1. 4.1 Setting operational objectives
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Learning outcomes
What you need to know
Why businesses set operational objectives – what is the value of setting them
The external influences on setting operational objectives
The internal influences on setting operational objectives
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3. Overview of key concepts
What is meant by the term ‘operational objectives’
Identifying the main operational objectives – quality, reducing costs, speed of response, dependability, environmental and adding value
The internal and external influences on the operational objectives
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Objectives
A definition of objectives is: ‘A quantifiable target which helps to coordinate activities’
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5. Different types of objectives
Mission statement
A statement about the organisation’s aims that is designed to motivate
Corporate objectives
These are goals for the whole organisation and are usually based on the mission statement
Functional objectives
These are goals for each functional area of a business and are based on corporate objectives
Different types of objectives
Can go further and split functional objectives into departmental and even individual objectives – called MBO or ‘management by objective’
In this unit we are looking at the Operation Management functional area
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Objectives
Objectives should be SMART or:
Specific – easily defined
Measurable - quantifiable
Agreed or achievable – stakeholders involved in setting them
Realistic – not in conflict with other objectives
Timely or time bound – based on a timescale
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Why set objectives?
Having a mission will help to guide employees and motivate them in the direction the organisation wants to go
Having corporate objectives gives a more detailed sense of direction
Having functional objectives allows for greater co-ordination of resources to ensure corporate objectives are met
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8. Operational objectives
Operational objectives are:
Broad – They encompass anything to do with the operational side of the business.
General goals – These ensure that departments can understand what they need to do to achieve the operational objectives.
Long and medium term – Plans and strategies are devised to ensure that the long- and medium-term objectives are met.
Short-term measures are called operational tactics.
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9. Operational objectives include:
Costs
Quality
Speed of response and flexibility
Dependability
Environmental objectives
Added value
− as well as the internal and external influences on them.
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10. Sales revenue – (variable cost + fixed costs)
Remember
Sales revenue – (variable cost + fixed costs)
= profit
Therefore to improve profit you can:
Increase sales OR
Reduce costs
Reducing costs is frequently part of the operational management objectives.
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Reducing costs
Reducing unit costs – A low unit cost enables a business either to keep prices low for customers or to enjoy higher profit margin.
Reducing fixed costs – This is a common aim when businesses have merged because they may have duplication of fixed costs, i.e. two premises on the high street.
Reducing variable costs per unit – This could include finding cheaper supplies (i.e. reducing raw material costs) or cheaper manufacturing (i.e. reducing labour costs by improving labour productivity).
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Quality
Quality is defined as: ‘Those features of a product or service that allow it to satisfy (or delight) customers’ There is no set measure of quality because it depends on people’s opinions, but it can be measured using various methods.
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Quality
Customer satisfaction ratings – can gather satisfaction in both qualitative (opinion) or quantitative (numerical) form. Customer satisfaction surveys can therefore measure if quality has been achieved.
Customer complaints – this is a good measure to show whether a business has problems it needs to address. Satisfied customers returned, unsatisfied customer complain – not only to the business but to everybody else and this can damage a reputation.
Level of product returns
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Quality
Scrap rate – manufacturers track the rejects through the manufacturing process. This show whether the production process is working effectively. Scrap is wasted money and increases the unit cost of goods.
Punctuality – measures how promptly a business delivers its goods (or services) and is expressed as a percentage:
punctuality (%) = deliveries on time x 100
total deliveries
The better the punctuality percentage, the higher the customer satisfaction (especially important for online and B-2-B businesses).
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Speed of response
For some businesses the speed at which they can respond to change and have the flexibility to do so is very important. For example, Zara, the Spanish clothes retailer, is famous for its speed of response. It takes just two weeks from the design of a skirt to it being on the shop floor. This is down mainly to Zara having vertical integration of the supply chain. This means they are very flexible and can change designs far quicker then their rivals – a very good objective for a fashion retailer!
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Flexibility
Product flexibility – being able to switch production from one product to another
Volume flexibility – being able to change the level of output o a product in accordance with changes in customer demand
Mix flexibility – being able to provide a wide range of alternatives of a particular good or service
Delivery flexibility – being able to adapt quickly to changes in the timing and volume of deliveries to customers
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Dependability
Some businesses do not want to let customers down and so focus on ensuring that they meet promises – or are dependable.
Examples:
Amazon state delivery dates for their products and keep customers informed if that date changes using – this ensures that their reputation is maintained with customers.
Dyson do extensive product testing to ensure that their vacuums deliver their promises.
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18. Environmental objectives
For many businesses ensuring that their operational side does not harm the environment is important – especially for their corporate social responsibility reports (see Unit 2).
Environmental objectives would include:
Reducing waste
Reducing carbon footprint
Minimising waste products or materials
Increase recycling
Achieving self-sufficiency in energy use.
M&S has a ‘Plan A’ to help them achieve environmental objectives. This includes having delivery HGVs that have a slopped roof to reduce fuel consumption and reducing the use of plastic bags at the counter.
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Added value
Adding value is an operational objective because it allows the business to develop a unique selling point (USP) for its products.
Adding value objectives would include:
Increased spending on R&D – Land Rover, for example, are one of the world’s biggest spenders on R&D!
Achieving a certain number of patents – Dyson currently hold 1,200 patents, sending roughly one a day!
Developing a particular innovation – Google glasses add value to their brand.
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20. External influences on operational objectives
External influences are those outside of the business. These are covered more extensively in Unit 7, but briefly:
Market factors – Is the market growing or declining? If declining then business should consider developing a new market; if growing then market penetration should be used.
Competitors actions and performance – What are competitors doing? Will it affect sales? Is there a more efficient way of operating?
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21. External influences on operational objectives
Economic factors – Operations management is dependent on capital investment and if interest rates are high this may increase costs or may reduce sales as customers struggle to pay back loans.
Political factors – For example, car manufacturers have faced increased pressure to improve the efficiency of their products and how they manufacture them. This means modern cars are manufactured in a more environmental friendly way and are far more fuel efficient than 10 years ago.
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22. External influences on operational objectives
Technological change
Legal factors
Environmental factors
Suppliers
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23. Internal influences on operational objectives
Internal influences are those from within the business
Corporate objectives – The operations department has to ensure that its objectives are consistent with the overall corporate objectives. British Airways’ corporate objective is to be the world’s leading global premium airline therefore the routes they fly, the meals they serve and the planes they fly all need to reflect that. By contrast, Ryanair’s objective is to be Europe's leading low-fare airline. They have only European routes and everything is no-frills!
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24. Internal influences on operational objectives
Finance – Operations management objectives rely on high capital expenditure (i.e. machinery, etc.) so healthy finances are essential.
Human resources – Skills and training as well as motivation of the workforce are essential to ensure objectives are met.
The nature of the product/service –Some products are suited to mass production (i.e. Cadbury chocolate bars) whereas others need to be high quality with good customer service (i.e. wedding dress design).
Resources available
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Discussion - Ryanair
Two of Ryanair’s corporate objective are:
To firmly establish itself as Europe’s leading low-fares scheduled passenger airline. Operations objectives are therefore to… maintain a continuous focus on cost-cutting and operating efficiencies.
To deliver the best customer service performance in its peer group.
(Adapted from:
Use the above and your knowledge or experience of Ryanair to discuss:
‘Are the operational objectives above at odds with one another. Can you continually cut costs and improve customer service?’
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26. Exam-style question with tips
Evaluate how Zara’s operational objectives help them maintain their competitiveness in the fashion industry. (24 marks) Exam tips: Evaluate – Consider how the operational objectives help with competitiveness? Do you agree they do? Give your opinions. Consider – How do the operational objectives help Zara stay competitive? Why are they different from competitors? Do the customers understand the difference? Fashion industry – Write in the context of the fashion industry; always make sure any points raised are relevant to that industry.
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Summary
Operational objectives allow a business to concentrate on what they consider to be important to make them as efficient as possible or to give them a competitive advantage.
They can be influenced by the finance, HR and marketing of the goods or services.
External influences like competitors and the economy can affect what objectives the business wants to achieve and how quickly they can achieve them.
Businesses can have a significant competitive advantage by having the most appropriate operational objectives.
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