Operations refers to the way that members of an organization transform inputs – labor, money, supplies, equipment, and so on into outputs – goods or services. The practice of operations is complex. It takes in all the nitty-gritty, day-to-day activities by which the members of an organizations strive to reach their goals. Managers at Ernst & Young take seriously the “nitty-gritty” operations matter of making office space useful.
So, too must the many managers and employees at Chicago’s O’Hare International Airport. Each year, these people work to ensure that hundreds of thousands of takeoffs and landings are timely, safe, and comfortable. O’Hare is the world’s busiest airport, covering 7,700 acres over which thousands of vehicles, from baggage carts to jumbo jets, move in organized patterns. O’Hare is but one example of how operation is an all encompassing process that shapes the quality of work life as well as the organization’s efficiency and effectiveness. To see how all this works, we will first look at operations as a system. We will then look at some of the similarities and differences between production and service organizations. Operation is a common thread that links the managerial processes of planning, organizing, leading, and controlling. For an organization, operation is where it all comes together, or falls apart.
Any organization can be viewed as a system, a set of related and interacting subsystems that perform functions directed at reaching a common goal. These sub-systems can, in turn, be viewed as separate systems.
Inputs include human labor, capital (money needed to acquire land, equipment, and so on), technology, and information. These are the resources that will be transformed into outputs that reflect the organization’s goals. For Ford Motor Co., desired outputs are cars, trucks and parts of a certain quality. For the Red Cross, desired outputs are safe supplies of blood and emergency aid to disaster victims. For a hospital, desired outputs would be patient care and preventive health care. At Ernst & Young, accounting services are a primary output. Outputs may include both positive and negative byproducts, such as new jobs and air pollution. Outputs can also affect other subsystems in the organization. If the people running the human resources subsystem declare a six month moratorium in hiring, people in the operations subsystem will certainly feel the effects when workers who leave are not replaced.
The transformation process from input to output varies from organization to organization. Physical transformation of raw materials into finished goods occur mainly in production organizations, although service organizations also transform materials (i.e. forms and writing equipment) into finished goods (i.e. completed tax reforms). Transportation involves location transformations, while retailing involves exchange transformations (i.e. money for goods). In legal and accounting firms, there is usually an information transformation in which information is transformed from one form into another.
The feedback loop represents the information gained by people at an organization during the entire process. This information makes it possible for them to monitor the system’s performance and decide whether corrective changes are needed. This feedback loop is a key piece of the control function.
A production organization produces physical goods, such as cars, computers, plastic bottles, or paint. These goods can be stored in a warehouse and consumed over time. Some customizing is available, of course – customers can order extra-cost options on cars or request special tinting of paint, for example – but the overall emphasis is on making uniform, mass-produced goods. As a result, there is little customer contact or participation in the production of individual products.
A service organization, in contrast, produces largely intangible goods that cannot be stored. Doctors, lawyers, accountants, and Barbers, for example, produce customized labor in the form of advice and services that reflect the needs of individual consumers. A telephone company provides communication services. An airline provides transportation. Services cannot be performed without customer contact and participation; neither can they be stored.