Business operations are those ongoing recurring activities involved in the running of a business for the purpose of producing
value for the
stakeholders. They are contrasted with
project management, and consist of
business processes.
The outcome of business operations is the
harvesting of value from assets owned by a business. Assets can be either
physical or
intangible. An example of value derived from a physical asset like a building is rent. An example of value derived from an intangible asset like an idea is a royalty. The effort involved in "harvesting" this value
is what constitutes business operations.
Overview
Business operations encompasses three fundamental management imperatives that collectively aim to maximize value harvested from business assets (this has often been referred to as "sweating the assets"):
- Increase the value of the business assets.
- Secure the income and value of the business.
All three imperatives are mutually dependent. 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 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 to the business's
customers at a cost that is less than the funds acquired in exchange for said goods and services—in short, making a
profit.
The funds directly acquired by the business in exchange for the goods and services it delivers is the business's
revenue.
The cost of developing, producing, and delivering these goods and services is the business's
expenses.
A business whose revenues are greater than its expenses makes a profit. Such a business is profitable.
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 following bases:
- How much income it generates for the amount of assets its business operations employ—its business return.
- How much income it generates for the amount of revenue it realizes—its business margin.
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.
See also
