What is Operations Management?
How important is it?
What Is Operations Management?
The question what is operations management can be answered in two distinctive ways. The short answer is, operations management makes sure the company runs smooth, efficiently and effectively to assist in achieving pre-determined goals.
The long answer of what is operations management, details the various building blocks of operations as well as the building blocks of management. Let’s start with what management is. Management is planning, communicating, coordinating, decision making, monitoring, analyzing and correcting of business goals and the activity to achieve those goals.
Management is aimed at the various building blocks of a business, which can but do not necessarily include departments like, administration, accounting, human resources, production, marketing, sales and finance.
The company as a whole has objectives, targets and goals, but so do the various departments. Operations management’s goals is to make sure all goals are properly communicated throughout the company to the various departments, department heads and personnel and to make sure that by using company p[olicies and procedures everyone proceeds as smoothly and efficiently towards achieving those goals.
Operations management also includes controlling, auditing and feedback which monitors whether goals are achieved. If the are not achieved, activities or goals will be adjusted accordingly. In the reality, operations management’s services support the sales and marketing operations to drive sales growth in a profitable way.
Operations Management – Planning
When the question is asked “what is operations management”, people often think it is just the “doing”, in other words the implementing of plans to achieve business or department goals. This couldn’t be further from the truth, although some business owners or CEO’s keep the operational manager (COO or Controller) out of the discussions around planning. Not a good idea for many reasons.
The top two reasons to get the COO or Controller, depending on the type and size of company, involved in the planning process is a) to have a sounding board, a viewpoint that looks at it from a defensive point of view rather than from an offensive point of view to coin a sporting term.
The second reason is, the COO or Controller must communicate and monitor the business and department goals throughout the organization. He/she needs to know how the numbers came about, so that when the actual results come in he/she understands the why and how when they differ, so the right corrections can be made and/or communicated clearly up the chain of command.
So, having said all of the above, planning as part of operations management means, calculating and planning units to be sold, and manufactured, putting a budget together that describes how these products or services get marketed at what price level through which distribution channels to achieve a certain profit level.
Additionally operational planning includes the investments needed in capital expenditures like computers and infrastructure to support operations, sales and marketing.
Finally operations management includes auditing of systems and results to ensure systems operate as they’re supposed to and report correct information to management so management can make decisions to alter or stay the course.
Communication and Coordination
In this section of “what is operations management” I will address communication and coordination. Now that the plans have been created, i.e. the strategic business plan and budget at a minimum, the details like targets, goals and strategy need to be communicated to the troops, the department leaders and their reports.
Once the plans have been communicated, usually through budget meetings the activities to market the chosen product or service to the chosen target market must be coordinated. On the one hand general and marketing management will coordinate efforts to implement the plans effectively and efficiently, but on the other hand controlling will coordinate efforts where it concerns reporting and IT systems.
If you implement marketing plans but you have no way of knowing how you are doing, very soon you’ll veer off the rails, run out of money and end up bankrupt. Proper IT systems to support the company’s teams, proper reporting systems to ensure the correct information like Key Performance Indicators (KPI’s) are fed up the chain of command are crucial.
General management and marketing management usually communicate and coordinate external plans and activities whereas administration and controlling coordinate internal plans and activities. Everyone somehow will have an ear to the ground with regard to what’s going on in the market place. The result should be a well oiled company that runs as smoothly as a Ferrari’s engine.
Monitoring and Decision Making
The next step of “what is operations management” is monitoring and decision making. Business plans and budgets have been created. They have been communicated to management throughout the organization to be implemented. Each manager responsible for their part will have to coordinate the implementation of each part like an engineer has to coordinate the functioning of a car engine to work as smoothly as possible.
So now what? We have reached the “doing” phase! Money is being spent on activity to sell and market the product or service, so we’re good, right? Wrong!! One of the biggest mistakes business leaders make is to think a plan works and continue pouring money into the same plans the same activities, seeing no change in results, no change in fortunes. In the extreme they end up bankrupt.
Best cases in point have been big “brick and mortar” companies like Circuit City” who continued to think their “old” strategy of selling through “brick and mortar” stores would prevail over Amazon.com. Had management monitored results better or made better decisions driven by the numbers, notably plunging sales numbers, and been open to a changing market place (read shift to online buying), Circuit City may still have been in business.
Although without a sales team and without sales you are simply not in business, without the rest of the business organization who monitor and feedback results to management for decision making, your company may not be in business for long. Monitoring results, comparing them to industry averages, researching the market place, your competition, doing a SWOT Analysis and make sound strategic decision on the basis of what you’ve found out could create a path to success.
Feedback and Adjust
The final phase of “what is operations management” is Feedback and Adjust. All plans are in place, they have been communicated to management throughout the organization and local management coordinates the efforts to implement the plans and monitor activity and results.
Through the reporting system that has been implemented, results are fed back to management at all levels to analyze, decide on any action action when warranted, or simply accept good results as a given. If results come in and are in line with what we expected, i.e. in line with our plans there is no immediate need to correct the course and adjust anything, unless you want to increase the target to make it a stretch target.
If however, results come in and fall short of our targets, local management will have to make a decision as to whether any targets need changing or any activity driving sales or other KPI’s need adjustment. If targets across the board are missed higher management will have to make a strategic decision to change course and to adjust any plans, strategy or other input.
Once feedback has been provided in the form of reports, and management has made a decision to leave things as they are or change course, the management cycle has completed.
The next question is how to improve the process. The more you can map the market place and understand what will happen when you take certain actions, the more effective and efficient resources around the company can be used to achieve set targets and goals. Mapping what’s going on out there is called the black box theory. More on how this works later.
Now, great systems have the potential to provide great reports, i.e. feedback to management. But in the end it is management alone to make a decision as to what direction to go in.
Any wrong direction therefore, provided all data of the company’s results and the market place it dabbles in will be attributed to human error. That’s why management decisions shouldn’t be taken lightly, particularly strategic decisions.
If you are interested in organizational effectiveness and efficiencies, check out this book by Raul Espejo about Organizational Transformation and Learning.
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White papers, blogs and “how to” articles are great to refer to, but they’re just one dimensional. They won’t critique your strategic plan, operational issues, web design or digital marketing plans. You may need a sounding board, one that gives you honest, constructive and actionable feedback, not a Top 10 List of what to do.
