Lesson 1: course introduction, competitive advantage,
performance objectives, roles ops and other functions
What’s is operations management?
Operations Management (OM) Summary
Definition and Scope
- Operations Management (OM): The planning and organizing of the production
of manufactured goods and the delivery of services. It is one of the core
functions within an organization alongside marketing, human resources, and
finance and accounting.
- Relevance: OM is integral to most human activities and shapes the society in
which we live. Everything manufactured or designed by humans involves OM.
Historical Evolution
- Production Management: Initially focused on managing manufacturing within
factories during the early 1900s, a time of mass production for goods like cars,
airplanes, and radios.
- Focus Areas: Internal firm activities, organization of equipment, employees,
and factory work.
- Transition to Operations Management: Recognized that an organization’s
performance also depends on supplier performance and product distribution.
- Broadened Scope: Includes supply chain management (upstream from the
manufacturer) and distribution (downstream from the factory).
- Service Sector: Adoption of OM by large-scale service firms (e.g., hotel
chains, banks, retailers) which do not have traditional factories.
Modern Definition
- Processes Management: OM is the management of processes that convert
inputs (materials, labor, energy) into outputs (goods and services).
- Simplified View: It's about how things are built or made and how services are
delivered.
Importance and Recognition
- Hidden Importance: OM is often a 'sleeping giant'—its critical role in
organizations is frequently unrecognized.
- Explicit Roles: Some job titles clearly indicate an operations role (e.g.,
operations director, production manager).
- Implicit Roles: Other roles less obviously connected to OM (e.g., bank
manager, reservations manager).
Modern Relevance and Impact
- Efficiency and Reliability: Japanese companies' success in sectors like car
manufacturing and electronics attributed to superior OM.
,- Healthcare Example: Reform in the UK's National Health Service includes
revising clinical practices and procedures.
- Significance in Organizations:
- Employment: Most employees are engaged in operations.
- Revenue and Costs: Major portions derive from operations.
- Assets: Significant organizational assets (buildings, machinery) are utilized
for operational purposes.
- Organizational Success: Largely depends on effective OM.
The Nature of Operations in an Organization
Understanding an Organization
An organization involves two or more people working together to perform
activities efficiently. When an organization comprises thousands of managers
and employees, effective organizational design becomes essential. Four
fundamental issues need to be addressed:
. Hierarchy
○ Structure: The hierarchy defines the organization's shape,
indicating the layers between the CEO and the workforce.
○ Tall vs. Flat:
◆ Tall Organizations: Many layers between the CEO and the
shop floor, with narrow spans of control (few employees report
to each manager).
◆ Flat Organizations: Fewer layers of management, with broader
spans of control.
◆ Evolution: Earlier industrial organizations were typically tall,
modeled after military structures. Modern trends favor flatter
organizations with wider spans of control.
. Centralization
○ Power Distribution: Determines how decision-making power is
allocated within the organization.
○ Centralized Organizations: Decision-making power is
concentrated at the top (CEO or senior managers), with policies
and procedures decided centrally.
○ Decentralized Organizations: Lower-level managers have more
authority to make decisions and take actions independently.
. Formalization
○ Work Organization: Refers to how structured and explicit the
organization’s operations are.
○ High Formalization: Characterized by extensive documentation of
policies, procedures, and rules, often found in performance
manuals.
○ Low Formalization: More flexible and less rigid in the
documentation and adherence to policies and procedures.
. Complexity
○ Subunits and Diversity: Indicates the number of subunits and the
, ○
diversity within the organization.
○ Low Complexity: Organizations that produce a single product or
offer a simple service, with high standardization.
○ High Complexity: Organizations that produce a wide range of
products and offer varied services to diverse customers across
multiple locations.
Organizational Forms
Organizations can adopt various forms to structure their operations and
manage their activities effectively. There are six primary organizational forms:
. Simple Organization
○ Description: Commonly found in small- and medium-sized
enterprises (SMEs).
○ Structure: Typically led by the original founder or entrepreneur
who manages all aspects of the business.
○ Example: Many startups and small family businesses operate in
this manner.
. Functional Organization
○ Description: Divides the organization into distinct areas of
management activity.
○ Key Functions:
◆ Operations
◆ Sales and Marketing
◆ Human Resources
◆ Accounting and Finance
○ Structure: Each functional area is managed by specialists as the
organization grows, relieving the owner or CEO from handling
everything.
. Divisional (or Product) Organization
○ Description: Organized around product categories, customer
markets, or geographic regions.
○ Structure: Each division operates semi-independently with its own
resources and functional organization.
○ Example:
◆ GlaxoSmithKline (GSK): A large pharmaceutical company with
commercial operations in over 150 countries, manufacturing
sites in 36 countries, and R&D centers in multiple locations
globally.
. Conglomerate Organization
○ Description: Comprises a variety of different businesses, which
may or may not be related.
○ Structure: Often large and multinational, managing diverse
, ○
businesses under one corporate umbrella.
○ Example:
◆ Alphabet (Google's parent company): Owns over 200
companies involved in robotics, mapping, video broadcasting,
telecommunications, and advertising.
. Hybrid (or Matrix) Organization
○ Description: Combines elements of functional, divisional, and
other organizational forms to leverage multiple structures
simultaneously.
○ Structure: Features both regional divisions and functional
departments.
○ Example:
◆ British Petroleum (BP): Adopted a matrix structure to manage
its diverse operations effectively.
. Virtual Organization
○ Description: Operates largely online, with customers often
participating as a significant portion of the workforce.
○ Structure: Has a small number of core employees who manage
and improve the online platform.
○ Example:
◆ Airbnb: A lodging company that does not own hotels but
facilitates stays in customers' homes, with core employees
focused on website and app maintenance.
Each organizational form has distinct characteristics that suit different types of
businesses and operational needs. The choice of structure impacts how
effectively the organization can manage its resources, respond to market
demands, and achieve its strategic goals.
Operations Insight 1.1 illustrates how Microsoft decided to change its structure
and identifies some of the operations issues that arise from such
reorganization.
As well as the long-standing forms of organization already described, newer
post-bureaucratic forms have emerged, such as team organizations, networks,
and even virtual firms. Team structures tend to be based around projects within
organizations that cut across conventional functional boundaries within them.
Well-known organizations that have partially adopted this approach
performance objectives, roles ops and other functions
What’s is operations management?
Operations Management (OM) Summary
Definition and Scope
- Operations Management (OM): The planning and organizing of the production
of manufactured goods and the delivery of services. It is one of the core
functions within an organization alongside marketing, human resources, and
finance and accounting.
- Relevance: OM is integral to most human activities and shapes the society in
which we live. Everything manufactured or designed by humans involves OM.
Historical Evolution
- Production Management: Initially focused on managing manufacturing within
factories during the early 1900s, a time of mass production for goods like cars,
airplanes, and radios.
- Focus Areas: Internal firm activities, organization of equipment, employees,
and factory work.
- Transition to Operations Management: Recognized that an organization’s
performance also depends on supplier performance and product distribution.
- Broadened Scope: Includes supply chain management (upstream from the
manufacturer) and distribution (downstream from the factory).
- Service Sector: Adoption of OM by large-scale service firms (e.g., hotel
chains, banks, retailers) which do not have traditional factories.
Modern Definition
- Processes Management: OM is the management of processes that convert
inputs (materials, labor, energy) into outputs (goods and services).
- Simplified View: It's about how things are built or made and how services are
delivered.
Importance and Recognition
- Hidden Importance: OM is often a 'sleeping giant'—its critical role in
organizations is frequently unrecognized.
- Explicit Roles: Some job titles clearly indicate an operations role (e.g.,
operations director, production manager).
- Implicit Roles: Other roles less obviously connected to OM (e.g., bank
manager, reservations manager).
Modern Relevance and Impact
- Efficiency and Reliability: Japanese companies' success in sectors like car
manufacturing and electronics attributed to superior OM.
,- Healthcare Example: Reform in the UK's National Health Service includes
revising clinical practices and procedures.
- Significance in Organizations:
- Employment: Most employees are engaged in operations.
- Revenue and Costs: Major portions derive from operations.
- Assets: Significant organizational assets (buildings, machinery) are utilized
for operational purposes.
- Organizational Success: Largely depends on effective OM.
The Nature of Operations in an Organization
Understanding an Organization
An organization involves two or more people working together to perform
activities efficiently. When an organization comprises thousands of managers
and employees, effective organizational design becomes essential. Four
fundamental issues need to be addressed:
. Hierarchy
○ Structure: The hierarchy defines the organization's shape,
indicating the layers between the CEO and the workforce.
○ Tall vs. Flat:
◆ Tall Organizations: Many layers between the CEO and the
shop floor, with narrow spans of control (few employees report
to each manager).
◆ Flat Organizations: Fewer layers of management, with broader
spans of control.
◆ Evolution: Earlier industrial organizations were typically tall,
modeled after military structures. Modern trends favor flatter
organizations with wider spans of control.
. Centralization
○ Power Distribution: Determines how decision-making power is
allocated within the organization.
○ Centralized Organizations: Decision-making power is
concentrated at the top (CEO or senior managers), with policies
and procedures decided centrally.
○ Decentralized Organizations: Lower-level managers have more
authority to make decisions and take actions independently.
. Formalization
○ Work Organization: Refers to how structured and explicit the
organization’s operations are.
○ High Formalization: Characterized by extensive documentation of
policies, procedures, and rules, often found in performance
manuals.
○ Low Formalization: More flexible and less rigid in the
documentation and adherence to policies and procedures.
. Complexity
○ Subunits and Diversity: Indicates the number of subunits and the
, ○
diversity within the organization.
○ Low Complexity: Organizations that produce a single product or
offer a simple service, with high standardization.
○ High Complexity: Organizations that produce a wide range of
products and offer varied services to diverse customers across
multiple locations.
Organizational Forms
Organizations can adopt various forms to structure their operations and
manage their activities effectively. There are six primary organizational forms:
. Simple Organization
○ Description: Commonly found in small- and medium-sized
enterprises (SMEs).
○ Structure: Typically led by the original founder or entrepreneur
who manages all aspects of the business.
○ Example: Many startups and small family businesses operate in
this manner.
. Functional Organization
○ Description: Divides the organization into distinct areas of
management activity.
○ Key Functions:
◆ Operations
◆ Sales and Marketing
◆ Human Resources
◆ Accounting and Finance
○ Structure: Each functional area is managed by specialists as the
organization grows, relieving the owner or CEO from handling
everything.
. Divisional (or Product) Organization
○ Description: Organized around product categories, customer
markets, or geographic regions.
○ Structure: Each division operates semi-independently with its own
resources and functional organization.
○ Example:
◆ GlaxoSmithKline (GSK): A large pharmaceutical company with
commercial operations in over 150 countries, manufacturing
sites in 36 countries, and R&D centers in multiple locations
globally.
. Conglomerate Organization
○ Description: Comprises a variety of different businesses, which
may or may not be related.
○ Structure: Often large and multinational, managing diverse
, ○
businesses under one corporate umbrella.
○ Example:
◆ Alphabet (Google's parent company): Owns over 200
companies involved in robotics, mapping, video broadcasting,
telecommunications, and advertising.
. Hybrid (or Matrix) Organization
○ Description: Combines elements of functional, divisional, and
other organizational forms to leverage multiple structures
simultaneously.
○ Structure: Features both regional divisions and functional
departments.
○ Example:
◆ British Petroleum (BP): Adopted a matrix structure to manage
its diverse operations effectively.
. Virtual Organization
○ Description: Operates largely online, with customers often
participating as a significant portion of the workforce.
○ Structure: Has a small number of core employees who manage
and improve the online platform.
○ Example:
◆ Airbnb: A lodging company that does not own hotels but
facilitates stays in customers' homes, with core employees
focused on website and app maintenance.
Each organizational form has distinct characteristics that suit different types of
businesses and operational needs. The choice of structure impacts how
effectively the organization can manage its resources, respond to market
demands, and achieve its strategic goals.
Operations Insight 1.1 illustrates how Microsoft decided to change its structure
and identifies some of the operations issues that arise from such
reorganization.
As well as the long-standing forms of organization already described, newer
post-bureaucratic forms have emerged, such as team organizations, networks,
and even virtual firms. Team structures tend to be based around projects within
organizations that cut across conventional functional boundaries within them.
Well-known organizations that have partially adopted this approach
