Business operations is the ''harvesting'' of value from assets owned by a business. Assets can be either ''
physical
Physical may refer to:
*Physical examination
In a physical examination, medical examination, or clinical examination, a medical practitioner examines a patient for any possible medical signs or symptoms of a medical condition. It generally co ...
'' or ''
intangible
Intangibles or intangible may refer to:
* Intangible asset, an asset class used in accounting
* Intellectual capital, the difference in value between tangible assets (physical and financial) and market value
* Intellectual property, a legal concep ...
''. An example of value derived from a physical asset, like a building, is rent. An example of value derived from an
intangible asset
An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software. This is in contrast to physical assets (machinery, buildings, etc.) and finan ...
, like an idea, is a royalty. The effort involved in "harvesting" this value is what constitutes business operations cycles.
Overview
Business operations encompass three fundamental management imperatives that collectively aim to maximize value harvested from business assets (this has often been referred to as "sweating the assets"):
# Generate recurring
income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...
# Increase the value of the business
assets
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
# Secure the income and value of the business
The three imperatives are
interdependent
Systems theory is the interdisciplinary study of systems, i.e. cohesive groups of interrelated, interdependent components that can be natural or human-made. Every system has causal boundaries, is influenced by its context, defined by its structu ...
. The following basic tenets illustrate this interdependency:
* ''The more recurring income an asset generates, the more valuable it becomes''.
**For example, the products that sell at the highest volumes and prices are usually considered to be the most valuable products in a business’s ''product portfolio''.
* ''The more valuable a product becomes the more recurring income it generates''.
**For example, a luxury car can be leased out at a higher rate than a normal car.
* ''The intrinsic value and income-generating potential of an asset cannot be realized without a way to secure it''.
**For example, petroleum deposits are worthless unless processes and equipment are developed and employed to extract, refine, and distribute it ''profitably''.
The
business model
A business model describes how an organization creates, delivers, and captures value,''Business Model Generation'', Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries, self-published, 2010 in economic, social, ...
of a business describes the means by which the three management imperatives are achieved. In this sense, business operations is the execution of the business model.
Business operations topics
Generating recurring income
This is the most straightforward and well-understood management imperative of business operations. The primary goal of this imperative is to implement a ''sustained'' delivery of
goods and services
Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doctor ...
to the business's
customers
In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange for m ...
at a cost that is less than the funds acquired in exchange for said goods and also self-employee services—in short, making a
profit
Profit may refer to:
Business and law
* Profit (accounting), the difference between the purchase price and the costs of bringing to market
* Profit (economics), normal profit and economic profit
* Profit (real property), a nonpossessory intere ...
.
* The funds directly acquired by the business in exchange for the goods and services it delivers is the business's
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
.
* The cost of developing, producing, and delivering these goods and services is the business's
expenses
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...
.
A business whose revenues are sufficiently greater than its expenses makes profit or income. Such a business is
profitable
In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs.
It i ...
. As such, generating
recurring "revenue" is not the focus of operations management; what counts is management of the relationship between the cost of goods sold and the revenue derived from their sale. Efficient processes that reduce costs even while prices remain the same expand the gap between revenue and expenses and derive higher profitability.
Types of recurring income:
* Long-term
sales contract
A contract of sale, sales contract, sales order, or contract for sale is a legal contract for the purchase of assets (goods or property) by a buyer (or purchaser) from a seller (or vendor) for an agreed upon value in money (or money equivalent). ...
s: monthly to yearly based contracts for service or product;
**Examples: mobile phone contracts/plans.
* Multiple revenue streams: different sources of business income that support each other;
**Examples: sell printers and toners.
Increasing the Value of the Business
The more profitable a business is, the more valuable it is. A business's profitability is measured on the basis of how much income it generates for the:
* Amount of assets its business operations employ—its
business return
Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit."
Having a business name does not separate ...
.
* amount of revenue it realizes — its
business margin
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial ...
.
Methods of increasing value
=
Growth
Growth may refer to:
Biology
* Auxology, the study of all aspects of human physical growth
* Bacterial growth
* Cell growth
* Growth hormone, a peptide hormone that stimulates growth
* Human development (biology)
* Plant growth
* Secondary growth ...
strategies =
* Expand market: offer a product or service to a wider section of an existing market or to a new
demographic
Demography () is the statistical study of populations, especially human beings.
Demographic analysis examines and measures the dimensions and dynamics of populations; it can cover whole societies or groups defined by criteria such as edu ...
,
psychographic
Psychographics is a qualitative methodology used to describe traits of humans on psychological attributes. Psychographics have been applied to the study of personality, values, opinions, attitudes, interests, and lifestyles. Two approaches to ...
or geographic market.
*
Develop brand: a recognized, respected and developed brand is highly valuable. Develop through research, design and marketing of companies name, logo and tagline.
= Management systems
=
* Show growth potential: create a business that has potential to be efficiently expanded;
**Example: developing an efficient business system and operating manuals allows the business to potentially be
franchised or licensed.
* Maintain intangible assets: Maintaining intangible assets can protect elements that add value to a business;
**Examples:
patenting
A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A p ...
,
copyrighting
A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, education ...
or
trademarking
A trademark (also written trade mark or trade-mark) is a type of intellectual property consisting of a recognizable sign, design, or expression that identifies products or services from a particular source and distinguishes them from others. ...
anything believed to be an intangible asset.
* Protect and maintain physical assets: protecting physical assets will also help protect the overall value;
**Examples: regular maintenance and insuring viable physical assets.
Securing the income and value of the business
* Desirability or demand for its goods and services
* Ability of its customers to pay for its goods and services
* Uniqueness and competitiveness of its business model
* Control exerted over the quality and efficiency of production activities
* Public regard for the business as a member of the community
A business that can harvest a significant amount of value from its assets but cannot ''demonstrate'' an ability to sustain this effort cannot be considered a viable business.
References
{{DEFAULTSORT:Business Operations
Business terms
Business process