Differentials in the Market Values

There is the ‘product mix’ the balance between various combinations of the same resources. As every businessman knows, differentials in the market values of these various combinations are rarely identical with the differential in the efforts that go into making up the combinations. Often there is barely any discernible relationship between the two. A company turning out the same volume of goods requiring the same materials and skills and the same total amount of direct and indirect labor, may reap fortunes or go bankrupt, dependent on the product mix. Obviously this represents a considerable difference in the productivity of the same resources – but not that shows itself in cost or can be detected by cost analysis.

Product mix is a combination of products manufactured or traded by the same business house to reinforce their presence in the market, increase market share and increase the turnover for more profitability. Normally the product mix is within the synergy of other products for a medium size organization. However large groups of Industries may have diversified products within core competency.

One of the realities of business is that most firms deal with multi-products. This helps a firm diffuse its risk across different product groups/Also it enables the firm to appeal to a much larger group of customers or to different needs of the same customer group.
The number of products carried by a firm at a given point of time is called its product mix. This product mix contains product lines and product items. In other words it’s a composite of products offered for sale by a firm.

There is also an important factor which can be called “process mix”.

Process-focused production systems produce many non-standard products in relatively small batches that flow along different routes or paths through the production facility and require frequent machine change over. Such production systems are also known as intermittent production systems or job shops.

In such productive system, the departments or work centers are organized around the type of equipments or operations (e.g. drilling, welding, soldering etc). Products flow through work center in batches corresponding to individual customer orders or batches of economic batch quantities in produce – to stock situations.

Is it more productive for a company to buy a part or to make it, to assemble its product or to contract out the assembly process, to market under its own brand name through its own distributive organization or to sell to independent wholesalers using their own brands? What is the company good at? What is the most productive utilization of its specific knowledge, ability, experience, reputation?

Not every management can do everything, nor should any business necessarily go into those activities which are objectively most profitable. Every management has specific abilities and limitations. When ever it attempts to go beyond these it is likely to fail, no matter how inherently profitable the venture. People who are good at running a highly stable business will not be able to adjust to a mercurial or a rapidly growing business. People who have grown up in a rapidly expanding company will, as everyday will, as everyday shows, be in danger of destroying the business should it enter upon a period of consolidation and rest. People good at running a business with a foundation in long range research are not likely to do well in high pressure selling of novelties or fashion goods. Utilization of the specific abilities of the company and its management, observance of their specific limitations, is an important productivity factor.

Finally, productivity is vitally affected by organization structure and by the balance between the various activities within the business. If, for lack of clear organization, managers waste their time trying to find out what they are supposed to do rather than doing it, the company’s scarcest resource is being wasted. If top management is interested only in engineering (perhaps because that’s where all the top men came from) while the company needs major attention to marketing, it lacks productivity; and the end result is likely to be more serious than a drop in output per man hour.