Operations and organisational competitiveness

This section explains the relationship of operations and supply management to the com-petitiveness of the fi rm.

3.2.1 Operations strategy and the organisation

Two well known management models are presented here in order to illustrate the signifi -cance of operations to an organisation.

89 ENTERPRISE OPERATIONS

OPERATIONS MANAGEMENT

‘Operations’ is a term covering the central core of an organisation. Famously this central core has been used as a springboard for the development of theory by academics such as Henry Mintzberg (1983) who referred to it as ‘the operating core’. Mintzberg suggested that it is useful to view organisations as being made up of fi ve parts (Figure 3.1). It is important that organisations consider the relative balance of these elements in order to achieve their organisational goals and secure optimal competitiveness.

The operating core consists of those people who perform the work of rendering the serv-ices or producing products. In a small organisation this operating core may represent nearly all of the organisation, but larger organisations will require more complex arrangements.

There will be a requirement to formulate and implement strategy so that the organisa-tion serves its mission in an effective way. This is the role of the strategic apex which may in some circumstances also be responsible for linking the organisation to the needs of those who own or control it. The middle line represents the hierarchy of authority from senior managers to fi rst-line supervisors linking the strategic apex to the operating core.

As an organisation continues to grow and develop it is likely to include within its struc-ture specialist staff outside the central line positions (i.e. strategic apex, middle line and operating core). Specialist staff are placed into two categories by Mintzberg. The technos-tructure is concerned with co-ordinating work by standardising work processes, outputs and skills, and will be made up of people such as management accountants, work–study engi-neers, HR managers, etc. Support staff exist to provide assistance to the organisation outside its operating work fl ow. Examples would be catering services, legal advice and press relations.

Clearly operations management is focussed upon the operating core and specialists who form part of the technostructure.

Exercise 3.3

Many organisations are now actively seeking fl atter hierarchies, better quality and ways of contracting out of non-core activities. What are the implications of these developments for the fi ve basic parts of the organisation identifi ed by Mintzberg?

Operating core Middle

line Support staff Strategic apex

Technostructure

Figure 3.1 Five basic parts of the organisation

From Structures in Fives: Designing Effective Organisations by H. Mintzberg. Reprinted by permission of Pearson Education Inc., Upper Saddle River, NJ.

STUDY MATERIAL E1 90

OPERATIONS MANAGEMENT

Solution

A clearer focus on the core activity and hence further importance attached to operations management.

Economist Michael Porter (1985) fi rst explained the organisation as a business system, which he described as a value chain as it represented a sequence of value-creating activi-ties. Whereas Mintzberg’s ‘organagram’ diagram represents a static description of a vertical organisation the value chain is more of a process (Figure 3.2).

Porter depicted the ‘line’ departments linked horizontally together in a chain of sequen-tially-interdependent activities – from supply sources, to goods-inward inspection, operations (the ‘transformation process’) then distribution, storage and sales. Organisations structure these activities differently to cope with their particular external environments. Typically departments or divisions are created to interact with specifi c sectors of the environment. Five primary activities are directly concerned with the creation or delivery of a product:

● Inbound logistics refer to receipt, storage, and distribution. They include material han-dling, stock control, etc.

● Operations convert these inputs into the fi nal product.

● Outbound logistics involves the distribution to consumers. (For example, if sales take place in stores, checkout tills are important. For on-line sales, assembling and transport-ing customer orders are also included.)

● Marketing and sales is the mechanism whereby the customer is made aware of the product.

● Service can include installation, training and spares. This would also include customer enquiry/returns/complaints desk and maintenance of an organisation’s web page.

Operations management is directly concerned with four of these fi ve primary activities.

(Marketing and sales are dealt with separately within this Learning System.) Support activ-ities help to improve the effi ciency and effectiveness of all primary activactiv-ities, specifi cally:

● Procurement processes at all stages including product purchases.

● Technology development including ‘know-how’.

● Human resource management embracing all primary activities and covers recruitment, selection, training, development and reward policies, etc.

● Infrastructure or systems, structures and routines.

Operations management is directly concerned with procurement and elements of tech-nology and infrastructure. Arising from this thinking Table 3.3 illustrates some key issues associated with operations management within a fi ctional organisation.

Firm infrastructure

Figure 3.2 Porter’s value chain. Reprinted with the permission of The Free Press, a division of Simon & Schuster Adult Publishing Group, from Competitive Advantage:

Creating and Sustaining Superior Performance by Michael E. Porter. © 1985, 1998 by Michael E. Porter. All rights reserved

91 ENTERPRISE OPERATIONS

OPERATIONS MANAGEMENT

3.2.2 The supply chain

The implications of the value chain and the wider value system have encouraged organi-sations to consider supply chain partnerships as part of a wider value system. The value system extends to suppliers, distributors and customers’ own value chains. Competitive advantage through linkages between the organisation and its value system components can be achieved by examining supplier specifi cations, common merchandising, applying total quality management principles or by collaborating with other organisations in the form of strategic alliances or joint ventures.

Porter uses the concept of the value system to describe the position of the fi rm rela-tive to the fi rms upstream and downstream of it. Figure 3.3 shows the fi rm at a point in the value system between suppliers and customers. The supply chain and the organisations that are partners within it is considered in more detail later in this chapter.