Operations Management: Definitions and Systems

Chapter Objectives

• Define operations
• Describe value leadership
• Define different organizational structures
• Explain the key elements in organizational design
• Explain the emerging trends in organizational structures

Understanding Operations

• Operations occur across all sectors, including manufacturing, services, private, and public
• Operations are critical for any organization because an organization's performance is judged by its operations
• The scope of operations is wide-ranging and involves various functions within an organization, not limited to a specific department

Defining Operations

• Operations involve activities that transform basic inputs (materials, energy, customer needs, information, skills, finance) into outputs for the customer

Basic Operations System

• Includes inputs, processes, outputs, and feedback
• Inputs undergo transformation to add value and become finished goods and services
• The final product/service provides tangible and intangible benefits to the customer, linking service and production operations

Leader/Stakeholder Theory and Value Creation

• Entrepreneurs/managers create value by capturing the joint interests of stakeholders
• Stakeholder interests may conflict but align over time
• Stakeholder Theory is an idea about how business works, by creating value for customers, suppliers, employees, communities, financiers, shareholders and banks.
• Social value satisfies stakeholders through collaboration
• An organization's value is what stakeholders seek in a relationship with it
• The process begins with creating goods valued by consumers, and meeting consumer needs more fully, especially given competitors, which is the key result area for a CEO
• It is important to make the best use of resources, to leverage these resources alone or with partners
• Senior-level managers have the ultimate responsibility within the firm ensuring stakeholders benefit and the organization competes and ideally gains competitive advantage

Why Design an Organization

• Organizational design arranges people and jobs to meet goals
• Organizational charts show this graphically
• Design defines responsibilities, accountability, communication, and relationships
• Design involves the organizational components and their relationships
• Design portrays authority and power, and provides a "home" and identity for employees
• Key questions to consider are: What positions exist and how are they grouped? What is the reporting sequence? and What is each person/unit responsible for?

Best Structures

• The best structures depend on: The type of work, the size of the workforce, revenue, geographic dispersion, and degree of diversification
• Two Types of Structures: Vertically (Tall) and Horizontal (flat)

Vertical Structure

• Has a chain of management with a CEO at the top that delegates downward
• Power flows from the top
• There is a well-defined chain of command
• Employees report to superiors in the organizational structure
• Each person has specific duties

Advantages of Vertical Structures

• Efficiency via quick decision-making
• Responsibility is held by those highest in the chain
• Employees have defined duties with specialized tasks
• Designating tasks is easier with well-defined responsibilities
• Generally easier to manage

Disadvantages of Vertical Structures

• Can be rigid with many rules
• Dependent on a strong leader
• Weak upper management can impede decision-making
• Transparency is lacking
• Employees may feel stifled

Horizontal Structure

• Less-defined chain of command where all employees have input
• Employees work in teams instead of having defined duties
• Employees may report to multiple supervisors
• There are almost no middle managers; high-level managers handle day-to-day tasks
• Costs less because there are fewer managers

Advantages of Horizontal Structures

• There are fewer rules
• There is more power in employee hands
• Employee satisfaction can increase
• Employees feel a stronger sense of belonging

Disadvantages of Horizontal Structures

• It is less efficient and requires more time to make decisions
• Workers need more skills, and can increase stress
• It is harder to implement than vertical structures, especially as the business grows
• The company needs a culture of teamwork
• Employees can be less sure of their roles
• Project managers lack authority

Horizontal or Vertical Structures

• Frank Ostroff (2013) notes that companies are becoming more horizontal as the world globalizes
• Organizations should implement the best aspects of both horizontal and vertical structures
• Most new and small businesses utilize a horizontal structure due to a limited amount of employees
• Management styles in these horizontal structures are more informal
• Small businesses may lack resources to hire middle management

Emerging Trends

• Interdependence of different departments
• Response to rapid changing environments
• Streamline the organization to improve communication and decision-making
• The rise of technology that has made virtual organizations boundary-less
• Self-directed work teams are the basic production group
• Motivation, expanding the scope of jobs, involving workers in problem solving and planning, and fostering open communications

Need to Restructure

• Designing Organizations to Create Value (2003) writes that "a poor design can lead to lost profits and even result in the failure of the institution.”
• There is a need to cut costs by removing layers of bureaucracy to drive competitiveness
• There is a need to respond to competition
• There is a response to Jit

Characteristics of Leadership

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