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UvA BOP complete summary
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This is the complete summary for the course Business Operations and Processes offered at the University of Amsterdam.
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BOP endterm summaryChapter 1: Operations management
The three core functions of any organization:
- Marketing function; responsible for communicating the organization’s products and services to its
markets in order to generate customer requests for service.
- Product/service development function; responsible for creating new and modi ed products and services
in order to generate future customer requests for service.
- Operations function; responsible for ful lling customer requests for service through production and
delivery of products and services.
In addition, there are several support functions, such as the accounting and nance function.
Operations management is the activity of managing the resources which produce and deliver products
and services. The operations function is the part of the organization that is responsible for this activity.
Every organization has an operations function because every organization creates some types of services
and/or products and uses resources to do so. So the organization is either small or large, service or
manufacturing, public or private, pro t or non-pro t. Operation managers are the people who have
particular responsibility for managing some, or all, of the resources which compose the operations function.
Large companies have the resources to appoint individuals to specialised tasks, but smaller companies
often do not have these resources so people may have to do di erent jobs as the need arises. Such an
informal structure can allow the company to respond quickly as opportunities or problems present
themselves.
Operations management is also necessary in non-pro t organizations because operations have to take the
same decisions. However, the strategic objectives may be more complex and involve a mixture of political,
economic, social or environmental objectives. Because of this, there may be a greater range of operations
decisions being made under conditions of con icting objectives.
All operations produce products and services by changing inputs into
outputs using an ‘input-transformation-output’ process. This is
illustrated in the transformation process model. Put simply,
operations are processes which take in a set of input resources that
are used to transform something, or are transformed themselves, into
outputs of products and services.
There are two kinds of input resources:
- Transformed resources; the resources that are treated, transformed or converted in the process.
For instance materials (manufacturing operations), information (accountants) and customers
(hairdressers).
- Transforming resources; the resources which react upon the transformed resources. There are two types
which form the ‘building blocks’ of all operations: facilities and sta .
Some services do not involve products (so tangible things) while some operations create and deliver just
services and others just products. However, most operations combine both elements.
An important input to operations for many organizations are customers. Therefore, operations managers
should be aware of customers’ needs, both current and potential. This information will determine what the
operations has to do and how it has to do it which in turn de nes the service/product o ered.
All operations consist of a collection of processes interconnecting with each other to form a network. Each
process acts as a smaller version of the whole operation of which they form a part, and transformed
resources ow in between them. A process is an arrangement of resources and activities that transforms
inputs into outputs which satisfy customer needs. So, any operation is made up out of a network of
processes and any process is made up out of a network of resources. Also, any operation could have
several suppliers and several customers, and it may be in competition with other operations that create
similar products or services. This network of operations is called the supply network. In this way, the
‘input-transformation-output’ model can be used at di erent levels of analysis (process, operation and
supply network). This idea is called the hierarchy of operations. For example; (1) a video company
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, consisting of a promotion agency and a program/video maker (—>supply network), (2) the program/video
department consisting of engineering, nance and the set up of props (—> operation), and (3) the set up of
props consists of the set construction and the props acquisition (—> process).
Operations management is relevant for all functions, and all managers should learn something from the
principles, concepts, approaches and techniques. It also means we must distinguish between 2 meanings:
- Operations as a function, meaning that it is a part of the organization which creates and delivers services
and products for the organization’s external customers.
- Operations as an activity, meaning the management of processes is within any of the organization’s
functions.
Although all operations processes are similar in that they all transform inputs, they di er in four ways (the
four V’s):
- The volume of their output; the repeatability of the tasks people are doing and the systemisation of the
work where standard procedures are set down specifying how each part of the job should be carried out.
For instance, a Michelin restaurant versus McDonald’s.
Low volume means less repetition, less systemisation and higher unit costs.
- The variety of their output; must be relatively exible. For instance, a taxi driver versus a city-bus.
Low variety means routine, standardized, well de ned and low unit costs.
- The variation in the demand of their output; means that the operation must change its capacity in some
way. For instance, a restaurant at the beach needs to hire extra sta in the summer.
Low variation means stable, predictable, high utilisation and low unit costs.
- The degree of visibility which customers have of the creation of their output; means how much of the
operation’s activities its customers experience, or how much the operation is exposed to its customers.
For instance, a ve-star hotel with a lot of customer contact versus a cheap hostel.
Low visibility means time lag between production and consumption, low contact skills, high sta
utilisation and low unit costs.
Although the activities of operations managers, to some extent, depend on the way an organization de nes
the boundaries of the function, we can classify operations management activities under four headings:
- Directing the overall strategy of the operation.
- Designing the operation’s resources and processes.
- Planning and control process delivery.
- Developing process performance.
Chapter 2: Operations performance
Operations management can either ‘make or break’ any business because it can signi cantly a ect
pro tability. Operations management can ‘make’ it in several ways:
1) It is concerned with doing things better which can potentially make operations the driver of
improvement for the whole organization
2) It can build the ‘di cult to imitate’ capabilities that can have a signi cant strategic impact.
3) It is very much concerned with how things are done (the processes) which is linked to outcome.
There are three levels of operations performance:
1. Societal level - operations sustainability (people, planet, pro t)
2. Strategic level - operations strategic impact (risk, learning, capital, revenue, cost)
3. Operational level - operations performance objectives (quality, speed, dependability, exibility, cost)
(1) Societal level
No operation exists or performs in isolation. The decisions made within any operation and the way it goes
about its day-to-day activities will a ect a whole variety of stakeholders. These are the people and groups
that have a legitimate interest in the operation’s activities. Some stakeholders are internal and others are
external. So, in any kind of operation it is a responsibility of the operations function to understand the
objectives of its stakeholders and set its objectives accordingly. Of all stakeholder groups, the
organization’s top management has the most immediate impact on performance.
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, The idea that operations should take into account their impact on a broad mix of stakeholders is often
called corporate social responsibility (CSR). With CSR, businesses take into account economic, social
and environmental impacts on the way they operate.
A common term trying to capture the idea of a broader approach to assessing an organization’s
performance is the triple bottom line. This is the idea that organizations shouldn’t measure themselves by
the traditional economic pro t approach but also by the impact that their operations have on society:
- The social bottom line (people); measured by the impact of the operation on the quality of people’s life.
For example: repetitive work, sta safety and non-exploitation of developing country suppliers.
- The environmental bottom line (planet); measured by environmental impact of the operation. For
example: recyclability of materials, reducing energy, noise pollution and wastage.
- The economic bottom line (pro t); measured by pro tability, return on assets, etc. For example: cost of
production, revenue, e ectiveness of investments and building future capabilities.
(2) Strategic level
Many of the activities of operational managers deal with relatively
immediate, detailed and local issues. However, the type of
decisions that operations managers make can have a signi cant
strategic impact. Therefore, it one is assessing the performance of
the operations function it makes sense to ask how it has an
impact on the organization’s strategic economic position. At a
strategic level, it contributes to the economic aspect of the bottom
line in ve aspects: (1) costs, (2) revenue, (3) the required level of
investment, (4) the risk of operational failure, and (5) the ability to
build the capabilities on which future innovation is based.
(3) Operational level
You want to do several things right in order to satisfy your customers and contribute to competitiveness.
Therefore, there are ve performance objectives:
- Quality; doing things right. Internally, quality reduces cost and increases dependability. There are two
common meanings to quality: quality as the speci cation of a product/service (it is good) or quality as the
conformance with which the product/service is produced.
- Speed; being fast. Internally, speed reduces inventories and reduces risk.
- Dependability; being reliable. Internally, dependability saves time and money, and it gives stability.
- Flexibility; being able to change. Internally, exibility speeds up response, saves time and maintains
dependability. There are four di erent types of exibility:
• Product/service exibility; the products/services it brings to the
market.
• Mix exibility; the mix of products/services it produces at any
one time.
• Volume exibility; the volume of products/services it produces.
• Delivery exibility; the delivery time of its products/services.
- Cost; being productive. Costs can be kept down through high
productivity. Partial measures of input and output are used so that
comparisons can be made. One obvious way to improve productivity
is to reduce the costs of its inputs while maintaining the level of its
outputs.
Productivity = output from the operation / input of the operation
Single-factor productivity = output from the operation / one input of the operation
Multi-factor productivity = output from the operation / all inputs of the operation
A useful way of representing the relative importance of the ve performance objectives
for a product/service is through the use of polar diagrams. The closer the line is to the
common origin, the less important is the performance objective to the operation. They
can also be used to indicate the di erence between products and services produced
by an operation or process.
There are trade-o s. There is an ‘e cient frontier’ view of trade-o s. If the organization is not on the
e cient frontier, the organization will go bankrupt. In the gure on the left, A B C D are all equal to one
another (there is not one superior organization, they just have di erent strategic positions). However, all
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, company under the e cient frontier like X are inferior. Companies can
also increase the operations’ e ectiveness and, in that case, the
e cient frontier will move outwards. This continuously happens so all
companies must continue to improve, otherwise they will fall behind.
The pitfall is that organizations try to improve without clear strategic
choices, instead they try to serve all customers. Operations will be
ine cient and the company would be ‘stuck in the middle’.
For example, Amazon and a local book store would compete on exibility and speed in the trade-o
diagram.
Chapter 3: Operations strategy
Strategy means setting broad objectives that direct an enterprise towards its long-term and overall goal. It
deals with the total picture rather than stressing individual activities. Strategy is important because running
a business without competitive strategy will result in competitions copying your best practices, so they will
become just as good as you. Having an imperfect strategy is always better than having no strategy.
Operations strategy concerns the pattern of strategic decisions and actions that set the role, objectives
and activities of the operation. Operations are the resources that create products/services. ‘Operational’ is
the opposite of strategic, meaning day-to-day and detailed.
Most businesses expect their operation strategy to improve operations performance over time. In doing
this, they should be progressing from a state contributing very little to the competitive success of the
business to the point where they are directly responsible for it competitive success:
- Implementing business strategy; the most basis role of operations. Without e ective implementation,
even the most original and brilliant strategy will be rendered totally ine ective.
- Supporting business strategy; goes beyond simply implementing strategy. It means developing the
capabilities which allow the organisation to improve and re ne its strategic goals.
- Driving business strategy; gives the organization a unique and long-term advantage.
Professors Hayes and Wheelwright developed a four-stage model
which can be used to evaluate the role and contribution of the
operations function:
• Stage 1: Internal neutrality
The poorest level of contribution by the operations function. It
is holding the company back from competing e ectively. It is
inward looking and, at best, responsive to very few positive
things that could contribute to competitive success. It
attempts to improve by ‘avoiding making mistakes’.
• Stage 2: External neutrality
The rst step of breaking out of of the rst stage is for the operations function to begin comparing
itself with similar companies in the outside market. It is measuring itself against its competitors’
performance and trying to implement the ‘best practice’.
• Stage 3: Internally supportive
Stage 3 operations are among the best in their market. Yet, they still aspire to be clearly and
unambiguously the very best in the market. They achieve this by gaining a clear view of the
company’s goals and supporting those by developing appropriate operations resources.
• Stage 4: Externally supportive
The last stage is when the company views the operations function as providing the foundation for
its competitive success.
You can look at operations strategy from four di erent perspectives:
- Top-down; decisions made by the board form the operations strategy, so the strategy is what the
business wants operations to do.
- Bottom-up; what day-to-day experience suggests operations should do, so what employers or managers
see.
- Market requirement; what the market position requires the operations to do.
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