Definition of 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.
Role of Business Operations
Essentially, business operations serve two purposes within your organization.
- First, they serve as a guide for your company.
- Second, they are a fail-safe, limiting your risks and helping your operation to avoid problems.
For example, effective business operations can facilitate cooperation between the different departments in your company and can also make it easier for your organization to stick to its budget. When you're putting your business operations as defined in your business plan into practice, there are numerous variables to consider.
Let's assume, for example, that your company is focused on manufacturing products. The length of your company's supply chain will depend on the type of product that your company manufacturers, and the number of employees you hire will depend on the automation of your manufacturing process. If you intend to sell your products in physical stores, you will need to be sure to choose the right location for your business so that you can avoid onerous regulations while optimizing sales. On the other hand, if you plan to offer your products solely online, you will need to invest in the right software. The decision where to sell your products is one of many factors that will impact your organization's business operations.
As your business expands, it's likely that your business operations will undergo several changes. For example, in small companies, one employee may be responsible for a range of duties, but in a larger organization, this simply isn't practical. Ideally, your organization's business operations will evolve with your company. If your business operations are static, you will typically experience issues that will negatively impact the long-term success of your organization. If one person in your company has too many responsibilities, for example, they will inevitably make mistakes that will influence the entire organization.
When mistakes occur in an organization due to ineffective business operations, there tends to be a domino effect that can be disastrous for your company. Every department in your company should be continually adjusting business operations to account for the growth of the organization. Your operations' efficiency, or lack thereof, will be the determining factor when it comes to your business's success. The main point of the processes you use in your company is to increase the value of your organization. To increase your company's value, you need to consistently make a profit. If the income that your company generates is more than the money that has been invested into your business, you have turned a profit and your value will increase.
Business Operations Functions
When you first think of business operations, you might think of the simple items or tasks that are completed on a day to day basis by the employees of the company. While these items are general business operations, there is a bigger picture and understanding the key functions to that are critical to the stability and profitability of the business. While these items are general business operations, there is a bigger picture and understanding the key functions to that are critical to the stability and profitability of the business. All functional areas must link together to achieve the overall aims and objectives. This means cooperation and good communications.
- Accounting: The primary role of accounting consists of:
- Measuring and summarizing business activities,
- Interpreting financial information, and
- Communicating the results to management and other decision makers.
- Finance: Often overlapping with accounting, the finance function of a business helps to provide resources and planning for resources to help operate and expand the business. Tasks include:
- Raising Financial Capital
- Tax Compliance
- Safeguarding Company Assets
- Production & Operations: The production and operations function of a business has one overarching goal - to use company resources to efficiently produce goods and services that their customers want. Production management handles the process of incoming materials, to the production process, what’s going out the door, and the feedback from the customer. This helps them make the necessary adjustments to fit the customers needs.
- Marketing: The marketing function is two-fold:
- Help the business identify potentially successful products, and then
- Promote those products
- Tasks would include:
- Creating a marketing plan
- Customer Service
- Public Relations
- Sales: While the function of sales may seem obvious, there is more to it than just handing over a product and receiving its price. The sales function requires:
- Identification of customers and potential customers
- Product promotion
- The actual selling
- Management: Using people and other organizational resources, the management function seeks to reach organizational goals through planning, organizing, directing, and controlling. Management assures that the employees have the proper tools to accomplish the responsibilities that they are assigned.
Business Operations Elements
Business operations vary according to business type, industry, size, and so on. Operations for a brick-and-mortar store, for example, will look different from operations for an online retailer. The former will need point of sale terminals to process purchases, for example, while the latter will need e-commerce software that provides electronic shopping cart services. Business operations for most businesses, though, take into account the following elements:
- Process: Process is important because of its impact on productivity and efficiency. Processes done manually that can be done quicker with software or that duplicate work done by other departments can cost a business time and money. Business operations processes should be documented department by department so that operations managers can study them to find areas for improvement, consolidation, or cost-savings. Documentation also helps companies train new employees.
- Staffing: Staffing is determined by the processes. Who needs to do the work outlined in the work processes and how many of them are needed? A small business might need a few people who are generalists while a large company will need many more people who are specialists.
- Location: Location is more important to certain types of businesses than to others – and the reason for the location will vary. A solopreneur consultant might only need room for a desk at home, a pet groomer will need a location with parking, and a software developer will need to be located in a region with access to appropriate talent.
- Equipment or technology: The equipment or technology needed for optimum business operations will often have an impact on location. The pet groomer with a staff and several grooming bays will need more space and different equipment from the mobile groomer who offers services provided at the pet’s home. A carpet cleaning business won’t need a storefront, but it will need a garage to store its trucks plus office space for business operations management.
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.
- Growth strategies
- 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.
IT Strategy (Information Technology Strategy)
Business Reference Model (BRM)
Business Process Model
Business Model Innovation
Business Capability Modeling