Operations Management Basics

Chapter 2 Introduction: Understanding and Leading Operations

• Operations occur across various settings, including manufacturing, services, private, and public sectors.
• An organization's success is based on how well its operations perform.
• Operations encompass a wide scope of responsibilities, utilizing various functions within an organization.
• Operations transform basic inputs like materials and customer requirements into outputs for the end customer.

Basic Operations System

• It can be expanded to include inputs, processes, outputs, and feedback.
• Transformation of inputs adds value throughout the entire process to create finished goods and services.
• The final product/service offering includes tangible and intangible elements.
• Services and production operations have become linked in the final transaction for the customer.
• Feedback enables the company to meet market needs

Value Creation

• Stakeholder Theory emphasizes that a business creates value for customers, suppliers, communities, employees, shareholders, and financiers.
• Managers work to align the interests of all stakeholders: customers, suppliers, communities, employees, and financiers.
• Social value satisfies many stakeholders through collaboration, not a single factor.

Value Creation and the CEO

• Stakeholders seek benefit when they start a relationship with an organization.
• Goods valued by consumers (given the competition) meet consumer needs more fully.
• The primary goal is to meet existing market needs and find opportunities for new market segments.
• The process uses resources effectively, and leverages resources alone or with partners.
• Senior-level managers are responsible for a range of stakeholders within the firm and with external linkages.
• Operations must devise and implement processes that allow an enterprise to compete and create a competitive advantage.

Why Design an Organization

• The way an organization arranges people and jobs so that its work can be performed and its goals can be met.
• Graphically represented by an organizational chart.
• Responsibilities are assigned to show accountability, and reporting structures and communication channels.
• Organizational components are comprised of units, relationships, and hierarchies.
• Formal authority and power are located, showing the flow of accountability.
• Provides a location and identity for employees as well as their duties.
• Positions are defined, and how they are grouped.
• The reporting sequence is clear.
• Each person and unit is responsible for a specific area or functions.

Best Structures

• It depends on the type of work, size of the company, revenue, location, and range of diversification.
• The types of structures are Vertically (Tall) and Horizontal (Flat).

Vertical Structure

• A chain of management is led by the CEO, who delegates decisions to lower levels.
• Power comes from the top down.
• A person at the top of the organizational chart has the most power, and there is a well-defined chain of command.
• Employees report directly to the person above them in the organizational structure.
• Each person is responsible for a specific area or set of duties.

Advantages of Vertical Structures

• Efficiency is increased because of quick decision-making.
• Responsibility lies with people highest in the chain of command.
• Each position has a specialized task.
• Tasks given to employees have well-defined responsibilities.

Disadvantages of Vertical Structure

• Structure is rigid, with rules.
• This organizational type is dependent on a strong leader.
• When upper-level management is weak, each layer is frustrated by poor decision-making.
• There is a lack of transparency because each layer muddles the data.
• Employees feel stifled by not feeling their ideas are heard.

Horizontal Structure

• Employees across have input.
• Instead of clearly defined duties, employees form teams.
• Employees perform different functions and report to a team of supervisors.
• High-level managers handle daily tasks and interact with customers and front-line employees.

Advantages of Horizontal Structure

• There are fewer rules.
• Employees have more power, increasing satisfaction.
• Employees can have a sense of identification with the company.

Disadvantages of Horizontal Structure

• Decision-making is less efficient and takes more time.
• Employees must learn more skills, which can increase job stress.
• It is harder to implement because the business culture must be teamwork.
• Employees are less sure about their roles and responsibilities
• Proect managers are often frustrated by lack of authority

Horizontal vs. Vertical

• Frank Ostroff said companies will become more horizontal because the world globalizes.
• He said no business can be strictly one organizational type but should implement the best of both types.
• Most small businesses opt for a horizontal structure.

Emerging Trends

• Interdependence of different departments is growing.
• Organizations must respond to rapid changing environments.
• Companies must streamline the organization to improve communication and decision-making.
• Technology has made virtual organizations and boundary-less.
• A more common choice is Self-directed work teams as the basic production group.
• Motivation involves expanding jobs, adding problem-solving, and including open communication.

Need to Restructure

• Poor organizational design can lead to lost profits and more.
• Cutting costs by removing layers of bureaucracy can increase competitiveness.
• Organizations must be able to respond to competition
• The third reason to restructure is a response to Jit.

Characteristics of Leadership

• Flexibility
• Tenaciousness
• Empathy
• Transparency
• Compassion
• Communication
• Decisiveness
• Conflict resolution
• Clear vision
• Passion
• Protection
• Understanding
• Problem solving
• Negotiation