As I promised in my last column, I am going to take you along with my class as we study Operations Management this semester. In last week’s class meeting, I reviewed the course syllabus with the class, but as expected, the best part of the session was everyone getting to know each other. The students and I each introduced ourselves and talked about our “brushes with fame” (see last week’s column), resulting in an enjoyable interaction which set the stage for a productive semester. The students learned about me and each other in a way that should increase everyone’s comfort level to discuss our course topics each week.
This week is another important “stage-setting” class meeting, as I will use it to motivate the students to be more interested in Operations Management by demonstrating its importance to businesses and their managers, no matter their firm’s industry or their area of responsibility and expertise. Hopefully, most of you already know why understanding your company’s operations is important, but it cannot hurt to review as we prepare in the coming weeks to delve into various topics which impact how your firm competes in its markets.
In order to begin discussing operations management, we need first to understand what operations is. Basically, operations is the part of the business that produces its goods and services. When we consider managing operations, we are looking at managing the “transformation process” from inputs into outputs. The purpose of operations is to transform inputs such as raw materials, parts, capital equipment, and labor into an end product or service “outputs” that a market would value. When I began studying operations in the early to mid-1990’s, operations management was more commonly known as “Production and Operations Management,” indicating its emphasis on manufacturing environments in individual firms. However, two major changes have occurred in both the academic study and practice of operations management.
First, as our economy has become more service-oriented, the field of operations has expanded its focus to include transformations that result in the delivery of services. Therefore, operations management courses spend as much or more time looking at industries such as health care, transportation (e.g., airlines), and hospitality (e.g., restaurants, hotels) as we do manufacturing environments. Second, the operations of firms have become more dependent on not just their internal operations, but also how they interact with the companies that provide them with their inputs (i.e., suppliers) and those that help distribute their outputs (i.e., distribution channels). Because of these relationships, supply chain management has become an integral part of operations management. These two major changes have clearly made the study of operations management much more important to all types of businesses.
As I mentioned in last week’s column, the ultimate importance of operations in a company is that it creates the products (goods and/or services) that the company sells. Clearly, if you have no products, you have no business. While that should be enough motivation for students and businesspeople to want to learn more about operations, it is just as important to demonstrate to them that operations will impact them whether they are in sales and marketing, accounting, finance, information systems, human resources, or any other part of the company. So, tonight, I will be sure to discuss with my students the following interactions between operations and these other parts of the company.
- Sales and Marketing: The most natural connection is between operations and sales/marketing. The connection is so natural that when I taught in a full-time MBA program at another institution, I team-taught a course that taught operations and marketing together. The two are so tightly integrated because it is marketing’s job to generate demand, while it is operations’ job to meet that demand. Therefore, marketing and operations work together to develop a firm’s “value proposition” (more on this next week!), in which marketing determines what the target market values, and operations ensure that its products provide that value. Ultimately, sales personnel can then use that value proposition to win customer orders.
- Accounting/Finance: It is also easy for me to convince my Accounting and Finance students how operations impact their disciplines. In Accounting, “Cost of Goods Sold” is driven completely by the operations of the firm. Operations determine which physical inputs (e.g., raw materials, parts) go into making the product and allocate the labor and machine time that creates the transformation. For Finance students, they need to understand that operations drive much of the capital expenditure of the firm, in particular the physical plant and its associated equipment.
- Information Systems: The growth of operations and supply chain management has occurred in large part due to the increased capability of information systems. Inventory management is done almost exclusively by information systems and the emergence of supply chain management has happened in large part due to the ability to track inputs and outputs and share that data with supply chain partners.
- Human Resources: Operations drives the skillsets of the people needed to produce goods and deliver services. HR needs to understand how the firm competes to hire the appropriate personnel to work in operations. In services, this becomes critical in that there is a high level of customer contact in service operations.
As you probably already knew, it’s pretty easy for me to convince my students that understanding operations management will enable them to better do their jobs in any area of their company and it will become more important as they achieve higher levels of responsibility. By the end of this week’s class, most of the stage-setting is done and we are ready to study various topics of operations management and their effect on a firm’s competitiveness. Next week, we will look closer at how firms compete in their markets and how operations allow firms to achieve competitive advantage. I look forward to sharing those important lessons with you!
