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Professor Stephen Lawrence. Defining Operations Leeds School of Business University of Colorado Boulder, CO 80309-0419. OPERATIONS…. Operations is all about adding value, and creating wealth. Definitions. Textbook definition Organizational definition Economic definition

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slide1

Professor Stephen Lawrence

Defining Operations

Leeds School of Business

University of Colorado

Boulder, CO 80309-0419

operations
OPERATIONS…

Operations is all about adding value, and creating wealth

definitions
Definitions
  • Textbook definition
  • Organizational definition
  • Economic definition
  • Added-value definition
what is operations textbook definition
What is Operations?Textbook Definition
  • The design, control, and management of processes that transform inputs into finished goods and services for sale to customers
who are operations managers
Who are “operations” managers?
  • Managers transform inputs into outputs
  • Example: Accounting Manager
    • Inputs: data, information, labor
    • Transformation: application of accounting principles and knowledge
    • Outputs: accounting reports, knowledge of performance, ...
  • All managers have an “operation” to run
  • Therefore:
what is operations organizational definition
What is Operations?Organizational Definition

Corporate

Strategy

Strategy

Business A

Strategy

Business B

Strategy

Business C

what is operations economic definition
What is Operations?Economic Definition

Operations is responsible for improving the “production function” of the firm.

example bicycle manufacturing
Example:Bicycle Manufacturing

Capital Used

(equipment)

per unit

produced

Labor Used

per unit

produced

example bicycle manufacturing1
Example:Bicycle Manufacturing

Capital Used

(equipment)

per unit

produced

Labor Used

per unit

produced

what is operations economic definition1
What is Operations?Economic Definition

Capital Used

(equipment)

per unit

produced

Labor Used

per unit

produced

why do firms exist
Why Do Firms Exist?

“The assumptions of micro-economics, when applied to the question of why there are firms, suggest that firms should not exist at all.”

Barney and Ouchi (eds), Organizational Economics, 1986.

what is operations transaction cost definition
General approach to economic organization:

Markets and firms are alternative instruments for completing a related set of transactions

The relative efficiency of each determines which mode is used

The costs of writing and executing complex contracts vary with the properties of the market and the characteristics of the human decision makers involved

The same human and environmental factors apply to both transactions between firms and within a firm

What is Operations?Transaction-Cost Definition

[Firms exist because it is difficult to use the price system to coordinate all

economic activity.] The question always is, will it pay to bring an extra

exchange transaction under the organizing authority? At the margin, the costs

of organizing within the firm will be equal either to the costs of organizing in

another firm or to the costs involved in leaving the transaction to be

“organized” by the price mechanism.

Coase, “The nature of the firm,” Economica 4, 1937.

Williamson, Markets and Hierarchies, 1975

what is operations added value definition
What is Operations?Added-Value Definition
  • Value is the customer’s subjective evaluation, adjusted for cost, of how well a good or service meets or exceeds expectations.
  • Note that:
    • Value is defined in terms of a singular customer
    • It is a subjective evaluation
    • The evaluation is compared with an expectation
    • Expectations can be influenced and do change
added value model

Cost

Operations

Marketing

Added Value for Customer

Added Value Model

Finance

Accounting

Information Systems

People and Organization

adapted from Porter, Competitive Advantage, Free Press, 1985

added value model1
Added Value Model

adapted from Porter, Competitive Advantage, Free Press, 1985

slide19

What is Operations?Added-Value Definition

Operations is the fundamental means by which firms…

what is operations how do firms add value
Greater Productivity

Lower costs and expenses

Lower prices for the customer

Higher Quality

Better performance

Greater durability, reliability, aesthetics, ...

Better Timeliness

Faster response and turnaround

On-time delivery, meet promises

Greater Flexibility

Greater variety

Customization for customer needs / desires

Useful Innovation

Features, technology

Better performance

New capabilities

Often unrecognized

What is Operations?How do Firms Add Value?