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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 Physical may refer to: *Physical examination, a regular overall check-up with a doctor *Physical (album), ''Physical'' (album), a 1981 album by Olivia Newton-John **Physical (Olivia Newton-John song), "Physical" (Olivia Newton-John song) *Physical ( ...
'' or ''
intangible Intangibles or intangible may refer to: * Intangible asset, an asset class used in accounting * Intellectual capital, the difference in value between tangible assets (physical and financial) and market value * Intellectual property, a legal concept ...
''. An example of value derived from a physical asset, like a building, is rent. An example of value derived from an
intangible asset An intangible asset is an asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economi ...
, like an idea, is a royalty. The effort involved in "harvesting" this value is what constitutes business operations cycles.


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"): # Generate recurring
income In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a bas ...
# Increase the value of the business assets # Secure the income and value of the business The three imperatives are
interdependent Systems theory is the interdisciplinary Interdisciplinarity or interdisciplinary studies involves the combination of two or more academic disciplines into one activity (e.g., a research project). It draws knowledge from several other fields li ...
. 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
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 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 Goods are items that are usually (but not always) tangible According to the philosopher Piyush Mathur (2017), "''Tangibility is the property that a phenomenon exhibits if it has and/or transports mass and/or energy and/or momentum". Mathur, P ...
to the business's
customers In sales, commerce, and economics, a customer (sometimes known as a :wikt:client, client, buyer, or purchasing, purchaser) is the recipient of a Good (economics), good, service (economics), service, product (business), product or an Intellectua ...
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 Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic ...
. The funds directly acquired by the business in exchange for the goods and services it delivers is the business's
revenue In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to comp ...
. The cost of developing, producing, and delivering these goods and services is the business's
expenses Expenditure is an outflow of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner">174x174px Money is any item or ve ...
. A business whose revenues are sufficiently greater than its expenses makes profit or income. Such a business is
profitable An economic profit is the difference between the revenue a commerce , commercial entity has received from its outputs and the opportunity costs of its inputs. Unlike an accounting profit, an economic profit takes into account both a firm's Impl ...
. 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 contract A contract of sale, sales contract, sales order, or contract for sale is a legal contract A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A co ...
s - monthly to yearly based contracts for a service and/or product; example - mobile phone contracts/plans. * Multiple revenue streams - different sources of business income that support each other; example - sell printers and toners.


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: * amount of assets its business operations employ — its business return. * amount of revenue it realizes — its business margin.


Methods of increasing value

;
Growth
Growth
strategies * Expand market: offer product or service to a wider section of an existing market or to a new
demographic Demography (from prefix ''demo-'' from Ancient Greek Ancient Greek includes the forms of the used in and the from around 1500 BC to 300 BC. It is often roughly divided into the following periods: (), Dark Ages (), the period ...

demographic
,
psychographic Psychographics is a qualitative methodology used to describe trait Trait may refer to: * Phenotypic trait in biology, which involve genes and characteristics of organisms * Trait (computer programming), a model for structuring object-oriented pro ...
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. ;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 A trademark (also written trade mark or trade-mark) is a type of intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual pr ...
anything believed to be an intangible asset. * 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

* Desirability or demand for its goods and services * Ability of its customers to pay for its goods and services * Uniqueness and competitiveness of its business model * Control exerted over the quality and efficiency of production activities * Public regard for the business as a member of the community 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.


References

{{DEFAULTSORT:Business Operations Business terms Business process