Key business function Operations Marketing Finance Human resources Growth Market share Workplace Product stability Workplace Growth flexibility

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1 Operations - Performance objectives demystified Each of the key business functions sets its own goals and objectives. However, the key business functions are interdependent and therefore the goals and objectives of each overlaps with the goals and objectives of the others. In Table 1 below the goals and objectives of each of the key business functions is shown. This Table should be read very carefully. Goals or objectives Key business function Operations Marketing Finance Human resources Growth Market share Workplace Product stability Quality diversification (mix Profitability Workplace Speed flexibility) Growth flexibility Dependability Geographical Liquidity Efficiency Flexibility diversity Solvency Productivity Customisation Customer loyalty Cash flow International Cost (value added per Efficiency competitiveness customer) and Skill satisfaction Warranty claims Table 1 A list of the goals of each of the key business functions Interaction between objectives Whilst each of the key business functions has its own discreet set of goals and objectives, there is very significant overlap between them. This is because the main overarching goal of business is to maximise profitability. All of the other goals work towards the realisation of this overarching goal. Thus, for example, the marketing goal of customer loyalty is actually an expression of a financial goal for several reasons. Firstly, it is cheaper to retain customers than seek new ones, so that reduces costs. Secondly, loyal customers tend to positive appraise the business leading to positive word-of-mouth promotion. Thirdly, loyal customers do not want to buy from competitors so the business can sell more to each customer and add value. In this way each of the goals can be analysed and observed to directly contribute to the financial objectives of business. Operations objectives There are six operations objectives: quality, speed, dependability, flexibility, customisation and cost. It can be assumed from a list such as this that the actual goals may be articulated as follows: Quality of product and all processes. Implied in this is that the quality of input, processes and outputs are all assessed with a view to making continual improvements where possible. Since price and quality are related, a focus on quality is likely to be a focus on profit maximisation. Speed is often also termed lead time, which is a more specific reference to how long it takes for customer orders to be fulfilled. Speed is closely related to cost and also cash flow as time reductions also create cost reductions. Moreover, the speed with which product can be made and delivered to markets is directly related to the speed with which products can generate cash flow. Speed can be improved through the elimination of bottlenecks processes that slow the overall production process. Dependability is a quality aspect related to the reliability and a feeling of certainty and consistency associated with products (goods and services) and the processes of production. Dependability leads to a reputation. In business, reputation is an intangible asset that adds significant value to business. Thus a focus on dependability is really a focus on quality and thus there is direct impact on both cash flow and profitability. Flexibility is a reference to how quickly a business can adapt to changes in demand. There are predictable times when demand will increase and when it will be lower. Flexibility concerns both the predictable cycles as well as those that are unpredictable. Flexibility more broadly also refers to the adaptability of the products to meet the varied demands of consumers. This can take the form of varying the product to meet more specifically the needs of consumers. In this way, flexibility is a reference to mix flexibility or product diversity. It should be clear that in general terms goods are often standardised whereas services are often far more customised.

2 Thus, flexibility is a greater issue for producers of goods than producers of services. A further aspect of flexibility concerns how a service is delivered or how a good is produced. Flexible modes of delivery of service can increase sales hugely and flexible production methods can lowers cost and reduce lead times. Flexibility therefore is a cash flow and also an income generation objective. Customisation is a reference to the particularisation of a product for the market. Customisation means that a product is adjusted to meet the highly specific needs of the customer. Customisation adds cost and thus can be expensive. However, as an objective customisation places the needs of customer foremost. Standardisation places the needs of a process foremost and minimises cost. Thus standardisation is a cost leadership strategy whereas customisation is a profit maximisation strategy. Customisation aims to have the customer feel valued and thus generate future sales through loyalty. Cost is reference to the expenses associated with operations processes. Cost is factor that businesses must manage as profits are created by margins the excess of income over the costs. A focus on cost is both an efficiency objective as well as a profit objective. If costs are well managed then it means that for every dollar spent the business gains the maximum value in terms of productivity and output. A focus on cost will also mean that wastage is reduced to an absolute minimum. When waste is minimised costs are best utilised. Introduction to Unilever Unilever is a global company with its headquarters in the Netherlands. It sells consumer and household products to an estimated 2 billion consumers in 180 nations around the world. The company trades with numerous global brands (see below) and employs over 167,000 employees. Unilever sells about 170 billion units of product annually. Unilever states that it competes globally in eleven different market categories and is the global leader in seven of them. The company had a turnover in 2010 of over 44.3bn. Unilever is also the second largest advertiser globally, spending in 2010 over 6bn in advertising and promotions. As a result of this massive scale, Unilever implements numerous operations management strategies when trying to achieve is operations objectives. Unilever brands An examination of these objectives can be seen with respect to Unilever. Unilever is a very well known business that trades under numerous consumer brands. The brands are broadly classified into three categories: Food and drink brands including: Lipton, Bushells and Lan-Choo brands of tea and coffee Continental soups and vegetables and Raguletto pastas Streets ice cream range Bertolli oils and Flora margarine Household care brands including: Jif, OMO and Domestos as household cleaning products Fabric cleaners, washing powders and softeners such as Drive, Surf, Comfort and Persil Personal care brands including: Sunsilk, TRESemme and VO5 shampoos and conditioners Rexona, Dove, Lynx and Impulse moisturisers, deoderants, anti-perspirants, skin care products and the like Radox baths salts Simple - a fragrance-free skin care range Pears and Lux soaps Vaseline and St Ives moisturisers

3 Unilever is a product manufacturer as well as distributor to retail markets. Thus, operations objectives are crucial to assisting managers at Unilever to control and direct the operations function. Unilever and the operations focus Unilever is a global company and sells about 150 million units of product every day across all of its brands around the world. This is a very high volume of product turnover and requires very stable and well established sourcing, operations and logistics processes to be in place. Unilever articulates its focus as: Focusing on performance and productivity, we encourage our people to develop new ideas and put fresh approaches into practice... We don't measure success only in financial terms; how we achieve results is important too. We work hard to conduct our business with integrity - respecting our employees, our consumers and the environment around us. Source Unilever and Sustainable sourcing Agriculture and forestry are the largest contributors to global greenhouse gas emissions and are major drivers of climate change. Half of Unilever s raw materials come from either farms or forests. We are committed to sourcing sustainably all our agricultural raw materials by As well as protecting the planet s natural resources, sustainable sourcing helps us to manage a core business risk by ensuring security of supply for the long term. Our approach is set out in the Unilever Sustainable Agriculture Code. Sustainable sourcing can contribute to better incomes and livelihoods for farmers and their workers. It also helps to maintain soil fertility, enhance water quality, reduce greenhouse gas emissions and protect biodiversity. Our business is part of a complex supply chain, including farmers and plantation owners as well as processors, refiners and traders of raw materials. To meet our target we will need to work closely with all of them to transform farming practices and encourage a wider move towards sustainability throughout the supply chain. In measuring progress on sustainable sourcing, we are dependent on the reliability and accuracy of the certification bodies we use. Source: It should be evident that Unilever takes the operations objectives seriously. Addressing each in turn reveals the following: Quality of product and all processes. Unilever aims to have quality as an intrinsic aspect of product design and production. During 2010 customer complaints fell by 11% over the previous year and issues of market quality fell by 46%. This quantifiably demonstrates that a focus on quality reduces costs. Speed - For Unilever this takes the form of rapid introduction of brands to new markets. In 2010 alone over 100 new innovations were launched in markets globally. In India it took just 49 days for a re-branded washing powder called Wheel to be rolled out into 25 states across the nation. 650,000 tonnes of washing powder were rolled out in this time. Dependability is a quality aspect and the business applies continuous improvement as a philosophy for managing consistency in quality. Continuous improvement means doing everything a little better, every day. It is the key to sustainable growth. In 2010, we concentrated on improving speed and agility in the supply chain, while keeping costs competitive. Source: Flexibility is a reference to the capacity for Unilever to adapt to market changes in demand for volume through creating product as required and through generating broader variety in order to take advantage of market opportunities. Clearly, the capacity for Unilever to upscale quickly is high. Unilever has managed to come through the global downturn of with its business growing and sales of products in all categories up. Customisation - Unilever reports an innovation rate of 33% of turnover. This means that of all revenue from sales 33% arises from the new innovations they have placed in the market. An

4 aspect of product development involves the creation of products for particular markets including those termed new and emerging. Such markets require products specific to the needs of customers who have low incomes and are adjusting to change. Unilever seeks to take commercial opportunities arising in such markets as the capacity for sustained long term growth and for the entrenching of brands is a very real possibility. Cost in 2009/10 Unilever saved over 1.4billion in cost reductions and savings in the year ended December 31 st Many of these cost savings were created by supply chain rationalisation and others were created through minimising waste. Some of the reductions in materials use and the resultant decline in environmental waste can be read from the text box titled Unilever waste not, want not. Unilever waste not, cost not Water used per tonne of production in 2009: 2.81 m 3 or 2,810L Water used per tonne of production in 2010: 2.76 m 3 2,760L Waste created per tonne of production in 2009: 6.52kg Waste created per tonne of production in 2010: 6.46kg CO2 production per tonne of product: kg in 2009 CO2 production per tonne of product: kg in 2010 An analysis of these figures over successive years demonstrates that the company is making decisions to actively reduce the amount of water used in production. This can be seen by comparing the figures between 2009 and Furthermore, the amount of waste created during the production process has also declined over the same period. The decline is waste is very slight however, amounting to just under 1%. The volume of carbon dioxide produced has fallen much more significantly with a decline of 6.7% from the end of 2009 until the end of Other cost savings for Unilever arise from trading on global scale. In so doing the business realise significant advantages from economies of scale. In 2012 the main areas for achieving such economies is in the areas of procurement (supply chain management) and on an aspect of the business they call business services. Business services refers to administrative processes that characterise the processes involved with running and managing the business. Procurement and Unilever Unilever has created a single global procurement process in bid to rationalize the procurement process and also to reduce duplication. In this process there has been considerable simplification and cost reductions. The company 2010 Annual Reports the change to procurement processes as follows: A phased global supply chain change programme gives an idea of the scope and pace of improvement. Rolled out first across Europe and Asia, we launched the programme in the Americas in April 2010 to create a new business unit, the Unilever Americas Supply Chain Company, which will become operational in late Bringing together common systems and processes across all Unilever s supply chain operations, this will deliver even better service to our customers and consumers around the world. In summary The performance objectives that provide focus to the operations strategies must be clearly understood. These objectives are a subset of the broader business goals of profitability, efficiency, growth, liquidity and solvency. Through specifying operations goals the operations managers can ensure that operations processes and strategies act consistently with the overall business goals. This can be clearly seen with respect to the way in which Unilever has focused on the performance objectives. References: Unilever Consolidated Annual Report 2010 Review Activities Performance objectives demystified 1. List SIX (6) performance objectives.

5 2. Describe how the goals of the various business functions overlap and are interdependent. 3. Define the following terms: Bottleneck Cost Cost leadership Customisation Dependability Flexibility Income Lead times Loyalty Mix flexibility Procurement Product diversity Production Profit Quality Sourcing Standardisation Value add 4. Examine the link between quality as an operations objective and profit maximisation as a financial management objective. 5. Detail how the term flexibility is more of an issue with the production of goods than services. 6. How does customisation affect the cost of production? 7. Explain the relationship between cost and profitability 8. Provide an overview of Unilever and its brands. 9. Detail the means by which Unilever addresses each of the following operations objectives: a) Quality b) Speed c) Dependability e) Customisation d) Flexibility f) Cost 10. Assess whether financial objectives at Unilever will be likely to be achieved when Unilever focuses on performance objectives.

6 The 2012 HSC Business Studies Examination Assessed Introduction 2012 was the year in which the new, reinvigorated HSC Business Studies Course was first examined by the NSW Board of Studies (BOS). As is typical following a change in syllabus, the Board of Studies offered a Specimen HSC paper. Typically a Specimen paper is intended to assist teachers and students to understand both the examination format and also the style of possible questions that could be anticipated with the first formal examination. The HSC Examination According to the Board of Studies, students were advised that the HSC examination would follow the format provided in Extract 1. Extract 1 The HSC Examination Section I (20 marks) There will be objective-response questions worth 20 marks. Section II (40 marks) There will be four to six short-answer questions. Questions may be in parts. There will be approximately 12 items in total. Section III (20 marks) There will be one question that requires an extended response in a business report format. This question will incorporate elements from across topics in the HSC course. The expected length of response will be around six pages of an examination writing booklet (approximately 800 words). Section IV (20 marks) There will be two extended-response questions. Candidates will be required to answer one question. Each question will be drawn from a different topic in the HSC course. The expected length of response will be around six pages of an examination writing booklet (approximately 800 words). Source: pdf Section I The multiple choice (or objective response) section starting with an entry level definitions for outsourcing and sequencing. Thereafter there were a couple of tricky questions including this one: Which of the following is the correct sequence for an operations process? (A) Facilities controls waste (B) Materials design product (C) Information services improvement (D) Human resources planning customers Question 7 was referred to processes of a local council rather than business which seemed an odd choice of scenario. Question 10 was a question that technically made reference to a process called performance appraisal as the question gave this example: Sam s job is to set goals for employees and give them feedback on the achievement of their goals. This approach to staff management is the basis of performance appraisal. An essential feature of performance management is the inclusion of the employee, thus, the best or most correct answer was actually technically incorrect. The authority for this is numerous scholarly articles on the difference between performance appraisal and performance management. Question 15 read as follows: A gym has fitness-conscious office workers as its target. What type of segmentation is this? (A) Geographic and behavioural (B) Geographic and demographic (C) Psychographic and behavioural (D) Psychographic and demographic

7 It is difficult to say what answer will be accepted. Presumably (C) as fitness-consciousness requires a certain mental focus and is thus psychographic. Moreover, as the use of gyms tends to be repetitious then this is a behavioural quality. Office workers however tend to be located in urban areas and thus answer (A) may also be possible. It is hard to see how a question such as this is an objective response as there is a subjective overlay in terms of an interpretation required here. Section II There were twelve different questions (13 items ) asked in this Section ranging in mark weight from 1 mark (2 questions), 2 marks (3 questions), 3 marks (2 questions), 4 marks (5 questions) and 6 marks (1 question). This Section is not normally one where students make overt reference to case study material however it seems it is not excluded as the very first question was: Question 21 (a) How might a business benefit when an operations manager acts in an ethically and socially responsible manner? Support your answer with relevant examples (4 marks). Question 22 (d) also made reference to the use of relevant examples. Question 21 (8 marks) addressed corporate social responsibility (CSR), Question 22 (12 marks) finance and ratios but one item (4 marks) also addressed operations. Question 23 (12 marks) was mainly about marketing but some one item (6 marks) referenced finance as well. Question 24 (8 marks) was focused on human resources (HR). Section III This Section is scenario-based and requires students to apply strategies from two or more topics to solve business problems. Slightly oddly, the scenario referred to business based in Queensland and asked students to suggest human resources and operations strategies to address the issues raised. These issues included addressing workplace accidents and employee demands for wage increases. There was no evidence of the business trading interstate. Students in NSW are not taught Queensland s laws in reference to workplace safety or industrial relations. It therefore seemed an odd twist in the scenario. Section IV In contrast to Section III this part of the paper did not give any stimulus or quote to draw from. As could be expected, since Section III referred to human resources and operations, the questions in Section IV made reference to marketing (Question 26) and finance (Question 27). In many ways the division across Sections III and IV was an improvement on the Specimen paper which made reference to three of the four Topics in Section III. In summary The HSC paper was mostly predictable and students who knew their syllabus well as could apply case study would have found it quite straight-forward. As with all HSC papers there were a couple of questions which were a bit ambiguous. It is common for there to be a couple of questions in each HSC that generate discussion amongst students and teachers. This HSC was no different. There are two very important developments to arise from this HSC: it may be the case that students can apply case study to short answer questions. Furthermore, the split of topics between Section III and IV is a good sign and, if it becomes a feature of the HSC then it will make the paper overtly more balanced across all of the topics.