Operations, technology and stakeholder value
Operations, technology and stakeholder value

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Operations, technology and stakeholder value

3.3 Business operations: a transformation process

The view that operations is the set of processes responsible for producing the organisation's intended outputs from an appropriate range of resource inputs can be represented very simply, as in Figure 2.

Figure 2: Basic transformation model

So, for example, at The Open University operations produces outputs such as course materials and marked assignments from resources that include paper and other materials, computers, academic knowledge, postal and electronic distribution systems.

A very large range of different inputs might well be involved in any given process, and it could be helpful to categorise them as in Table 1.

Table 1: Types of inputs to operations processes

Type of input Definition Examples for a printing process
Primary The resources that the process transforms directly Paper; Printing inks
Secondary The resources needed to facilitate the transformation of primary resources into outputs Printing machine; Operator; Energy to drive the machine; Finance to purchase other resources
Tertiary The information needed to plan, execute and control the use of primary and secondary resources so that the primary transformation can be carried out Know-how to operate the machine; Schedule of work for the operator/machine; Specification for the printing work

Activity 2

Choose an organisation on which to base the rest of the activities in this section. It could be the organisation where you work or another one with which you are familiar. Identify two processes that the organisation operates, together with their outputs. For each process, give one example of a primary, secondary and tertiary resource input.

The processes making up the operations function must be designed and executed in a way that is effective in delivering the desired outputs and efficient in the use of resources. The precise nature of the outputs (such as the quality of goods and services) is critical in determining customer satisfaction and therefore essential to maintain the income into the organisation. The way in which the outputs are produced (such as the efficiency of processing that determines the costs incurred by the organisation and the extent of waste production) is also critical to the profitability and viability of the enterprise. Figure 3 shows an expansion of Figure 2 to include additional elements.

Malholtra, MK and Sharma S (2002) Journal of Operations Management, Prentice-Hall International Limited ©
Malholtra, MK and Sharma S (2002) Journal of Operations Management, Prentice-Hall International Limited
Figure 3: Expanded transformation model

In this figure, products (primary outputs) are shown in terms of the value they provide to stakeholders (usually but not exclusively customers). Products must be designed to provide the benefits that customers want, not just what the suppliers think they want. But customers are not the only stakeholder group. Operations has many stakeholders, including the other business functions and senior management in the organisation. Different stakeholder groups are likely to have different perspectives of value, so operations typically must attempt to satisfy several potentially conflicting demands simultaneously, for example demands from customers for high-quality products and from owners and senior managers for reduced costs. Value is a surprisingly complex concept.

Figure 3 also shows the range of activities that is the province of operations, in the form of the traditional subdivisions of operations and the relationships between them.

A secondary output, waste and depleted resources, has been added. Examples include reject products, used secondary resources such as paper, machine oils, water, worn machines, tired staff. The inclusion of this secondary output in the figure demonstrates that no system can be 100 per cent efficient and that waste and degraded resources need to be considered in the management of operations processes. For example, targeting waste reduction might be a way to increase some aspects of stakeholder value.

Can you think of any other outputs from the process apart from the desired products and waste? Another category of output (tertiary outputs) that might be worth distinguishing is changed information or knowledge. As a result of the transformation process more is known. For example, as a result of comparing forecast demand with actual demand, more is learnt about the market place and the accuracy and usefulness of the forecasting techniques employed.

Figure 4 shows another modified version of the transformation process. As well as the tertiary outputs themselves, it has a feedback loop linking ‘outputs’ back to ‘inputs’ and the operations activities. This gives more emphasis to the feedback element, which is an extremely important part of any process and an integral part of the learning that needs to be built in to generate new knowledge about the process.

Figure 4: Transformation process with feedback loop

But even Figure 4 does not tell the whole story. Operations processes involve many different interfaces, internal and external to the organisation.

Examples of external interfaces include the following:

  • Operations sources components, materials, etc. from suppliers.

  • Operations supplies direct to the customer, and in the case of services probably interacts directly with the customer during service delivery.

  • Awareness of competitor activities is important, for example, to maintain competitiveness in process costs.

  • Operations may need to interact with external agencies such as regulators or trade associations over compliance with legislation or relevant codes of practice.

There are internal interfaces with all other business functions, for example:

  • Operations needs funds from finance for investment in new equipment.

  • Marketing provides direction for product improvement programmes.

  • IT supports control and information systems.

  • Recruitment and training of staff involves personnel or human resource management specialists.

  • Operations draws on R&D expertise for troubleshooting or new product development.

  • Operations must liaise with health and safety and environmental areas concerning compliance with regulations.

The list is almost endless. And all of this takes place in the context of the overall strategy of the organisation – the markets it serves and how it serves them; that is, the type of goods and services it aims to deliver, whether its main aim is to develop new business areas or to minimise costs, and so on. The organisation's culture and the management style also impact on operations processes. For example, does the organisation tend to be innovative, embracing new ideas and change easily, or is it rooted in traditional ways of doing things? Are management decisions taken consultatively, or is there a tendency to autocratic control?

A major influence from outside the organisation is of course the market place – the needs and wants of the customers that the organisation serves, and the other organisations providing broadly equivalent services or complementary products. Consequently, interfaces between operations and marketing are of particular importance. Similarly, links with suppliers are of vital importance and management of these interfaces forms an entire branch of management in its own right, closely allied with the operations function – supply chain management. The way an organisation conducts its business is likely to be influenced by the industry it belongs to. For example, in some industries it is the norm for organisations to manage the quality of their outputs according to the ISO 9000 standard and for customers to demand that their suppliers are registered/accredited to the standard, whereas in other sectors this is much less important.

In turn, industries are influenced by factors such as the general economic climate, sociological trends, technological change, and government interventions including legislation and regulation. Some of these macro-environmental factors have very significant effects on operations. For example, environmental legislation covering pollution control and waste management is a direct concern of many operations managers. Macro-environmental factors also influence the location of the organisation's activities. Factors such as government aid wage rates, energy costs, and the availability of a relevantly skilled workforce, for example, influence the attractiveness of countries for the location of all types of operations, from factories to call centres to R&D laboratories.

Figure 5 portrays this wider view of the operations transformation in its context.

Figure 5: The operations transformation in its context

This ‘complete’ picture of operations demonstrates both its criticality to the enterprise and the complexity associated with its management.

SAQ 2

At the start of Section 3, I presented arguments in favour of taking a process view of the organisation. To what extent do you feel that Figure 5 is consistent with this process view?

Answer

There does seem to be something of a paradox here. In showing the individual functions, and the need for operations to interface with these, the figure seems to represent more of a functional view of the organisation. To the extent that what goes on in the operations box is a set of processes designed to convert resources to outputs, however, the figure is consistent with the process view of the organisation. The important thing is to represent the entire process – all the activities required to deliver value to the customer and other stakeholders. Figure 5 is intended to show all the different types of activities that might need to be involved. Any representation of an actual process will identify activities from various functional pigeon holes.

The view of operations outlined above applies to all types of organisation – small and large, service and manufacturing, public and private sector – and the principles apply even to departments or other subdivisions within organisations. Table 2 provides some examples of operations tasks and processes – the resources that must be managed as inputs, the output goods and services, and the interfaces that must be managed internally and externally.

Table 2: Examples of operations transformations

Organisation or department Outputs to customer (internal or external) Input resources Operations processes Internal interfaces External interfaces
Printing services firm Printed materials. Paper; Ink; Computer-aided design equipment (hardware and software) and know-how to operate. Design of printed materials; Printing; Collation; Despatch and delivery. Finance/accounts department; Marketing/sales department. Materials suppliers; Equipment maintenance services.
Accounts department of large organisation Invoices; Payments; Receipts; Financial statements. Office supplies; Office equipment; Accounting expertise. Preparation of year-end accounts; Preparation of invoices; Receipt of payments. All other departments. Customers; Suppliers.
Cinema Entertained customer. Film; Ticket issue facilites. Film projection; Building and auditorium heating, lighting, etc.; Ticket validation. Box office; Finance. Film distributors; Catering/cleaning services.
Contract R&D company Technical and/or market information / knowledge presented as a written report; Patents; Other knowledge. Technical / market knowledge / skills; Research equipment and facilities; Finance; Materials; Energy. Client consultation; Research activities; Contract proposal writing; Report writing. Marketing / sales; Purchasing; Finance. Partners (collaborators in research activities); Suppliers; Clients.

SAQ 3

Read the case ‘A day in the life of Frederic Godé, Operations Manager, BonPain’, linked below. Then create another row in Table 2 to describe as fully as possible BonPain's bakery operations in terms of the column headings.

Click below (7 pages, 1.55MB)

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Answer

Table 3: BonPain operations

Organisation Outputs Input resources Operations processes Internal interfaces External interfaces
BonPain Bakery Frozen par-baked bread products Raw materials (ingredients); Baking/freezing (etc.) equipment; Know-how; Finance (including investment in new technology); Energy; Labour Mixing; Baking; Patisserie assembly; Freezing; Quality management Sales; Marketing (e.g. market forecasts, new business opportunities); IT (e.g. materials resource planning, enterprise resource planning systems); Human resources (e.g. RSI concerns and job design) Customers – supermarkets; Consumers; Suppliers (e.g. packaging supplier, equipment supplier)

Activity 3

Create two additional rows in this table to describe the operations of (a) the example organisation you chose for Activity 2, and (b) a department or division within this organisation.

It is possible to see an organisation as a hierarchy, or nest, of processes. The processes associated with a particular department (or other subdivision of the organisation) are one element of the processes or operations of the organisation as a whole. For example, a contract R&D company operates processes that include a variety of sales and marketing activities, contract preparation, laboratory-based R&D activities, patent and literature searching, report preparation, progress meetings with clients. Each one of these constituent processes can be represented as a single transformation process. Collectively, they make up the organisation in its entirety, as shown in Figure 6.

Figure 6: Hierarchy of operations processes in an R&D company

The principles of effective operations management can equally well be applied at the macro-level to the entire organisation or at the micro-level to individual departments or functions, or to a subset of processes, such as those forming the domain of an individual cell or team.

SAQ 4

Taking as examples the first three organisations or departments in Table 2, what is changed by the transformation process in each case? In other words, what is being processed?

Answer

Printing services firm – materials.

Accounts department – information.

Cinema – people (customers).

The transformation concept might have something of a static feel to it – the appropriate resources are gathered together, something is done to them (the process) and, hey presto, the desired outputs appear. Consideration of just what is changed during the transformation process (materials, information and/or people, as in SAQ 4), and how it changes, leads to a slightly different perception – the concept of flow. Materials, information and/or people flow through the process, starting in their raw state and changing, possibly in stages, as they are acted upon in some way during the process.

Consider, for example, the flow of materials in the manufacture and use of textiles, illustrated in Figure 7. Typically, yarn is woven (or knitted) into fabric, which is cut and manufactured into garments or other items, with a variety of possibilities for the re-use and recycling of process wastes and end-of-use products. The physical flow of materials through these various stages of processing is easily envisaged.

Figure 7: Material flow in the textile industry

Information flows also take place in a similar way: orders are placed, specifications drawn up and communicated, invoices raised, payments received, and so on. Figure 8 shows goods and information flows in a supermarket re-ordering system.

(Source: Womack and Jones, 1996, p. 46) ©
Womack, JP and Jones, DT (1996) ‘Tesco Reorder System’, Lean Thinking, Simon and Schuster UK Limited
Figure 8: Tesco re-order system

In service contexts, people need to be managed through a process from, in the dental surgery example, contacting the surgery for an appointment through to arrival for treatment, making a follow-up appointment, and so on. Lean thinking principles include a focus on the management of flow, to eliminate unnecessary waiting time and other hiccups that are sources of lost value in what should be overall a rapid and smooth process. The transformation process therefore needs to be designed, planned and controlled to make this flow as smooth and uninterrupted as possible.

The first step … is to focus on the actual object – the specific design, the specific order, and the product itself (a ‘cure’, a trip, a house, a bicycle) – and never let it out of sight from beginning to completion. The second step, which makes the first step possible, is to ignore the traditional boundaries of jobs, careers, functions (often organized into departments), and firms to form a lean enterprise removing all impediments to the continuous flow of the specific product or product family. The third step is to rethink work practices and tools to eliminate backflows, scrap, and stoppages of all sorts so that the design, order and production of the specific product can proceed continuously.

(Womack and Jones, 1996, p. 52)

I have placed a great deal of emphasis so far on the transformation model as the basis of an understanding of operations and operations management. This is consistent with ‘systems thinking’. The use of transformation models is a well-established approach to operations management. However, the detailed models are different in each case. If you do any further reading about the subject you will meet still other models of operations management. Models are exactly that – merely imperfect representations of a much more complex reality. They are designed to suit a particular purpose, and different models may be more or less useful in a different context.

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