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The transformation process in a service business is very similar to that of a manufacturing organization. That is, a service business takes in inputs, transforms them or processes them into the service being provided which, in effect, is the output. What makes it somewhat difficult to understand this transformation process in service businesses is the fact that you don't "see" the output of a service business. The transformation process and the output are inseparable since the service is produced and consumed simultaneously.
Is productivity an individual or an organizational measure?
Both! And it's also an industry or a national (country) measure! Very simply, productivity is a measure of output divided by the inputs needed to generate that output. It's an identical term to efficiency. The term "productivity" typically is used as a measure of organizational, industry, or country performance although you may hear references to how productive an individual is. Government agencies collect productivity information for various sectors of the economy and use these as measures of how well our economy is doing. Likewise, organizations will collect information about resource usage and level of outputs in order to determine organizational productivity. Some organizations even collect productivity information for their various divisions, departments, or units.
Why have operations issues become so important to organizations?
Operations issues have become important to organizations because every single organization "produces" something-even not-for-profit organizations. Doing this in a way that is efficient and effective and that leads to an organization's being globally competitive requires strict attention to operations issues. Those organizations that expect to successfully and profitably compete in the future are incorporating operations decisions into their strategic plans and are approaching the operations processes as carefully as the marketing, financial, and human resource management processes. Do you think that Southwest Airlines would be where it is today if it hadn't paid attention to its operations? Would it be able to have the quick gate turnarounds that it does if it didn't pay close attention to operations inputs and processes? After all, as Southwest's CEO Herb Kelleher says, "You don't make money sitting on the ground." Successful companies know that operations management issues are important ingredients in success.
Why have organizations recently become so enamored with building strong supplier relationships?
Organizations have begun to recognize the interdependent relationship they have with their suppliers. Since suppliers provide the "inputs," the organization is heavily dependent on them. Their fortunes are closely linked! In this supplier-organization relationship, two goals that tend to be quite important are controlling costs and increasing quality. By collaborating and partnering with suppliers, organizations are discovering that they can achieve better quality of inputs, fewer defects in finished products and services, and lower costs. Wal-Mart is an example of an organization that has a system of highly developed alliances with its suppliers. This hand-in-hand collaboration is good for Wal-Mart because it gives them greater control over costs and quality. And it's good for the suppliers because they have assurances that their products are being sold through the world's largest retailer!
How does value chain management provide value?
Well, first off, let's define what value is-the performance characteristics, features and attributes, and any other aspects of goods and services for which customers are willing to give up resources. Value is created through the transformation of raw materials and other resources into some product or service that customers need or desire when, where, and how they want it. Value means different things to different people. For instance, your next class starts in 30 minutes and you're hungry. You're willing to give up resources (money) for a product and service that's quick and filling. You see a Subway Sandwiches poster on a campus bulletin board and decide to go there because it's close by. You willingly hand over $3.99 for a sandwich at Subway. You received value because you got a product that met your specific needs at that time and place. How did Subway provide that "value?" It was created through the value chain-which simply is the entire series of organizational work activities that add value at each step. From the purchasing of the food supplies to the assembling of the sandwich to the advertising that you saw on the campus bulletin board, each work activity was designed to provide value to customers. Because every organization needs customers if it's going to survive and prosper, it's important to understand how value is created and delivered to those customers. By the way, that's the whole concept behind value chain management.
Why should an organization want to closely integrate its work activities with other outside organizations?
This does seem counter-productive, doesn't it? After all, wouldn't this type of close collaboration seem to give managers less control over important work activities? And since when can you trust others outside your organization? These cultural beliefs are among the hardest to change as an organization pursues a value chain management approach. Yet, we have to remember that the goal of value chain management is to create a value chain strategy that meets and exceeds customers' needs and desires and allows for full and seamless integration among all members of the value chain-inside and outside. For this value chain strategy to work, all value chain participants must collaborate. That's the only way to provide the value that customers want and are willing to pay for. The result of this collaboration-better customer solutions. And, when value is created for customers and their needs and desires are satisfied, everyone along the chain benefits.
How can an organization successfully manage its value chain?
The first thing to recognize is that it's not easy to manage the value chain because it can be difficult for managers to know and understand what the organization's value chain encompasses. However, successful value chain management is possible if six main requirements are met. These include (1) a close coordination and collaboration among value chain partners, (2) a significant investment in technology, (3) a critical evaluation of organizational processes to determine where value is being added and making changes, if necessary, (4) strong, supportive, competent leadership, (5) human resource requirements including flexible approaches to job design, an effective hiring process, and ongoing training, and (6) very important...a supportive organizational culture and attitudes.
A business model sounds a lot like a strategy. Is it?
You're very perceptive. Yes, a business model is simply a strategic design for how the company intends to profit from its strategies, processes, and activities. As today's managers face a dynamic competitive marketplace, they're having to experiment with new business models that will allow them to be more efficient and effective.
***Big thank you to Stephen P. Robbins & Mary Coulter, Robbins Online Learning System (R.O.L.L.S), Pearson, Prentice Hall
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