5.1 Introduction to operations management

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

The main point of this class is to understand what operations management (production) is about.

In this class, we’ll learn and review four things that relate to operations management: its definition, input-output model, interdependence of the business functions, sustainability.

Operations management is an area of management that refers to developing, managing and improving the production process. Operations management is also one of the four business functions, so it means that all business have it, be it a sole trader or a huge MNC. Even if we are talking about a sole trader who single-handedly runs a business, one of their functions is operations management: they think about how exactly they provide their product to customers and they are trying to do it in the best possible way and improve it in order to achieve their objectives more efficiently.

So, remember: all businesses, regardless of size and type, “do” operations management!

Operations management and production may be used synonymously, or production may be understood as an aspect of operations management. Either way, those two things are closely related. Naturally, when people hear the word “production”, they think of manufacturing of goods, i.e. of the secondary sector of industry. It is not wrong, but it is important to understand that production/operations management refers to all sectors of industry! Primary sector businesses manage the extraction of raw materials, secondary sector businesses manage manufacturing of goods, tertiary sector businesses manage the provision of services, quaternary sector businesses manage the intellectual pursuits.

So, remember: operations management applies to all sectors of industry!

And let me point out the last important thing: operations management/production is not only about manufacturing of goods, it refers to both tangible and intangible products.

So, remember: operations management refers to goods and services!

In the very first class of the IB BM course we have already learnt what input-output model is: a framework that explains how all businesses work/operate. In a few words, all businesses take inputs (factors of production), process them, and provide a product.

So, the second step in the input-output model, where value is added to the inputs, is exactly what operations management is about! There are plenty of ways how to manage operations, but this is beyond the scope of a single class. Study the entire Unit 5 in order to grasp the full understanding of these ways but remember that all of them refer to the second stage of the input-output model.

Now, remember, at the very start of this class I said that operations management is one of the four functions that all businesses have? Keep in mind that these four functions are supposed to be treated as an entire whole. Even though it is argued that HR is the most important business function, in fact, there is no such thing as the most important business function because all of them rely on each other and cannot survive without each other. Deprive a business of one function and it will collapse because it will not make any sense. This phenomenon is called interdependence. Review class 1.1 to find out more about it.

Since we are starting Unit 5 here, let’s think about how operations management is connected to the remaining three functions:

• HR: production managers have an expertise in how goods are manufactured or how services are provided, so in collaboration with HR managers they will be able to hire the most suitable people for the job and motivate them appropriately.
• Finance: production managers are very well aware of the costs that are associated with provision of services and manufacturing of goods, so in collaboration with the Finance department they will be able to allocate appropriate budgets to production.
• Marketing: production managers are very well aware of the functions of the produced goods or of the aspects pf service provision, so in collaboration with marketing managers they will be able to devise appropriate promotional strategies to target the right market segments.

Above are just some of the examples of how operations management is intertwined with the other business functions. But actually, the list of examples could be infinite!

Feel free to suggest your examples of the relationship between operations management with any of the other three business functions in the comments below.

The last aspect of operations management that we will briefly discuss in this class is sustainability. It is one of the CCES concepts that underpin the entire IB Business Management course so you will be able to find more information about sustainability and the other three concepts in the corresponding section of my textbook. Sustainability in business refers to the ability to maintain financial well-being of an organisation in a way that avoids the depletion of natural resources and benefits the local community.

As the definition above suggests, the three aspects of sustainability are economic, social and environmental. They are also referred to as profits, people and planet (3Ps) accordingly. The elements of sustainability are also knows as “three pillars of sustainable development” and “triple bottom line”.

Sustainability (ideally) should underpin the entire business, i.e. all of its functional areas. But since we are learning Unit 5 at the moment, it is important to point out that operations management department (or whatever other name that part of business has), among many other things, is responsible for making sure that the way they develop, manage and improve the production process not only makes money, but also makes no harm to the environment and the local community. How to achieve that? Look for the answers in the following chapters of Unit 5 and extend your knowledge of operations management and sustainable ways to provide services and manufacture goods.

Make sure you can define all of these:

1. Operations management
2. Input-output model
3. Interdependence
4. Sustainability
5. Economic sustainability
6. Social sustainability
7. Environmental sustainability
8. Triple bottom line