Operations management is an essential key business function that overlaps with the other business functions such as marketing, finance and human resource management (HRM). Each of these essential business functions has a strategic component. Strategic means ‘affecting all key business areas’; that is, the strategic role of the operations management involves operations managers contributing to the strategic direction or strategic plan of the business. The main goal of business is to maximise profits. In most businesses, this is done by focusing on two very important aspects of profit: •revenue or income •costs or expenses.
Financial and marketing aspects of business tend to specifically target the revenue side of the business. Costs, however, are not only left to the operations and human resource function. This is because all aspects of the business incur cost, even though all aspects are not generating revenue directly. This type of analysis of revenue and cost looks at the business as a series of profit centres and cost centres.
It should be clear from the table that there are numerous sources of cost that are incurred when undertaking operations processes. Therefore, an intrinsic aspect of strategic operations management involves cost leadership. Cost leadership involves aiming to have the lowest costs or to be the most price-competitive in the market. A key aspect to cost leadership is that although trading with the lowest cost, the overall business should still be profitable. This means that operations managers must find ways to minimise costs.
The second key strategy applied by operations managers is that of product differentiation. Products may be classified as either goods or services. Generally, services only come into being as the result of a need for that service; it does not exist prior to the need. Contrast this situation with that of goods. Typically goods already exist even before a person seeks them. Sometimes goods and services are so closely aligned that it can be hard to distinguish them. The goods cannot be separated from the service that comes with it: the way in which the customer is treated by the person taking the order, the customisation of the goods to meet the customer’s specific requirements, the layout of the store and the skill of the chef preparing the ingredients.