OPERATIONAL STRATEGIES

UNDERSTANDING OPERATIONAL OBJECTIVES

“Sometimes you have to pay a high price for an opportunity.”

Rupert Murdoch

“Since the worker has been reduced to a machine, the machine can confront him as a

competitor.”

Karl Marx

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UNDERSTANDING OPERATIONAL OBJECTIVES

IN THIS TOPIC YOU WILL LEARN ABOUT:

Operational Objectives

Assessing internal and external influences on operational objectives

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OPERATIONAL OBJECTIVES

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Corporate Objectives

Functional Objectives

Operational Objectives

The targets a business sets in order to produce goods/services in the most effective

way

OPERATIONAL OBJECTIVES

Operational Objectives looks at the aims of a business in producing goods and providing services. It will include the following areas:

Meeting Quality Cost and volume targets Innovation Efficiency (including time) Environmental targets

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OPERATIONAL OBJECTIVESAN EXAMPLE : HEWETT PACKARD

To provide products, services and solutions of the highest quality and deliver more value to our customers that earns their respect and loyalty.

Underlying beliefs supporting this objective: Our continued success is dependent on increasing the

loyalty of our customers. Listening attentively to customers to truly

understands their needs, then delivering solutions that translate into customer success is essential to earn customer loyalty.

Competitive total cost of ownership, quality, inventiveness, and the way we do business drives customer loyalty.

Source: www.welcome.hp.com

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Operational Objectives - Meeting Quality, Cost and Volume Targets

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RECAP ASQuality can be defined as the ability of a product or service to meet customers’

expectations. This was looked at in depth in 2.9.

The operational targets of quality, cost (unit cost) and volume (capacity utilisation) were looked at in 2.8.

Operational targets relate to a number of measures of efficiency:• Unit Cost

The cost of each individual product or service supplied• Quality

Quality of raw materials, processes, output and customer service• Capacity Utilisation

The extent to which resources are being used (utilised) to their full potential

Remember – quality is an important factor in meeting customer expectations

Operational Objectives - Innovation

Innovation is the development of an idea into a new product or process. The entrepreneur invests time and money in order to make a profit. This could be through:

Product innovation - changing a product that already exists or developing an invention into a brand new product

Process innovation - changing a process of production that already exists or putting into practice a brand new production process

Innovation is covered in depth in 3.13

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Operational Objectives - Efficiency and Environmental Targets

Large businesses set targets in order to be more efficient by reducing inputs to the production process whilst attempting to maximise output.

Lean production techniques will be used in order to meet these targets. See 3.15.

Large firms are also more aware of their obligations to the environment – whether for legal reasons or other factors. Environmental targets can be used to improve the image of the firm and to reduce costs.

This will be covered in more depth in BUSS4. The hotel industry faces demanding standards in order to meet the legal requirements of its operations!

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Assessing internal and external influences on operational objectives – Competitors’ Performance

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A firm will have to take into account the performance of its competitors. This may take different forms:

Benchmarking - identifying best practice from other firms and adopting elements of this in the firm’s performance

Environment targets - setting targets to improve performance e.g. wastage

Innovation - in order to differentiate from the competition

You will need access to the internet to watch this clip

Assessing internal and external influences on operational objectives – Resources Available

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A firm will have to take into account the resources that it has available. This may take different forms:

Finance - Budgeting will be particularly important in a competitive environment

People - the skills of the workforce and how they are applied are fundamental to a firm

Effective marketing – important in the service sector where customers are persuaded to buy

Capital – a capital intensive approach will improve speed and quality but will mean high initial costs

Assessing internal and external influences on operational objectives – Nature of the Product

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A firm will have to take into account the nature of the product:

Target market – niche might require specialist operations management such as expertise in that field; mass might lead to highly automated, capital intensive operations

Regulatory environment – legal requirements will heavily impact on operations e.g. waste

Geographical – location of industry and the closeness of the available factors of production e.g. Sheffield Steel or financial expertise in the City of London

Certain products can even obtain Government grants!

Assessing internal and external influences on operational objectives – Demand

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A firm will have to take into account demand:

Price elasticity of demand – elasticity will affect the revenue and a firm can take this into account when setting an operations budget for the product – the more inelastic the product the higher the budget is likely to be

Income elasticity of demand – if the product is a luxury good it will be income elastic and affected by the position of the economy in the business cycle. Necessities will be income inelastic and the operations budget is less likely to be cut in recession (or raised in a boom).

ACTIVITY - OPERATIONAL OBJECTIVES AND OTHER FUNCTIONAL AREAS

Operational Objectives

Scale and resource mix

Innovation Location Lean Production

Financial Objectives

HR Objectives

Marketing Objectives

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Print this slide onto A4 and complete to explain the possible links between each operational objective and other functional

objectives.