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

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Operations, technology and stakeholder value

3.2 Business operations: function or process?

Traditionally, an enterprise's activities are organised according to a structure based on the well-known business functions: marketing, purchasing, finance, human resources, research and development (R&D), operations, and so on. The exact function title varies from organisation to organisation, but each function has its own more or less well-defined sphere of activity. It carries out its various tasks and passes on information or artefacts to other functions for them to work on. For example, marketing provides the demand forecasts that operations then plans to fulfil, while finance provides the costing information that product design uses to cost a new product. The traditional view of operations is to consider it as the function responsible for the fulfilment of customer requirements. Strategists decide what will fulfil customers' needs, marketers are responsible for determining customer needs and communicating with customers, but it is operations that must make sure customers actually get the goods and services. The rationale for organisation on these lines is that each function requires specialist knowledge and skills that it is unrealistic to expect any single unit of the organisation to possess, and without which the various activities could not be undertaken with the required degree of competence. Problems with this approach lie in the discontinuities that tend to occur at the interfaces between functions. The tendency is for each function to act in relative isolation from the other.

In industry, it's known as a ‘throw things over the wall’ model. And a lot of firms are still working that way. You have a problem and you give it to engineering to solve. Then they throw the solution over the wall to industrial design who is supposed to make it pretty. And then they throw it over the wall to manufacturing and they tear their hair out figuring out how to produce it at a profit. Then they throw it over the wall to marketing who has to create a demand. Then sales gets it and they say, ‘Oh, my god, how are we going to sell this?’

(Bally, quoted in Czetli, 1999)

The alternative view is the so-called process view of the organisation. This is claimed to have benefits over the traditional functional view because it focuses on what needs to happen to satisfy the customer, irrespective of whether the tasks involved are the responsibility of marketing or operations or finance or some other function. Analysis of business processes, rather than functions, allows identification and elimination of wasteful practices, those that do not ‘add value’ (i.e. contribute to the benefits perceived by the customer), and the entire system can be optimised to produce the desired outputs from the customer's point of view. This often requires radical redesign of the way things are done and is the essence of lean thinking and business process re-engineering concepts. Figure 1 illustrates how different functions contribute to a single business process in a contract R&D company.

Figure 1
Figure 1 Example of cross-functional business process in a contract R&D company. The extent of shading represents extent of involvement in each activity

Functions still have a role under the process view of the organisation, as the following quote illustrates.

The problem with functions in most companies today is that they perform the wrong tasks. Purchasing should not purchase. Engineering should not engineer. Production should not produce. In the lean enterprise, functions have two major roles. The first is to serve as a school. They should systematically summarize current knowledge, search for new knowledge, and teach all this to their members, who then spend time on value-creating process teams …

The second role of functions is to develop guidelines – the best practices – for, say, purchasing or marketing and to draw up a roster of those companies eligible to be long-term partners in the value stream …

So who actually performs the tasks that these functions traditionally handled? Cross-functional product-development and production teams should select suppliers, develop products, and oversee routine production activities. The traditional purchasing department, for example, should define the principles of enduring relationships with suppliers, draw up the roster of eligible suppliers, and strive to improve continuously the performance of every supplier. The product-development team should perform the purchasing department's traditional job of deciding to obtain a specific amount of a specific item at a target price from a specific supplier for the life of the product.

(Womack and Jones, 1994, pp. 99–100)

Self-assessment Question (SAQ) 1

Identify one benefit and one drawback of cross-functional development or production teams dealing with their suppliers in the way Womack and Jones describe in the above quote.

Answer

Benefit. The cross-functional team is best placed to make judgements on the suitability of particular suppliers for the purpose they intend. For example, trade-offs between the cost and quality of the supplied service or component are better judged by the team closest to, and directly responsible for, production than by the purchasing department.

Drawback. The ability to draw on past experience of supplier reliability, etc. may be limited in the cross-functional team, whereas the purchasing department has greater knowledge of previous experiences across the organisation. Effective sharing of information between the purchasing department and the cross-functional team is vital to avoid or mitigate this sort of drawback.

In summary, an organisation's business operations can be considered as a set of specifically configured processes that convert a variety of resources (such as materials, components, finance and the effort of the people involved) into products (goods and services) delivered to customers. These processes are made up of activities that may be carried out by various functions or departments or other divisions of the organisation, or by cross-functional teams.

A process can be defined as follows:

a group of resources and activities which add value by turning specific inputs into outputs.

(Slack et al., 2003, p. 102)

This is the basis of the transformation model of operations, which is the subject of the next section.

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