Business operations
Encyclopedia
Business operations are those ongoing recurring (cyclic) activities involved in the running of a business for the purpose of producing value
for the stakeholders. They are contrasted with project management
(business change managers are responsible for bridging the gap between the projects and business operations), and consist of business process
es.
The outcome of business operations is the harvesting of value from assets owned by a business. Assets can be either physical or intangible. An example of value derived from a physical asset like a building is rent. An example of value derived from an intangible asset like an idea is a royalty. The effort involved in "harvesting" this value is what constitutes business operations cycles.
The three imperatives are interdependent. The following basic tenets illustrate this interdependency:
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.
.
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.
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.
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
for the stakeholders. They are contrasted with project management
Project management
Project management is the discipline of planning, organizing, securing, and managing resources to achieve specific goals. A project is a temporary endeavor with a defined beginning and end , undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value...
(business change managers are responsible for bridging the gap between the projects and business operations), and consist of business process
Business process
A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product for a particular customer or customers...
es.
The outcome of business operations is the harvesting of value from assets owned by a business. Assets can be either physical or intangible. An example of value derived from a physical asset like a building is rent. An example of value derived from an intangible asset like an idea is a royalty. The effort involved in "harvesting" this value is what constitutes business operations cycles.
Overview
Business operations encompasses 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 incomeIncomeIncome is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
- Increase the value of the business assets
- Secure the income and value of the business
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
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
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.
Generating 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 services—in short, making a profitProfit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
.
The funds directly acquired by the business in exchange for the goods and services it delivers is the business's revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
.
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.
Increasing the value of the business
The more profitable a business is, the more valuable it is. A business's profitability is measured on the following basis:- How much income it generates for the amount of assets its business operations employ—its business return.
- How much income it generates for the amount of revenue it realizes—its business margin.
Securing 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
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.