
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Transformation Process Characteristics
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Six primary characteristics of the
transformation system:
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Efficiency
Effectiveness
Capacity
Quality
Response time
Flexibility
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Supply Chain Management
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Cost of labor decreasing
Cost of logistics becoming more
significant
Total value chain of global production
Coordination
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Information flows
Finding efficient suppliers
Identifying and evaluating transportation
options
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New Technologies
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ERP
EDI
Bar coding
Internet
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Formulating the Business
Strategy
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Strategy Formulation
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Strategy Map for Department Store
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Vision and Mission Statements
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Vision statements used to
express organization’s values
and aspirations.
Mission statements express
organization’s purpose or
reason for existence.
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Core Competencies
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Collective knowledge and skills an
organization has that distinguish it from
the competition.
Typically center on an organization’s ability
to integrate a variety of specific
technologies and skills in the development
of new products and services.
Building blocks of core capabilities.
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Core Competencies continued
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Are basis on which new outputs are
developed.
Better to think of organization in terms of
its portfolio of core competencies than as
a portfolio of products.
Identifying and developing core
competencies is one of top management’s
most important roles.
Organization practices and business
processes
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Examples of Core Competencies
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Sony - miniaturization
3M- knowledge of substrates, coatings
and adhesives
Black and Decker - small electrical
motors and industrial design
Honda - engines and power trains
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Core Competencies Used to Gain
Access to Variety of Markets
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Cannon
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core competencies in optics, imaging, and
electronic controls
Products include copiers, laser printers,
cameras, and image scanners.
Boeing
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integrating large scale systems
commercial jetliners, space stations,
missiles
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Key Characteristics of Core
Competencies/Capabilities
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Should be used to gain access to a
variety of markets
Should be strongly related to key
benefits provides by products or
services
Should be difficult to imitate
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Outsourcing
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Subcontracting out production of parts
or performance of activities
Activities and parts fall on a continuum
ranging from strategically unimportant
to strategically important
Activities not strategically important
are candidates to be outsourced
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Strategically Important Parts or
Activities
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Strongly related to what customers
perceive to be key product characteristics.
Require highly specialized skill and
knowledge.
Require highly specialized physical assets
The organization has the technological
lead or is likely to obtain it.
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Hollowed Out
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The extent that most of a firm’s
complex parts and production are
outsourced
Often when complex parts outsourced,
engineering talent follows
Supplier may become competitor
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Creeping Breakeven Phenomenon
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Vicious cycle where products appear
to become more expensive to produce
in-house as others are outsourced.
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Result from way overhead is allocated
Logical conclusion is organization
ends up producing no outputs.
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Business Strategy and the
Product Life Cycle
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The Life-Cycle Curve
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Product Life Cycle
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Strategies often tied to product life
cycle
Length of life cycles shrinking
Business strategy should match life
cycles stages
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Categories of Business
Strategies
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First-to-Market Strategy
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Products available before competition
Strong applied research capability
needed
Can set high price to skim market or
set lower price to gain market share
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Second-to-Market Strategy
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Quick imitation of first-to-market
companies
Less emphasis on applied research
and more emphasis on development
Learn from first-to-market’s mistakes
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Cost Minimization or Late-to-Market
Strategy
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Wait until market becomes standardized
and large volumes demanded
Compete on basis of costs instead of
product features
Research efforts focus on process
development versus product
development
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Market Segmentation
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Serving niche markets
Applied engineering skills and flexible
manufacturing processes needed
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The Balanced Scorecard
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Helps translate mission and strategy into
appropriate performance measures.
Traditionally organizations relied primarily on
financial measures.
No single set of measures can provide information
needed in all critical areas of the business.
Purpose of balanced scorecard the development of
a set of measures that provides a comprehensive
view of the organization.
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Benefits of Using Balanced Scorecard
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Clarify and gain consensus of strategy
Mechanism for communicating strategy
Mechanism for aligning departmental
and personal goals to the strategy
Help ensure strategic objectives are
linked to annual budget
Timely feedback related to improving
the strategy
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Performance Measured in Four Areas
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Financial Performance
Customer Performance
Internal Business Process
Performance
Organizational Learning and Growth
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Developing a Balanced Scorecard
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Top management translates mission and
strategy into specific customer and financial
objectives.
Measures for internal business processes
developed on basis of customer and financial
objectives.
Investments in employee training and
information technology linked to customer,
financial, and internal business process
objectives.
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Focus
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Goal of business strategy is to
establish and maintain a unique
strength, or focus that leads to a
sustainable competitive advantage.
Two successful competitive positions
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lowest cost
outstanding strength
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Common Areas of Focus
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Innovation
Customization
Product/service
flexibility
Volume flexibility
Performance
Quality
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Product/service
reliability
Delivery reliability
Response
After-sale service
Price
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Order Qualifiers and Winners
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Order qualifiers are
characteristics that
are the ante to
enter the market
Order winners are
characteristics that
win the customer’s
purchase
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Loss of Focus
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New outputs
New attributes
New tasks
Departmental
professionalism
Ignorance and
noncommunication
Life cycle changes
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Product Life Cycle Stages and Emphasis
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Strategic Frameworks
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The Sand Cone Model
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Example Performance Frontier
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New Technology Results in Shift of
Performance Frontier
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Stages of Operational Effectiveness
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Internally Neutral
Externally Neutral
Internally Supportive
Externally Supportive
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Critical Value Factors
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Quality – affects a business unit’s
competitive ability
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Customers are more pleased with high
quality product or service
Refer friends
Repeat business
Protect firm from competition
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Critical Value Factors con’t
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Customization – refers to offering a product
or service suited to a customer’s desires or
needs.
Flexibility
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Faster matches to customers’ needs
Closer match to customers’ needs
Ability to supple items when needed
Faster design to market
Lower costs of changing production
Ability to offer full product line
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Mass Customization
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Seek to produce low-cost, high-quality
outputs in high variety.
Not all products lend themselves to
being customized (Ex. Sugar, gas,
electricity, and flour).
Is applicable to products characterized
by short life cycles, rapidly advancing
technology, or changing customer
requirements.
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Four Mass Customization
Strategies
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Collaborative customizers
Adaptive customizers
Cosmetic customizers
Transparent customizers
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Collaborative Customizers
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These organizations establish a dialogue to
help customers articulate their needs and then
develop customized outputs to meet these
needs. For example, one Japanese eyewear
retailer developed a computerized system to
help customers select eyewear. The system
combines a digital image of the customer's face
and then various styles of eyeware are
displayed on the digital image. Once the
customer is satisfied, the customized glasses
are produced at the retail store within an hour.
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Adaptive Customizers
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These organizations offer a standard
product that customers can modify
themselves such as closet organizers.
Each closet-organizer package is the
same, but includes instructions and
tools to cut the shelving and clothes
rods so that the unit can fit a wide
variety of closet sizes.
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Cosmetic Customizers
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These organizations produce a standard
product but present it differently to
different customers. For example,
Planters packages its peanuts and
mixed nuts in a variety of containers on
the basis of specific needs of its retailing
customers such as Wal-Mart, 7-Eleven,
and Safeway.
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Transparent Customizers
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These organizations provide custom
products without the customers’
knowing that a product has been
customized for them. For example,
Amazon.com provides book
recommendations based on
information about past purchases.
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Dependability and Speed
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The competitive advantages of faster,
dependable response to new markets or to
the individual customer's needs have only
recently been noted in the business media.
Americans spend more time and money on
marketing, whereas the Japanese spend five
times more than the Americans on
developing more efficient production
methods.
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Relationship Between Response
Time and Unit Cost
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Cost and Productivity
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Operational activities play a major role in
determining the cost of a product or service,
particularly during the up-front design for the
output.
It is worth noting that cost to the producer
and price to the customer are two very
different factors.
It is always to the producers’ advantage to
keep their absolute costs as low as possible.
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Productivity
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A special measure of efficiency defined as output per
worker-hour.
This definition of productivity is actually what is
known as a partial factor measure of productivity, in
the sense that it considers only worker-hours as the
productive factor.
For a society to increase its standard of living, it must
first increase its productivity.
Be careful, however, not to focus solely on
productivity as the problem, but rather, to consider
overall competitive ability.
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