Understanding Operational Systems

Understanding Operations

• Operations occur in all sectors: manufacturing, services, private, and public.
• An organization's operations performance determines how it is judged.
• Operations encompass a wide range of functions, not limited to a specific department.
• Operations transform basic inputs (materials, energy, customer requirements, information, skills, finance) into outputs for the end customer.
• A basic operations system involves inputs, processes, outputs, and feedback.

The Basic Operations System Explained

• Inputs include materials and customer information.
• Transformation involves capital, technology, energy, know-how, and experience, adding value throughout the process from basic inputs to finished goods and services.
• Outputs are the final, completed product/service offering.
• Outputs consist of tangible and intangible elements.
• Outputs combine physical and psychological effects and benefits for the customer in the final transaction.
• Services and production operations have become linked.

The Leader/Stakeholder Theory and Value Creation

• Entrepreneurs/managers create value by capturing the joint interests of stakeholders.
• Stakeholder interests may conflict but should be shaped in the same direction over time.
• Successful businesses create value for various stakeholders: customers, suppliers, employees, communities, financiers, shareholders, banks.
• Social value satisfies many stakeholders through collaboration.
• Value is what stakeholders seek in a relationship with an organization.
• Value creation starts with creating goods valued by consumers, meeting their needs more fully amid competition.
• Key result area of a CEO involves satisfying existing market needs and exploiting opportunities for potential market segments.
• Best use of resources and leveraging resources are requirements in value creation.
• Senior-level managers are responsible for a range of stakeholders within the firm and its external connections.
• Value creation consists of devising/implementing processes and creating competitive advantage.

Why Design an Organization

• Organizational design arranges people and jobs to meet goals.
• Graphically, it is represented via an organizational chart.
• Organizational design features assignment of responsibilities, reporting structures, communication channels, and relationships.
• Comprises organizational components (units), hierarchy, and their relationships
• Design portrays where formal authority and power are located, and how authority/accountability flows.
• Provides a home and identity for employees
• Design must define what the positions are, and how they are grouped.
• Design establishes the reporting sequence.
• Determines what each person and unit is responsible for

Best Structures and Vertical/Tall Structure

• The best structure depends on the type of work (skilled labor or professionals), size in terms of employees, revenue, geographic dispersion of facilities, and range of business.
• Two types of structures exist: vertical (tall) and horizontal (flat).
• Vertical structures have a chain of management with the CEO at the top making decisions and delegating them down to lower levels.
• Power in a vertical structure emanates from the top down.
• Vertical structures feature a well-defined chain of command.
• In vertical structures the person at the top of the organizational chart has the most power.
• In vertical structures employees report to the person directly above them.
• With vertical structures each person is responsible for a specific area or set of duties.
• Advantages of vertical structures include efficiency and quick decision-making.
• Responsibility lies with people highest in the chain of command.
• Employees have clearly defined duties in each position, which involves specialized tasks, with little need to learn new tasks and skills.
• Vertical Structure enables better task designation to employees or departments with well-defined responsibilities for employees.
• Vertical Structures are generally easier to manage

Disadvantages of Vertical Structure

• Vertical structures can be rigid with many rules.
• Vertical structures are dependent on a strong leader at the top.
• Weak leadership means successive hierarchical structures may be frustrated by poor decision-making by superiors.
• Vertical structures lack the transparency of horizontal companies because each layer complicates information more and more.
• Some employees may feel stifled or unheard in this kind of structure.

Horizontal Structure

• Horizontal structures have a less-defined chain of command.
• In Horizontal Structures, employees across lines have similar input into how the organization is run.
• Instead of defined duties, employees may work in teams where everyone has input.
• Horizontal Structures consist of employees performing many different functions, reporting to several supervisors.
• Project managers or team leaders report to teams of supervisors, with team members essentially equal in terms of power.
• Horizontal Structures typically have almost no middle managers.
• High-level managers in Horizontal Structures handle day-to-day tasks and interact with customers and front-line employees personally.
• Horizontal Structures typically cost less to run because there are less managers.
• Compared to vertical, Horizontal Structures have less rules and more power in the hands of employees, increasing employee satisfaction.
• Employees in horizontal organizations may have a stronger sense of identification with the team.
• Disadvantages include less efficiency and taking more time and resources to make decisions.
• Workers must learn more skills, which can increase job stress, or be more interesting.
• Horizontal companies are much harder to implement than vertical companies, especially as the business grows and the business must foster a culture of teamwork.
• In horizontal structures Employees may be less sure about their roles/responsibilities within the company.
• Project managers can be frustrated by the lack of authority
• In an increasingly globalized world, all companies should implement the best of both a horizontal and vertical structure

Horizontal vs Vertical Integration

• Frank Ostroff in 2013 stated that, businesses will become more horizontally structured.
• Most new and small businesses opt to be horizontally structured due the lack of a large amount of employees and resources.
• Horizontal organisations usually need more coordination than vertical
• Vertically integrated businesses have more control, the ability to dictate component parts
• Horizontally integrated businesses have less control, and are dependent on others to "play their part"
• Vertically businesses usually leverage higher benefits for their success.
• Horizontally integrated businesses are able to benefit from the success of everyone in the value chain.
• Vertically integrated businesses usually have a scarcity mentality when approaching partnerships
• Horizontally integrated businesses usually have an abundance mentality when approaching partnerships

Emerging Trends

• Trends include the interdependence of different departments.
• Trends consist of responding to rapid changes in the environment.
• It is important to streamline organizations to improve communication and decision-making.
• Technological rises have made virtual organizations boundary-less.
• There has been a trend to establish self-directed work teams as the basic production group.
• Motiviation techniques involve expanding the scope of jobs, and workers being involved in problem solving, planning, and fostering open communications

Need to Restructure

• Designing Organizations to Create Value (2003) writes that a poor design can lead to lost profits or failure.
• There is a need to reduce costs by removing layers of bureaucracy, improve competitiveness, and reorient the organizational culture and behaviors to enhance productivity and profits.
• Important to respond to competition, and respond to Jit

Characteristics of Leadership

• Leadership involves flexibility, tenaciousness, empathy, transparency, compassion, communication, and decisiveness.
• More characteristics involve conflict resolution, clear vision, passion, protection, understanding, and problem-solving.
• Negotiation is another important skill for leadership.