CHAPTER 1

MANAGING FOR RESULTS

If you don't know where you're going, it doesn't much matter how you get there.

—THE CHESHIRE CAT (PARAPHRASED FROM ALICE IN WONDERLAND BY LEWISCARROLL)

When you think about operations, what picture comes to mind? If you're like mostpeople, you think of a manufacturing plant or assembly line. Occasionally, Iwill have a student who relates it to the context of surgery, as in "I'm havingan operation to remove a tumor tomorrow."

While none of these ideas is wrong, the correct answer is much broader.Operations consist of whatever an organization does to make inputs becomeoutputs. It's that simple. Really. Whether the organization is a servicecompany, a government agency, a not-for-profit entity, or a publicly tradedcorporation, it obtains inputs. Operations transform these inputs by addingvalue to them (and sometimes wasted effort) and make them available to others asoutputs. Operations management is about managing for results—that is,desired outputs.

After completing this chapter, you should be able to do the following:

• Describe an operation as a transformation system

• Explain the importance of operations management

• Recognize opportunities for operational improvements

• Identify sources of competitive advantage in an operation

Throughout this book, you will find a practical, commonsense approach tomanaging for results. Common sense is logical, has an intuitive appeal, and isclear when you think about it. There is a practical connotation to common sense.Unfortunately, as the architect Frank Lloyd Wright noted, "There is nothing moreuncommon than common sense."

Not sure you agree? Consider the case of the rolling suitcase. The idea is thatthe case is too heavy to carry through the airport, so you pull it on wheels.Yet somehow you are expected to lift it into an overhead compartment to stow itaway. (Not to mention that the people who pushed ahead of you to get on theplane first took more than their allotted amount of overhead space.) Why nothave bench seats with storage underneath? No one would get hurt, and all thosebags wouldn't impinge on your space. Isn't that common sense?

Why do we have daylight savings time in fully electrified countries? Why do wehave a nine-month school year when children are no longer needed to work in thefields during the summer? Why do we still teach cursive writing in primaryeducation when very little is handwritten anymore? Because we have done thingsthis way for as long as anyone remembers.

Operations are like that. You can do something over and over, because that ishow you have always done it, and you can make operations very complex. Or youcan use basic principles that are memorable and have an intuitive appeal tocover most situations. Once you understand these principles, they will seem likecommon sense. This is the essence of the 36-hour course in operationsmanagement.

OPERATIONS AS A TRANSFORMATION FUNCTION

Inputs can come in conventional forms as direct labor, direct materials, andother direct costs. Inputs can also be capital items that are not consumed inthe operation. The idea of capital as cash wealth invested for a specificpurpose (such as technology, equipment, and land) has broadened to include humancapital (labor), intellectual capital (knowledge), and social capital(reputation, brand equity, customer loyalty, and so on).

Outputs can be categorized in several different ways. Generally we think interms of goods or services, but often outputs are a combination of both, on acontinuum from mostly service to mostly goods. On one end of the spectrum(mostly service) is an airplane ticket that represents a transportation service;in addition to the service, you may receive a drink and possibly a meal asgoods. The ticket itself is a facilitating good, something that enablesyou to receive the service. On the other end of the spectrum is the purchase ofa new refrigerator. You are buying the product as well as the delivery servicethat will enable you to use the product in your home.

Outputs can also be classified as tangible or intangible, in the sense thatsomething is tangible if it can be perceived by touch. Clearly, products aretangible. Production waste is tangible. Facilitating goods are tangible. Evensome services—such as a haircut, car wash, or packing/movingservice—are tangible. Intangible outputs tend to be emotional orexperiential results such as satisfaction, relaxation, convenience, andambience.

As I write this, I am sitting in a Starbucks, sipping a cappuccino, and bidingmy time between meetings. My drink is a tangible product. The chair in which Iam sitting is a facilitating good that enables me to enjoy the intangibleambience. I am also enjoying the convenience of a comfortable place to workbefore my next meeting, which is across town from my office.

To create any kind of output, an organization transforms inputs. There are fourelemental transformation functions: alter, inspect, store, and transport. Theyare applicable whether the output is a good, a service, or a combination of thetwo. An organization adds value to its inputs by performing some combination ofthese functions. If it does not add value, then why would a customer purchasethat organization's output instead of purchasing the inputs directly?

In my Starbucks illustration, the milk and coffee have been altered: the milkhas been steamed and frothed, and the coffee beans were ground, tamped, andexpressed. Before serving it to me, the barista inspected the drink. The drinkmay also be considered as a product bundled with a service. Since I choose tostay at the store, Starbucks is also providing me with a storage service (for myperson), a place to wait while I consume my beverage.

The retail products available at Starbucks, such as bulk coffee, mugs, andcoffee machines, are all goods that can be purchased elsewhere. Since Starbuckshas transformed them by transporting the products to this location and storingthem on the display shelves, they have added value to them by providingconvenient accessibility and the implied endorsement of being good enough tomake Starbucks coffee. The company has also altered the bulk coffee by addingthe Starbucks logo and packaging. This adds the social capital of branding tothe inputs and provides an assurance of quality as an intangible...