Business operations

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The outcome of 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.

Tangible property in law is, literally, anything which can be touched, and includes both real property and personal property, and stands in distinction to intangible property.

An intangible asset is an asset that lacks physical substance. It is defined in opposition to physical assets such as machinery and buildings. An intangible asset is usually very hard to evaluate. Examples include patents, copyright, franchises, goodwill, trademarks, and trade names. The general interpretation also includes software and other intangible computer based assets are all examples of intangible assets. Intangible assets generally—though not necessarily—suffer from typical market failures of non-rivalry and non-excludability.

Contents

Overview

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"):

  1. Generate recurring income
  2. Increase the value of the business assets
  3. Secure the income and value of the business

The three imperatives are interdependent. The following basic tenets illustrate this interdependency:

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 model rationale of how an organization creates, delivers, and captures value

A business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction and modification is also called business model innovation and forms a part of business strategy.

Business operations topics

Generating recurring income

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.

Goods and services outcome of human efforts to meet the wants and needs of people

Goods are items that are usually tangible, such as pens, salt, apples, and hats. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. Taken together, it is the production, distribution, and consumption of goods and services which underpins all economic activity and trade. According to economic theory, consumption of goods and services is assumed to provide utility (satisfaction) to the consumer or end-user, although businesses also consume goods and services in the course of producing other goods and services.

Profit, in accounting, is an income distributed to the owner in a profitable market production process (business). Profit is a measure of profitability which is the owner's major interest in the income-formation process of market production. There are several profit measures in common use.

The funds directly acquired by the business in exchange for the goods and services it delivers is the business's revenue.

Revenue income that a business has from its normal business activities

In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees. Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, earned during a period of time, as in "Last year, Company X had revenue of $42 million". Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, in the balance statement it is a subsection of the Equity section and revenue increases equity, it is often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted with the "bottom line" which denotes net income.

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-

Increasing the value of the business

The more profitable a business is, the more valuable it is. A business's profitability is measured on the basis of how much income it generates for the:

Methods of increasing value

Growth strategies
  • Expand market: offer product or service to a wider section of an existing market or to a new demographic, psychographic or geographic market.
  • Develop brand: a recognised, respected and developed brand is highly valuable. Develop through research, design and marketing of companies name, logo and tagline. [2]
Management systems
  • Show growth potential: create a business that has potential to be efficiently expanded. Example: developing an efficient business system and operating manuals allows the business to potentially be franchised or licensed.
  • Maintain intangible assets: Maintaining intangible assets can protect elements that add value to a business - patenting, copyrighting or trademarking anything believed to be an intangible asset. [3]
  • Protect and maintain physical assets: protecting physical assets will also help protect the overall value, this can be done through: regular maintenance and insuring viable physical assets.

Securing the income and value of the business

A business that can harvest a significant amount of value from its assets but cannot demonstrate an ability to sustain this effort cannot be considered a viable business.

Related Research Articles

In economics, capital consists of assets that can enhance one's power to perform economically useful work. For example, in a fundamental sense a stone or an arrow is capital for a caveman who can use it as a hunting instrument, while roads are capital for inhabitants of a city.

Inventory goods held for resale

Inventory or stock is the goods and materials that a business holds for the ultimate goal of resale.

Marketing management is the organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of a firm's marketing resources and activities.

Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and credits. The difference between deductions, exemptions and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax.

Income statement

An income statement or profit and loss account is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period.

Earnings before interest, taxes, depreciation, and amortization accounting measure: net earnings, before interest expenses, taxes, depreciation, and amortization are subtracted

A company's earnings before interest, taxes, depreciation, and amortization is an accounting measure calculated using a company's earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company's current operating profitability.

Financial accounting field of accounting

Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use. Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes.

Working capital is a financial metric which represents operating liquidity available to a business, organisation or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Gross working capital is equal to current assets. Working capital is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.

A value network is a business analysis perspective that describes social and technical resources within and between businesses. The nodes in a value network represent people. The nodes are connected by interactions that represent tangible and intangible deliverables. These deliverables take the form of knowledge or other intangibles and/or financial value. Value networks exhibit interdependence. They account for the overall worth of products and services. Companies have both internal and external value networks.

Matching principle

In accrual accounting, the revenue recognition principle states that expenses should be recorded during the period in which they are incurred, regardless of when the transfer of cash occurs. Conversely, cash basis accounting calls for the recognition of an expense when the cash is paid, regardless of when the expense was actually incurred.

Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts (NIPA) and the European System of Accounts (ESA).

Non-timber forest product Forest products obtained not used as timber

Non-timber forest products (NTFPs), also known as non-wood forest products (NWFPs),minor forest produce, special, minor, alternative and secondary forest products, are useful substances, materials and/or commodities obtained from forests which do not require harvesting (logging) trees. They include game animals, fur-bearers, nuts, seeds, berries, mushrooms, oils, foliage, pollarding, medicinal plants, peat, mast, fuelwood, fish, spices, and forage.

Asset economic resource, from which future economic benefits are expected

In financial accounting, an asset is any resource owned by the business. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. Simply stated, assets represent value of ownership that can be converted into cash. The balance sheet of a firm records the monetary value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business.

Media management is seen as a business administration discipline that identifies and describes strategic and operational phenomena and problems in the leadership of media enterprises. Media management contains the functions strategic management, procurement management, production management, organizational management and marketing of media enterprises.

A royalty fund is a category of private equity fund that specializes in purchasing consistent revenue streams deriving from the payment of royalties. One growing subset of this category is the healthcare royalty fund, in which a private equity fund manager purchases a royalty stream paid by a pharmaceutical company to a patent holder. The patent holder can be another company, an individual inventor, or some sort of institution, such as a research university.

Defensive strategy is defined as a marketing tool that helps companies to retain valuable customers that can be taken away by competitors. Competitors can be defined as other firms that are located in the same market category or sell similar products to the same segment of people. When this rivalry exist, each company must protect its brand, growth expectations, and profitability to maintain a competitive advantage and adequate reputation among other brands. To reduce the risk of financial loss, firms strive to take their competition away from the industry.

Network Orchestrator Companies are defined as:

... companies [that] create a network of peers in which the participants interact and share in the value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more. Examples include eBay, Red Hat, Visa, Uber, Tripadvisor, and Alibaba.

References

  1. "How to recreate recurring revenue streams". Archived from the original on October 5, 2014.
  2. "How to develop a brand". For Dummies.
  3. "NAB- Increase value of your business".