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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 cycles.
Business operations encompass three fundamental management imperatives that collectively aim to maximize value harvested from business assets (this has often been referred to as "sweating the assets"):
The three imperatives are interdependent. 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 topicsEdit
Generating recurring incomeEdit
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 also self-employee 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 sufficiently greater than its expenses makes profit or income. Such a business is profitable. As such, generating recurring "revenue" is not the focus of operations management; what counts is management of the relationship between the cost of goods sold and the revenue derived from their sale. Efficient processes that reduce costs even while prices remain the same expand the gap between revenue and expenses and derive higher profitability.
Types of recurring income:
Long-term sales contracts: monthly to yearly based contracts for service or product;
Examples: mobile phone contracts/plans.
Multiple revenue streams: different sources of business income that support each other;