Operations management refers to the administration of business practices to create the highest
level of efficiency possible within an organization. Operations management is concerned with
converting materials and labor into goods and services as efficiently as possible to maximize the
profit of an organization.
Investopedia explains 'Operations Management'
Operations management teams design the method of conversion of inputs (materials, labor,
proprietary information, etc.) into outputs (goods, services, value-added products, etc.) that is
most beneficial to the organization. Operations management teams attempt to balance costs with
revenue to achieve the highest net operating profit possible.
What does Operations mean?
The term Operations is generally used as an umbrella term to refer to the corporate area responsible
for actually producing goods and services.
This includes all the activities required to create and deliver a product or service, from selecting
suppliers and/or raw materials to supply chain management and distribution.
The organization of these different activities within the company implies a vision of the business as
different processes. Of all the corporate divisions, operations tends to require the greatest number of
employees and assets.
Generally in charge of product and service quality, operations is also the key basis on which the
company’s long-term performance rests.
For this reason, operations is increasingly seen as a source of competitive advantage because
correctly managing this area is fundamental to ensuring the company’s carefully crafted strategy
becomes reality; without operations, corporate strategy would run the risk of remaining a merely
Operations management is the corporate area in charge of designing, managing and tracking different
These processes are made up of interrelated, sequential activities through which the components and
actors required (raw materials, labor, capital, information, the client, and such) are transformed into
The key is the value added through the process as perceived by the customer, i.e. the end product
has a greater value than the elements pre-process.
These products are the goods and services people buy and use every day, from skis to washing
machines, and medical assistance to tourism services. To create the vast array of end products the
processes involved are extremely varied.
For example, in a factory setting these may include assembly, control and packing, where in the
airline business they are more likely to be passenger check-in, flying the passengers from A to B and
getting their bags back to them. In consultancy processes, the end products will be gathering data,
drafting proposals and project implementation.
Beyond this, the pressure is on operations management to make improvements in sustainability, not
least in environmental areas.
Operations departments are expected to incorporate eco-efficiency and eco-effectiveness principles
into their processes. Further innovation is the key to competitive advantage, reduced costs and
technological development, vital for the long term sustainability of the firm.
Operations management is the term used for the activities which produce and deliver products and
The important things to remember about operations management are,
All types of organisation must ‘do’ operations management because all organisations produce
some mixture of products and services. Remember though that in many organisations the
term ‘operations management’ will not be used. In many smaller organisations operations
management may be done by people who perform many other types of task such as
marketing and accounting.
Operations management is important. The decisions it makes have a major impact on both
the cost of producing products or services and how well the products and services are
produced and delivered which has a major impact on the revenue coming into the
organisation. So, operations management has an important impact on both revenue and cost
and therefore profits. This also applies to not-for-profit organisations. In a local government
service, for example, good operations management can produce services which satisfy the
community and are produced efficiently. So the community are getting value for money from
their local services.
Operations management has strategic importance. The box on IKEA in the text illustrates a
company which has been strategically successful because of the way it manages its
How are operations different from each other?
The text differentiates between different types of operation by using four dimensions – it calls these
the four Vs of operations. They are,
Volume – how many products or services are made by the operation?
Variety – how many different types of products or services are made by the operation?
Variation – how much does the level of demand change over time?
Visibility – how much of the operation’s internal working are ‘exposed’ to its customers?
The figure below gives some examples of operations at each end of these four dimensions. In most
industries one can find examples at either end of each dimension. So, for example, in transport, a taxi
service is low volume while a bus service or mass rapid transport is high volume. In accounting firms,
corporate tax advice is high variety because all large corporations have different needs, while
financial audits, which have to be carried out to comply with financial reporting legislation, are
relatively standardised. In food manufacture, the demand for ice-cream varies considerably
depending on the weather, while the demand for bread is far steadier and more predictable. In the
dental care industry, dentists operate high visibility operations (it’s difficult to work on your teeth if you
are not there) but rely on dental technicians in factory-type laboratories to make false teeth etc.
These dimensions are most useful in predicting how easy it is for an operation to operate at low cost.
Figure 1.10 in the text indicates that operations whose profiles occupy the right-hand extreme of the
dimensions (high volume, low variety, low variation and low visibility) tend to operate at lower cost
than those at the other end of the dimensions.
When operations processes do differ they do so mainly in terms of their volume, variety, variation and
visibility. But not everyone agrees that these dimensions are sufficient. Operations processes, they
say, differ in far more ways that the four V’s suggest. At the very least more dimensions are needed,
for example the relative complexity which processes have to cope with, or the degree of discretion or
decision making required by the staff with the process, or the risk of things going wrong in the
process, or the value of each product or service produced, and so on.