Introduction
Have you ever wondered how a business is organized? What is it that makes all units within the business function as a whole?
To understand this, we must look at business as a PROCESS:
The business process begins with defining goals and strategies, then a plan is made to achieve those goals, the funds and people that are necessary for its realization are provided, the plan is implemented and the results are monitored .
In order for a company to turn an idea into a profit, it sets up processes that will allow it to:
- Understand the needs of customers,
- Develop a product/service that meets those needs, as well as
- Advertise, Sell and Deliver product.
Marketing helps in understanding the needs of customers as well as with advertising, Production makes a product that meets those needs, and Sales offers that product to customers at a price that will make a profit. What area then connects these disciplines in order for the business to function successfully?
The area of business that organizes and connects business units so that from a product idea to a profitable sale is called BUSINESS OPERATIONS.
Operations ORGANIZE BUSINESS by defining a structure and instructions on how to make an OUTPUT (product or service) out of INPUTS (materials or information) that will bring the desired profit.
The larger the business, the greater the need for operations. For an easier understanding of operations, consider the following example.
Example operations
Entrepreneur Emma started her business as a seamstress, and initially held all the operations herself:
- First, she would present to potential buyers how to sew great suits (Marketing),
- Then she would delight them with her understanding of trends/styles and contract a job (Sales),
- In order to make exactly the suit that the customer is looking for, Emma would go to the local store and get the material (Procurement),
- With the purchased material, it begins to sew (Production),
- When that was over, Emma would carefully pack the suit in the box and hand it over to a satisfied customer (Delivery).
Over time, Emma became known for making suits, which increased the demand for her services. Unable to “clone” herself :), she had to hire people and ORGANIZE BUSINESS in order to successfully fulfill orders. For this purpose, she:
- Trained a dozen of employees and handed them orders (Recruitment and Training).
- Due to the number of employees, she found a new office space and bought equipment,
- In order not to go shopping every hour, she began to store material in a new premises (Inventory),
- In order to take care of expenses, turnover, salaries, contributions and taxes, she hired an accountant (Finance),
- In order to legally secure herself and her employees, she hired a lawyer who prepared the contracts for her,
- In order to maintain her reputation for outstanding quality suits, she hires a manager to take care of potential costs, to ensure that goods are delivered on time and that every order is managed and controlled to the highest standards.
- Etc.
In order to ensure the successful growth of her business, Emma hired people and established BUSINESS PROCESSES that had clearly defined TASKS and RESPONSIBILITIES for everyone. Also, each employee was knowledgeable about how to do their part of the job, but also clearly understood where this activity begins and where it ends.
From this example, we can see that as the business grows, so does the need to organize this business. This is achieved by establishing business processes.
Business Processes
A set of activities that clearly define the steps needed to get a job done successfully are called Business Processes.
Whether the material is ordered from a supplier, an order is taken from a customer or a refund is made – it is necessary to create a process for this.
The process allows you to continuously achieve quality results. A good process defines a structure that enables the regular achievement of business goals in a predictable and measurable way. The process must be measurable in order for it to be manageable.
An example of the process of “taking orders”:
- Record the products ordered by the consumer.
- Collect information such as: Name, address, preferably delivery time and the like.
- Get information about the payment method.
- Enter the submitted details in the system using the “Order Form”.
To successfully complete this process, it takes only 3 minutes and one employee. However, the goal of the business is to gradually improve its processes through Operations (in order to further reduce the time it takes to execute an order or fully automate the process).
In order to improve business processes, we ask the following questions:
- Do we always get the desired result?
- Is the current process optimal and is there a possibility to save time?
- Are there any technological solutions that would make this process faster?
- Is it possible to reduce the number of steps required to execute the process?
- Can this process be automated?
- Could the buyer do this process himself and would it be desirable?
- Etc.
In order to improve the process, it is necessary to define new criteria for its successful execution. It is important to define in advance indicators for MEASURING and MONITORING processes in relation to the set criteria, which will allow to understand the success of these processes. When a business determines individual processes and determines the criteria for their success, the operations will connect those processes into a single system, called the VALUE CHAIN.
Value Chain – Connecting Business Processes
Harvard Business School professor Michael Porter was the first to introduce the concept of the VALUE CHAIN. This concept implies that most companies have hundreds of processes when converting inputs (raw materials) into outputs (products) and that they can be connected into a chain. Each link of the chain must communicate with the other clearly and quickly.
For example, Marketing and Sales must make accurate sales forecasts and forward information on time to procurement about the required quantity of raw materials, but also about the need to hire and train sufficient numbers of people, etc. In this sense, communication between different business units becomes crucial. These processes can be classified as PRIMARY and AUXILIARY.
Primary Processes are those that directly create or deliver a product (departments that perform primary processes are: Logistics, Marketing, Sales, Manufacturing, etc.).
Auxiliary Processes are those that help to improve the efficiency of primary processes (departments that perform auxiliary processes are: Human Resources, Legal Department, Finance, etc.).
By correctly applying the value chain, the company reduces costs and makes its offer more valuable to the customer.
There is also a REVERSE VALUE CHAIN that returns the product from the customer back to the company in case the product is not delivered in accordance with the required quality. This involves processes that allow a product that has not met the quality standard to be returned, repaired, recycled or resold.
To ensure that processes are properly carried out, the company introduces Management.
Management – Conducting operations at work
In order for materials and people to be used effectively, and processes to be properly implemented , managers are appointed. Their job is to set standards and procedures as well as continuously improve them so that the customer gets what they expect and the company operates profitably. Managers are responsible for planning, organizing, managing and controlling processes within the company. They manage people, manage projects, record and report results. The manager is also responsible for improving the productivity and efficiency of work in his department or sector.
Leadership and management are not the same thing.
(Note: Management is an extensive topic and will be explained in more detail in another blog post.)
Managers in Operation increase employee productivity, control costs and concentrate on achieving the end result. Leaders in addition to this encourage and motivate, educate and develop people, and are focused on the company’s long-term goals.
The end result that the Manager is focused on is the successful implementation of the process, at a certain QUALITY and with minimal cost.
Quality Management
It can be difficult for potential buyers to define exactly what quality is for them because quality is subjective – everyone values things in their own way (You can learn more about how people value things on the blog post “What is Value?“).
If you ask customers what they want, they will tell you that they are looking for the perfect product – the ideal one and for free :). However, the reality is that people end up paying for something that may not be perfect every day, but they’re still happy with their purchase. What makes a quality product?
Quality consists of:
- Compliance with customer specifications/requirements,
- Performance
- Reliability
- Functionality
- Endurance
- Usability,
- Consistency
- Being up-to-date, etc.
Quality management serves to ensure that all defects in your product are eliminated. Deficiencies can be eliminated:
- When designing a product – By designing the process, we remove defects before they occur,
- During production – Testing and checking the quality we dispose or correct products and
- After the product is delivered – When the product has already been shipped, it may also have a defect that occurs during use. Operations must allow customers to report the defect, and for the company to resolve it by eliminating the defect in the fastest and most efficient way.
Conclusion
As the business grows, the need for its organization grows. The area of business that organizes and connects business units so that it goes from idea to profitable sales is called Business Operation. Operations define the structure and instructions by which inputs (materials or information) are converted into outputs (products or services). They achieve this by defining clear Business Processes that enable quality results to be predictably achieved over time. In order for the company to ensure that business processes are successfully executed (and later improved), it sets up Management. Management controls and reports on the success of the execution of the process, and these results are compared with the goals set by the company.
Business operations are similar to the system of the human body. Both systems represent complex networks of processes based on compliance, cooperation and synergy. Just as the human body has its own processes such as circulation, breathing and metabolism that ensure normal functioning, so business operations define and organize appropriate processes (Planning, resource management, Development, Shipment etc.) for the successful operation of the business. Like the human body, operations need to be aligned with their environment (current trends and market conditions), in order to avoid failure in business.