Business Operations

Business operations refer to activities that businesses engage in on a daily basis to increase the value of the enterprise and earn a profit. The activities can be optimized to generate sufficient revenues to cover the expenses and earn a profit for the owners of the business. Employees help accomplish the business goals by performing certain functions such as marketing, accounting, manufacturing, etc.

Business Operations Imperatives

Business operations encompass three fundamental management imperatives that collectively aim to maximize value harvested from business assets (this has often been referred to as "sweating the assets"):

• Generate recurring income: This is the most straightforward and well-understood management imperative of business operations. The primary goal of this imperative is to implement a sustained delivery of goods and services to the business's customers at a cost that is less than the funds acquired in exchange for said goods and also self employee services—in short, making a profit. The funds directly acquired by the business in exchange for the goods and services it delivers is the business's revenue. The cost of developing, producing, and delivering these goods and services is the business's expenses. A business whose revenues are sufficiently greater than its expenses makes profit or income. Such a business is profitable. As such, generating recurring "revenue" is not the focus of operations management; what counts is management of the relationship between the cost of goods sold and the revenue derived from their sale. Efficient processes that reduce costs even while prices remain the same expand the gap between revenue and expenses and derive higher profitability. The Types of recurring income-
  • Long term sales contracts - monthly to yearly based contracts for a service and/or product; example - mobile phone contracts/plans.
  • Multiple revenue streams - different sources of business income that support each other; example - sell printers and toners.

• Increase the value of the business assets: The more profitable a business is, the more valuable it is. A business's profitability is measured on the basis of how much income it generates for the:
  • amount of assets its business operations employ — its business return.
  • amount of revenue it realizes — its business margin.

• Methods of increasing value
  • Growth strategies
    • Expand market: offer product or service to a wider section of an existing market or to a new demographic, psychographic or geographic market.
    • Develop brand: a recognised, respected and developed brand is highly valuable. Develop through research, design and marketing of companies name, logo and tagline.
  • Management systems
    • Show growth potential: create a business that has potential to be efficiently expanded. Example: developing an efficient business system and operating manuals allows the business to potentially be franchised or licensed.
    • Maintain intangible assets: Maintaining intangible assets can protect elements that add value to a business - patenting, copyrighting or trademarking anything believed to be an intangible asset.
    • Protect and maintain physical assets: protecting physical assets will also help protect the overall value, this can be done through: regular maintenance and insuring viable physical assets.

• Secure the income and value of the business:
  • Desirability or demand for its goods and services
  • Ability of its customers to pay for its goods and services
  • Uniqueness and competitiveness of its business model
  • Control exerted over the quality and efficiency of production activities
  • Public regard for the business as a member of the community
    

The three imperatives are interdependent. The following basic tenets illustrate this interdependency:

• The more recurring income an asset generates, the more valuable it becomes. For example, the products that sell at the highest volumes and prices are usually considered to be the most valuable products in a business's product portfolio.
• The more valuable a product becomes the more recurring income it generates. For example, a luxury car can be leased out at a higher rate than a normal car.
• The intrinsic value and income-generating potential of an asset cannot be realized without a way to secure it. For example, petroleum deposits are worthless unless processes and equipment are developed and employed to extract, refine, and distribute it profitably.

The business model of a business describes the means by which the three management imperatives are achieved. In this sense, business operations is the execution of the business model.

A business that can harvest a significant amount of value from its assets but cannot demonstrate an ability to sustain this effort cannot be considered a viable business.

See Also

Business Strategy
IT Strategy (Information Technology Strategy)
Business Operations
Business Model
Business Reference Model (BRM)
Business Process Model
Business Model Innovation
Business Capability
Business Architecture
Business Capability Modeling
Business Application
Business Activity
Business Objective
Business Mission
Business Vision
Business Value