Importance of Operations Management in Organizations
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Published: Mon, 11 Dec 2017
Managers are also responsible for critical activities such as quality management and control, capacity planning, materials management, purchasing, and scheduling. The importance of operations management has increased dramatically in recent years. Significant foreign competition, shorter product and service life-cycles, better-educated and quality-conscious consumers, and the capabilities of new technology have placed increasing pressures on the operations function to improve productivity while providing a broader array of high-quality products and services. With the globalization of markets, firms are recognizing that the operations function can be used to strengthen their position in the market place. Managers in operations management play a strategic and tactical role in satisfying customer needs and making their firms strong international competitors.
The role of operations management is to transform a company’s inputs into the finished goods or services. Inputs include human resources (such as workers and managers), facilities and processes (such as buildings and equipment), as well as materials, technology, and information. Outputs are the goods and services a company produces.
Basically, Operations management has an impact on the five broad categories of stakeholders in any organisation. The five groups are:
- Customers – These are the most obvious people who will be affected by any business.
- Suppliers – Operations can have a major impact on suppliers, both on how they prosper themselves, and on how effective they are at supplying the operation.
- Shareholders – Clearly, the better an operation is at producing goods and services, the more likely the whole business is to prosper and shareholders will be one of the major beneficiaries of this.
- Employees – Similarly, employees will be generally better off if the company is prosperous; if only because they are more likely to be employed in the future.
- Society – Although often having no direct economic connection with the company, individuals and groups in society at large can be impacted by the way its operations managers behave. The most obvious example is in the environmental responsibility exhibited by operations managers.
CRH plc, the international building materials group, has its headquarters in Ireland and operates in 22 countries in three closely related core businesses:
Value-added building products
Specialist building materials distribution.
Listed on the Irish and London Stock Exchanges and on the NASDAQ in the US, CRH consistently delivers long-term growth in total shareholder return, averaging over 18% per annum since the Group was formed in 1970. CRH maintains a rigorous focus on improving existing operations through experienced local management teams.
These regional platforms and management structures generate the profits, cash flow and organisational strength to support CRH’s ongoing programme of development. CRH grows by investing in new capacity, developing new products and markets and by acquiring and growing medium-sized companies. This long-term development strategy is supported by occasional larger acquisitions that extend the Group’s geographic reach or product range and offer new strategic platforms for future growth.
CRH’s strategic vision is to be an international leader in building materials, delivering superior performance and growth.
Current strategic objectives and appropriate tools to analyze them
Most of strategic objectives are directed toward generating greater profits and returns for the owners of the business, others are directed at customers or society at large. In the case study CRH plc’s ultimate objective is to deliver superior performance and growth to its customers and stakeholders in all aspects. Any strategic objectives generally measured by the following tools;
Measurable. There must be at least one indicator (or yardstick) that measures progress against fulfilling the objective.
Specific. This provides a clear message as to what needs to be accomplished.
Appropriate. It must be consistent with the vision and mission of the organization.
Realistic. It must be an achievable target given the organization’s capabilities and opportunities in the environment. In essence, it must be challenging but doable.
Timely, there needs to be a time frame for accomplishing the objective. After all, as the economist John Maynard Keynes once said, “In the long run, we are all dead!”
When objectives satisfy the above criteria, there are many benefits for the organization.
First, they help to channel employees throughout the organization toward common goals. This helps to concentrate and conserve valuable resources in the organization and to work collectively in a timelier manner.
Second, challenging objectives can help to motivate and inspire employees throughout the organization to higher levels of commitment and effort. A great deal of research has supported the notion that individuals work harder when they are striving toward specific goals instead of being asked simply to “do their best.”
Third, there is always the potential for different parts of an organization to pursue their own goals rather than overall company goals. Although well intentioned, these may work at cross purposes to the organization as a whole. Meaningful objectives thus help to resolve conflicts when they arise.
Finally, proper objectives provide a yardstick for rewards and incentives. Not only will they lead to higher levels of motivation by employees but also they will help to ensure a greater sense of equity or fairness when regards are allocated.
There are, of course, still other objectives that are even more specific. These are often referred to as short-term objectives-essential components of “action plans” that are critical in implementing a firm’s chosen strategy.
Operation objectives of the Company and its success in meeting strategic objectives
Key components of the strategy to achieve the set objectives are;
Clearly understand the current and potential future requirements and expectations of our customers-work closely with our customers, suppliers and partners to achieve quality objectives
Deliver services of market-leading quality, reliability and consistency that meet our customers’ requirements
Implement quality management in a systematic and planned way through the application of management systems that support the delivery of the business plan
Educate and train our people and partners, to support the delivery of high quality work
Establish and measure performance and customer satisfaction against appropriate quality objectives and/or targets
Measure service performance and customer satisfaction at an appropriate level
Continually review and improve our processes and levels of service
CRH’s one of the objectives is to remain the employer of choice for all employees and to exceed the expectations of all our stakeholders. This implementation can be done;
CRH believes that continued business success is rooted in good employee, customer and supplier relations. This is particularly true in a decentralised organisation, where management responsibility is delegated as far as possible to the local level.
Company Managing Directors/Presidents are responsible for the implementation of CRH employment policies, guidelines and objectives in their areas of responsibility. They are supported in this role and in reporting at Group level by their Human Resources (HR) teams.
Human Resource has a functional reporting line through Product Group and Divisional HR Directors to the Group Human Resources Director. Data is provided below on the geographic employee footprint of the Group emphasising the increasingly global reach of CRH.
Shortly after CRH’s foundation in 1970 the Board set a clear strategy for the development of the Group which, while it has evolved over the years, is still broadly applicable today. CRH’s development strategy is based on the following:
Stick to core businesses in building materials
Invest at ‘home’; be the low cost market leader
Develop ‘overseas’; create platforms for future growth
Negotiate deals that meet the sellers’ and CRH’s needs
Devolved development teams reporting to regional and product group managers
Rigorous approach to evaluation, approval and review
Generally mid-sized deals augmented from time to time with some larger transactions
Objective is to maintain and develop a balanced portfolio across regions, products and construction sectors
Focus on performance and growth
The resources, systems and tools used in the organization to support its Business Process.
CRH has a three-part strategic objective for fostering new growth across its operations.
Invest in new capacity
Develop new products and markets
Acquire and grow mid-sized companies
Investment is central to growth. CRH is making four fundamental types of investments that will make continued growth possible:
Invest in its employees
Upgrade production facilities
Invest in people – The success of CRH is very much due to having talented, committed, enthusiastic and well-qualified people throughout the Group. They encourage and support the continuous professional development of the CRH team and its members. What attracts people to CRH? A competitive pay package, the opportunity to travel, a good working environment, the ‘team’ philosophy, flat organisation structure, challenging work assignments and internal training programmes to prepare the next generation of leaders.
Upgrade production facilities – CRH re-invests capital in their existing facilities to improve energy and operational efficiency to meet future demand growth. In other words, a plant producing 500 tonnes of cement a day could easily meet local demand , but years later, the demand could skyrocket due to a building boom. If the plant does not upgrade to increase its capacity, then competitors will. Like all other technologies, methods of production can become obsolete. It takes substantial capital to re-tool an entire factory with newer, better machines, but regular upgrading is necessary to maintain and improve competitiveness.
Improve efficiency – One way to get more out of existing factories is to make sure they are being used to the maximum. A low capacity utilisation results in higher fixed costs per unit, which means lower profitability. Low capacity utilisation can be a result of over-supply in the market or seasonal fluctuations of demand. In Portugal, for example, the economy is going through a difficult period with construction down approximately 3.9% for 2007, reflecting reduced activity in housing and a significant reduction in public capital expenditure. However, all three of CRH’s Portugese cement plants operated at full capacity by taking advantage of strong export markets. Investment in efficiency and environmental improvement programmes, to offset higher input costs and improve performance, continued at all three locations.
Manage performance – A strong focus on achievement against targets is part of CRH’s objective of performance and growth. The ability of key players to deliver is important. CRH has implemented a strong performance management system and appraisal process.
The key elements include:
Planning – Clear expectations and goals are set and so plans develop to achieve these. Jobs, and how they relate to the strategic objectives of CRH, are looked at. These plans set out key steps and measures for staff. The A-SMART criteria are used, i.e. Aligned, Specific, Measurable, Action-oriented, Realistic and Time-bound.
Coaching – Observing and documenting performance, conducting reviews, as well as identifying training and development needs all provide feedback and support, and ultimately promote better performance achievement and growth. Having a mentor or coach can help staff to learn and develop, and reinforces effective and active communication and performance.
Reviewing – Getting results is a crucial factor of CRH’s high-performance culture. ‘What’ the individual achieves as well as ‘How’, are assessed and reviewed. Self-assessment, collection of information, appraisal and a review meeting all drive performance improvement. Employees have an opportunity to respond to feedback. Regular formal reviews of management development strategy are conducted by each Division with the guidance and support of the Group Human Resources Department
Developing new products and markets – CRH has activities in 28 countries but there is still plenty of room for expansion within those markets, and in neighbouring regions. The Group’s wide spread across countries, regions and construction sectors helps to smooth the effects of industry and economic cycles. That wide spread of activities creates opportunities for further growth. Each of the Group’s diverse operations across three continents is seen as a platform on which to build. CRH tailors its strategy to suit each country it operates from. An integral part of CRH’s development is its investment in four fundamental areas: people, market leadership, the environment and technology.
Investment in people consists of training and development to provide all employees with a platform for progress, a best practice programme to guarantee an efficient, safe and healthy place to work, and a market-based remuneration policy to attract, retain and motivate the right people.
While investing in acquisitions and development projects is important to attain market leadership, being the leading producer with the lowest costs is also critical. This is achieved by investing in those existing businesses which offer a strong foundation for sustained and profitable organic growth while driving continuous improvement in products, processes and strong regional brands.
Environmental investments programmes help us to improve optimise our use of energy and resources, and to be good neighbours in the communities in which we operate. Environmental investment includes projects to reduce dust and noise, minimise effluent and waste, improve energy efficiency, increase the use of recycled materials, and to restore worked-out facilities through extensive tree and shrub planting.
Investment in technology enables us to run more efficient plants; to create more effective processes; to develop innovative products; to offer better and more focused service to customers; and to measure and communicate international best practice throughout the Group.
CRH continues to invest in a wide range of projects which contribute to overall profitability, drive continuous improvement of products and processes to deliver long-term performance and strongly underpin the future development of the Group.
Quality audit and review systems
Evans & Parker (2008) describe auditing as one of the most powerful safety monitoring techniques and ‘an effective way to avoid complacency and highlight slowly deteriorating conditions’, especially when the auditing focuses not just on compliance but effectiveness
Quality audit is the process of systematic examination of a quality system carried out by an internal or external quality auditor or an audit team. It is an important part of organization’s quality management system and is a key element in the ISO quality system standard, ISO 9001.
Quality audits are typically performed at predefined time intervals and ensure that the institution has clearly-defined internal quality monitoring procedures linked to effective action. This can help determine if the organization complies with the defined quality system processes and can involve procedural or results-based assessment criteria.
With the upgrade of the ISO9001 series of standards from the 1994 to 2008 series, the focus of the audits has shifted from purely procedural adherence towards measurement of the actual effectiveness of the Quality Management System (QMS) and the results that have been achieved through the implementation of a QMS.
Audits are an essential management tool to be used for verifying objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels, to provide evidence concerning reduction and elimination of problem areas. For the benefit of the organisation, quality auditing should not only report non-conformances and corrective actions, but also highlight areas of good practice. In this way other departments may share information and amend their working practices as a result, also contributing to continual improvement.
What is Culture?
Basically, organizational culture is the personality of the organization. Culture is comprised of the assumptions, values, norms and tangible signs (artefacts) of organization members and their behaviours. Members of an organization soon come to sense the particular culture of an organization. Culture is one of those terms that are difficult to express distinctly, but everyone knows it when they sense it. For example, the culture of a large, for-profit corporation is quite different than that of a hospital which is quite different that of a university.
CRH Corporate Culture
Local autonomy – Experienced operational management is given a high degree of individual autonomy and responsibility to accommodate national and cultural needs and to leverage local market knowledge, all in accordance with key centrally defined governance, financial and CSR operating requirements
Global yet local – There is strong management commitment to both the local company and to the CRH Group, supported by best practice teams that share experience and know-how across products and regions. This dual citizenship motivates local entrepreneurship, while maintaining and benefiting from Group synergies. Our management philosophy could be described as global yet local.
Mix of skills – CRH’s market-driven approach attracts, retains and motivates exceptional management including internally developed operational managers, highly qualified business professionals and owner-entrepreneurs who join on acquisition. This provides a healthy mix and depth of skills with many managers having experience of previous economic cycles. Our succession planning focuses on sharing this wealth of experience with the next generation of CRH management
Perpetuating CRH culture – As the Group grows, CRH make considerable efforts to ensure that the unique CRH culture is propagated into the new acquisitions, while simultaneously preserving their identity, so that the Group culture thrives from generation to generation. These efforts include training programmes, seminars, newsletters, the CSR Report and many other activities that span country, regional, international, cultural and language boundaries. These are of increasing importance as the company now grow into developing regions.
Monitor systems and work activities of CRH Plc and identify the major problems affecting the systems. Also identify the opportunities your company can avail to improve business process
CRH’s success as a global business depends, on its ability to face fast-changing economic conditions. CRH is a decentralised Group with many subsidiary companies operating under a wide range of local and regional brand /trade names.
CRH’s strategy is to build leadership positions in regional and local markets. This is done by delegating authority to the local managers. So that decisions can be made promptly by those most familiar with local economic conditions, while central support from CRH Group ensures that sustainable growth is gained in line with the Group’s strategic goals. Central functions consist of the Board that sets the strategic direction for the Group, and Human Resources, Finance and IT which support the implementation of day-to-day management policy.
Finally, CRH’s vision can be identified as to focus globally yet manage locally.
During a recession, it is important for businesses to look for new ways to maximise performance. One method is to improve efficiency across operations. Another way is to reinvest capital through the use of retained earnings/revenue reserves in its existing facilities. This helps to improve energy and operational efficiency while matching capacity to meet current and future demand.
Individual operating companies generate raw materials in the region in which they operate. Most of these suppliers are based in Europe or North America. Deteriorating demand in these markets needs strict expenditure controls.
Management’s current aim is on sourcing quality supplies to gain cost reductions and to increase efficiency. Central sourcing functions have been setup in key markets to take advantage of economies of scale and reduce the cost of purchased goods.
Recession strategies – The recent banking crisis made more difficult for companies to obtain finance. Maintaining the business with liquidity and adequate cash flow is very important. However, current market conditions have made it more expensive to get financing for operations, therefore the costs of running a business is expensive and non profitable. Like other companies, CRH is focusing on maximising cash flow from operations and reducing working capital.
Budgeting – Cost savings – Year 2008 indicates major changes in the financial, economic and business climate worldwide. Declining markets led to wide ranging cutbacks across CRH’s businesses in the world. The company showed its rate of acquisition and its capital expenditure to improve liquidity and take advantage of possible further reductions in the price of assets. CRH management has also implemented other energy and cost reduction to limit the decrease in profit margins
Division-wide procurement strategies and purchasing – Company targets at purchasing amterials at lower cost and supply its productions in economies of scale to get the operational efficiency in its operations. Operational Excellence procedures have helped to reduce both labour and equipment costs while eliminating and minimising the waste.
Reductions in fixed overhead staffing and other fixed costs have been implemented to maintain a strong balance sheet position.
Raising Capital – Sources of finance -CRH management undertook a successful rights issue. This allowed existing ordinary shareholders to buy more shares as a way of re-investing back into the business. The funds rose used for further acquisitions challenging industry players. In 2009, despite the very challenging trading backdrop, CRH is operating a healthy cash flow. The Group continues to identify new measures to deal with the evolving trading conditions. CRH believes that its current cash flows, together with the recent rights issue and funds raised through its borrowing facilities, are more than sufficient to meet its expenditure requirements for the foreseeable future.
Financial reporting – It is essential that IT systems give prompt, consistent and reliable financial reporting from the local operating units to the central Group management. Accurate financial reporting is paramount importance for management especially during difficult economic circumstances. Decisions on budgeting, raising capital and sourcing of finance all rely on accurate financial reporting.
Managing people – CRH employs 80,000 people in over 3,700 locations, including 35 countries. This staffs is managed through four Divisions. Company is introducing a web-based global talent management system replacing a paper-based system.
There is a unique culture of performance and achievement throughout the CRH Group ensuring that, CRH has the capacity to deliver performance excellence despite of critical economic conditions
The CRH management team are highly experienced and the development of talented successors is a priority for all managers.
Regular formal reviews of management development strategy is done by each relevant Division with guidance and support provided by the Group Human Resources Department.
CRH managers come from three very different streams, comprising:
Internally developed operating managers who have room to grow in an expanding organisation
Highly qualified finance and development professionals – business builders with vision and future potential
Owner-entrepreneurs who have joined with their companies and provide a vibrant entrepreneurial spirit.
This brings forth a healthy mix and depth of skills and a wealth of experience at senior level with many senior leaders having managed through previous economic cycles. This gives them invaluable experience to deal with the current downturn enabling them to prepare for the inevitable upturn of the market.
Performance management – In CRH’s high performance culture particularly during difficult economic times achieving results is difficult. But, CRH has adopted a strong performance management and appraisal process. Employees are given realistic goals and plans in place to achieve them. Performance is driven by appraisal, regular review meetings and self-assessment.
Leadership development – Management Development Programmes gives leadership training usually to middle or top level managers to assist them in upgrading their skills. These programmes have been updated in response to the changing economic climate. Staffs are encouraged to identify opportunities for business development and increased efficiency. Internal promotion is used to motivate and reward staff.
Succession planning – CRH places a significant consideration on succession planning. So as to develop future generations of leaders from within the organisation and maintain quality employees at all levels. Staffs are prepared for future roles by involving them with challenging assignments, coaching and formal training.
Employees are educated the fact that during difficult economic times they must work within tighter financial constraints to keep operations within budget.
CRH Future and Recommendation
The process of maintaining superior performance and growth involves continuously investing for the future. The overall picture in 2009 is extremely challenging, having the severe impact of ongoing turmoil in financial markets across the world. There are a number of positives factors which will provide future opportunities for business, for example,
Lower energy costs,
Interest rate reductions
Infrastructure stimulus packages in a number of countries, notably the USA.
In this environment, efforts will mainly focus on implementing cost-cutting measures, reducing expenditure and preparing the business for recovery in construction markets.
Regional and product diversity cater for smooth outcome of the effects of changing economic conditions and to provide multiple opportunities for growth. Management has responded vigorously to extremely challenging market conditions.
All aspects of business need to be analysed and cost reduction and cash generation measures need to be in place to deal with whatever trading circumstances may evolve as the time go on.
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