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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Leeds School of Business
University of Colorado
Boulder, CO 80309-0419
Operations is all about adding value, and creating wealth
Operations is responsible for improving the “production function” of the firm.
“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.
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 firmWhat 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
adapted from Porter, Competitive Advantage, Free Press, 1985
Operations is the fundamental means by which firms…
Lower costs and expenses
Lower prices for the customer
Greater durability, reliability, aesthetics, ...
Faster response and turnaround
On-time delivery, meet promises
Customization for customer needs / desires
Often unrecognizedWhat is Operations?How do Firms Add Value?