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Operations Management Report


Introduction

Operations management is a term that is commonly used to refer to production and operations management (POM). In essence, operations management refers to the process of creating goods or services. For example, in order to create a product, we must procure raw materials from merchants. What’s more, there must be a location to manufacture the product as well as organize a system to facilitate the production.

A procurement manager is usually responsible for purchasing materials while the role of materials manager is to ensure there is an adequate supply of inventory to facilitate production. In essence, this procedure is employed in service organizations such as restaurants, hospitals and hotels.

In some way, business organizations project, plan, choose the right location, ensure quality and supervise inventory in order to create products that meet their customers’ requirements (Young 2010, p.3). Consequently, the focus of this report will be to examine the success of operations management theories, tools and techniques in the hotel industry.

Performance Evaluation

Performance evaluation is a critical component in operations management, particularly in hotel industry. For instance, enterprise management demands that hotel managers be familiar with their performance (as a team) with respect to the attainment of the organization’s strategy.

In its basic form, strategy refers to the blueprint that facilitates the accomplishment of the organization’s goals within a specific time frame. Thus, performance evaluation entails two main components: performance management and performance measurement (Neely & Adams 2001). These two aspects will be discussed in relation to operations management in the following section.

Performance Management

Performance management refers to a procedure that plays an integral role in terms of productive management of individuals as well as teams so as to attain high levels of performance within the organizations. In essence, performance management fosters mutual perception of what is to be accomplished as well as a suitable strategy that ensures the organizational goals are met.

In addition, performance management is a strategy that encompasses all activities established within the backdrop of organization’s (i.e. hotel sector) communication system, culture and human resource policies (Armstrong & Baron 2004).

With regard to hotel industry, performance management is an effective tool that hotel managers can employ to ensure that the employees under their supervision: know and appreciate what is expected of them; posses the requisite skills and knowledge to deliver these expectations; receive adequate support from the organization to buttress their capabilities to fulfil these expectations; and have opportunities to present their valuable inputs to help drive the organization’s goals and objectives (Armstrong & Baron 2004).

Therefore, in essence, performance management lends credence to establishing a culture whereby hotel managers and employees assume accountability for the continuous enhancement of business processes as well as their own inputs, behaviour and skills.

In other words, performance management is about sharing expectations. For example, hotel managers can elucidate what they expect from employees. On the other hand, employees can communicate their expectations in terms of what they require in order to discharge their duties and how they ought to be handled.

Thus, performance management is all about interrelationships and enhancing the quality of such affiliations. It also entails planning, that is, describing expectations in terms of objectives as well as business plans. Finally, performance planning is holistic. As such, it should permeate every aspect of organizational management (Philips & Louvieris 2005, p.204).

Performance Measurement

In any organization, including hotel industry, performance measurement basically refers to the process of gathering information. Thus, performance measurement is a procedure that entails measuring the efficiency of past actions. It assesses the manner in which organizations are managed as well as the value they create for investors and consumers (Neely & Adams 2001).

For example, Kaplan and Norton (1996) provide parameters for the creation of performance measurement system that can result in exceptional performance in the current highly competitive hotel industry. These parameters are:

  • Organization-specific measurements- performance measurement must be connected to the strategy of the organization.
  • Manifold measurements- performance measurements that include financial and non-financial, internal and external, outcome measurements and performance drivers must be adopted to relay underlying relationships for accomplishing business strategies.
  • User-friendly measurement- performance measurements must be plain, easy to use and accessible swiftly.
  • Employees in hotel industry must be engaged in developing strategies as well as suitable performance metrics.
  • The organizational infrastructure of the hotel must promote the expected behaviour as well as sustain the manner in which the measurement system is operated (Kaplan & Norton1996).

Alternative Performance Evaluation Systems in Hotel Industry

One of the widely used performance measurement and management tool in hotel industry to execute strategy is Balanced Scorecard model. The Balanced Scorecard has gained popularity, in terms of its efficiency in operations management in the hotel industry, over the years since it was first adopted by Hilton Hotels in 1994.

Another performance measurement and management tool employed in the global hotel industry is Six Sigma which is currently employed by Starwood Hotels-an international chain that comprises of several brands-for example W Hotels, Four Points, Westin, Le Meridien, Sheraton and St. Regis (Philips & Louvieris 2005, p.206).

However, there are several authors who have suggested other approaches to performance assessment in the hotel industry.

For example, Philips (1999) suggested a contingency approach to evaluate the suitability of the existing performance evaluation system used in hotel industry (p.359). According to this approach, competitive advantage can be realized in the hotel industry if markets, inputs, outputs, processes as well as environmental attributes are in harmony with business objectives (Philips 1999, p.362).

Furthermore, Southern (1999) proposed a system approach with regard to performance assessment, at operational level, in hotel industry (p.366). The system approach (concepts and techniques) are employed within the hotel industry to describe and evaluate influences between sub-systems. The author states that:

An operations management analysis framework… considers the design of operation systems with specific reference to performance measures which drive and support an organization’s competitive stance based on competitive factors (Southern 1999, p.370).

Anderson and Fish (1999) also developed a stochastic frontier approach to evaluate performance in the hotel industry especially with regard to managerial efficiency level (p.45). The approach enables a manager to establish if the optimal quantities of resources were used on the basis of the revenues attained.

Any resources used in surplus of the optimal amount are represented as X-inefficiencies (i.e. deviation from efficiency). The model is grounded on cost X-efficiency which demands attaining the lowest cost feasible-subject to firm output and prevailing prices in the market (Anderson & Fish 1999, p.46).

In the same line, Neves and Lourenco (2009) have suggested using Data Envelopment Analysis (DEA) to choose strategies that can enhance performance in hotel industry (p.698). Data Envelopment Analysis is a linear programming method that determines the efficiency of several decision-making units (DMUs) in a situation where the structure of the production processes has numerous inputs and outputs.

Under the DEA approach, efficiency is determined by comparing the weighted sum of outputs with those of inputs (Neves & Lourenco 2009, p.699). Another salient aspect that deserves consideration relates to the application of budgeting and management control systems in the hotel industry. This will be covered in the next section.

Application of Budgeting and Management Control Systems in Hotel Industry

The recent financial meltdown, which had a negative impact on the hotel industry, serves to emphasize the urgent need for efficient management control systems to avert such problems in the future. There is no doubt that budgeting is a crucial aspect in any organization’s financial stability and many hotel chains have incorporated budgeting as part of their management control systems.

For example, the current stiff competition within the hotel industry has compelled many hotel chains to lend credence to effective performance measurements, especially operational budgeting (Hansen & Otley 2003, p.95).

Budgeting process is considered as one of the management control systems and a key constituent of the control process in the hotel industry. As businesses within the hotel industry evolve, a number of operating parameters, budgeting policies, planning requirements and procedures are adopted to aid in the control of operations.

Morris, Allen, Schindehutte and Avila (2006) assert that, “the system of controls and the resulting management style within an organization can be an important inhibitor or facilitator of a firm’s strategic initiatives” (p.12).

Thus, within the context of hotel industry, controlling signifies the key management function enclosed within the control system of supervising activities to make sure that assignments are executed as planned (Robbins & DeCenzo 2005).

In essence, an effective control system has core elements that stipulate the role of a controlling function within the managerial backdrop of a management control system:

  • Control system entails a top-down management strategy. The allocation of individual duties is the key reason that justifies the adoption of an efficient control system within the hotel industry.
  • Control system offers direction as well as stability by matching expected results with actual outcomes. Variance analysis establishes the root-cause deviations as well as offering the basis for efficient decision making.
  • An effective control system must be accompanied by a precise budget that links short-term expected outcomes with long-term strategic goals (Robbins & DeCenzo 2005).

As noted earlier, budgeting is a key component of an effective control process and thus an important constituent of a successful management control system. It is worth mentioning that budgeting is an important tool used to estimate the future financial performance of organizations within the hotel industry.

In essence, a budget mirrors the financial ramification of business strategies by identifying the quantity as well as resources required to achieve the desired outcomes in the hotel industry (Innes 2005, p.135).

What’s more, budgeting process entails two major phases: the planning phase and the control phase. The former measures the business goals to be achieved during the financial year as well as the financial plan required to achieve them. Thus, the planning phase provides a useful yardstick on which performance can be evaluated during the control phase.

On the other hand, the control phase is a useful evaluator when actual outlays and revenues differ from the plan expressed by the budget (Bhimani 2006). For example, hotel industry faces a number of management dilemmas. One of the salient aspects common in this industry relates to intangible products that do not have physical substance.

Consequently, intangible products encounter several management issues which mean that unique performance measures as well as controlling systems have to be considered (Hansen & Otley 2003, p.95).

Knowledge management is another crucial aspect that determines performance in the hotel industry. The following section will specifically discuss the application of knowledge creation theory in the hotel industry.

Knowledge Management and Six Sigma

Knowledge management is a widely discussed topic within the academic sphere. Knowledge-creation theory is among the most dominant theories of knowledge management. According to this theory, knowledge is deemed an important resource that provides competitive advantage, especially in the hotel industry.

By generating novel knowledge regarding processes as well as enhancing their efficiency, knowledge creation play an integral role with regard to buttressing the competitive edge of hotels within the hospitality industry.

In other words, knowledge creation offers a suitable lens through which process improvements can be realized within the hotel industry (Anand, Ward & Tatikonda 2010, p.304).

Explicit and tacit knowledge types

The process of knowledge creation can be depicted as alteration between explicit and tacit knowledge. It is worth mentioning that this classification of knowledge is one of the two major classifications in the knowledge management literature (Anand, Ward & Tatikonda 2010, p.304):

Framework of knowledge-creation mechanisms.

Anand, Ward and Tatikonda (2010): Framework of knowledge-creation mechanisms.

Explicit knowledge is usually codified and documented. What’s more, the transfer of explicit knowledge can occur via impersonal manner (i.e. via printed diagrams and instructions). On the other hand, tacit knowledge is one that is hard to express, particularly with respect to cause-effect relationships.

Tacit knowledge is conveyed principally via social engagements. In addition, it adds to the stickiness of information needed for solving problems and making it hard for others to collect, transfer and use information.

Thus, the hard-to codify attribute of tacit knowledge may compromise the ability of an organization (especially in hotel industry) to gain competitive advantage in the market (Anand, Ward & Tatikonda 2010, p.305).

Six Sigma Approach

Process improvement entails using techniques and tools to exploit knowledge of employees for specific goals. The Six Sigma approach has an organizational design (with tools and techniques) required to determine and carry out process enhancements using contributions from individuals.

It is important to note that Six Sigma plan usually consist of projects with a wide range of precise goals such as enhancing customer satisfaction, restructuring supplier relationships, inventory reduction, cycle-time reduction and yield improvement (Anand, Ward & Tatikonda 2010, p.305).

Harnessing explicit knowledge

Explicit knowledge can be harnessed via explicit-tacit (internalization) practises or by sharing such knowledge via explicit-explicit (combination) practises (see figure above). Combination practises, in relation to knowledge creation, enables hotel managers and employees discern explicit links between process elements via measurement of performance metrics and data analysis.

These practices merge elements of explicit knowledge from various sources, reorganizing and classifying them to produce novel explicit knowledge for achieving organization’s objectives. Internalization practices, on the other hand, transform explicit knowledge into tacit one so that it is generally comprehended by the hotel staff and utilized to enhance performance.

What’s more, internalization practices, employed to harness explicit knowledge, entail using error-proofing and control charts procedures, which may signify a need for tacit on-the-job amendments. For example, a hotel manager may use explicit information from the control charts to make adjustment on the basis of the distinctive requirements of a customer.

On the other hand, explicit measurements that reveal faults may necessitate team meetings to share tacit knowledge through brainstorming ideas on what might be wrong and how it can be rectified (Anand, Ward & Tatikonda 2010, p. 306).

Harnessing tacit knowledge

Socialization practices can be employed within the context of hotel industry to share tacit information. These practices merge individual tacit information and produce mutual knowledge among staff members regarding procedures being examined.

Thus, socialization practices allow staff members to integrate each other’s viewpoints while generating ideas for probable causes of errors (under consideration) as well as strategies to rectify them. In simple terms, socialization practices allow hotel managers and employees to share their ideas on the basis of their experiences.

Although they consume time, these practices are effective and posses a wealth of information since they ensure that information generated by the staff is not obstructed in any manner by communication obstacles (Anand, Ward & Tatikonda 2010, p. 306).

Within the framework of Six Sigma, socialization can be attained via the inclusion of individuals from diverse hierarchical, functional as well as organizational frontiers (i.e. customers and suppliers). A good example to demonstrate the importance of customer interactions is presented by Buckman Laboratories, an international specialty chemicals firm.

The chemicals company signed a knowledge-sharing accord with consumers, to carry out projects to decrease their material use. The company was successful in leveraging tacit information (on how a few consumers utilized their products as raw materials) to provide service to the entire consumer segment.

What’s more, the chemical company learnt the significance of tacit knowledge and adopted both one-to-one and group interactions among its own staff as part of the system.

Thus, within the context of the Six Sigma approach, the socialization strategies that hotel manager can employ include nominal group practice and brainstorming, as part of idea-generation techniques (Anand, Ward & Tatikonda 2010, p.307).

In addition, within the context of Six Sigma approach, externalization methods facilitate the transformation of hard-to-codify tacit information into explicit information by offering templates (i.e. failure modes, effect analysis charts, as well as cause-and-effect diagrams).

These templates are used as expedient language for staff members to generate knowledge that aid in achieving the desired objectives of the business organization. Examples of other templates within the Six Sigma tool kit are: project tollgate reports, affinity diagrams and value stream maps.

In addition, externalization methods consist of actions that inspire employees (particularly in the hotel industry) to articulate their ideas as well as train them to communicate such ideas in an explicit manner (Anand, Ward & Tatikonda 2010, p.307).

Therefore, externalization and socialization practices can be adopted within the hotel industry to harness the hard-to-capture tacit information from employees; knowledge which may prove to be vital for operations management within the organization.

The ability to harness such information can offer insight that lead to higher levels of process enhancements compared to what could be attained solely via explicit-information-harnessing methods.

As of now, many managers within the hotel industry have discerned the significance of harnessing tacit information from their staff so as to exploit the incredible sea of knowledge possessed by their employees and hence increase the returns that they achieve from socialization and externalization practices (Anand, Ward & Tatikonda 2010, p.307).

Recommendations

In today’s highly competitive hotel industry, consumers are increasingly demanding for customized products that meet their requirements. What’s more, many hotel chains are struggling to adopt efficient operations management systems in order to achieve a competitive advantage and realize their strategic goals.

Although literature abounds with numerous operations management theories and strategies that can help business organizations, especially in the hotel industry, achieve their strategic objectives, few of them offer prospects for success.

However, Knowledge-creation theory stands out as one of the effective operations management strategies that can be adopted within the hotel industry environment. Currently, many managers within the hotel industry have discerned the significance of harnessing both explicit and tacit information from their staff so as to exploit the incredible sea of knowledge possessed by their employees and hence increase the returns that they achieve from socialization and externalization practice.

The knowledge-based theory considers knowledge as an important resource that can provide competitive advantage, especially in the hotel industry.

Thus, the ability of hotel management to harness both tacit and explicit knowledge from the staff will provide a wealth of information that can be used achieve competitive edge and drive organization’s strategies given the prevalence of stiff competition within the hotel industry.

References

Anand, G., Ward, P & Tatikonda, M 2010, ‘Role of explicit and tacit knowledge in Six Sigma projects: An empirical examination of differential project success’, Journal of Operations Management, vol. 28, pp.303-315.

Anderson, R & Fish, M 1999, ‘Measuring efficiency in the hotel industry: A stochastic frontier approach’, International Journal of Hospitality Management, vol.18, pp. 45-57.

Armstrong, M & Baron, A 2004, Managing performance: performance management in action, Chartered Institute of Personnel and Development, London.

Bhimani, A 2006, Contemporary issues in management accounting, Oxford University Press, Oxford.

Hansen, S & Otley, D 2003, ‘Practice developments in budgeting: an overview and research perspective’, Journal of Management Accounting Research, vol. 15, p. 95-116.

Innes, J 2005, Handbook of management accounting, Elsevier, Amsterdam.

Kaplan, R & Norton, D 1996, The Balanced Scorecard: Translating Strategy into Action, Harvard Business Press, Boston.

Morris, M., Allen, J., Schindehutte, M & Avila, R 2006, ‘Balanced Management Control Systems as a Mechanism for Achieving Corporate Entrepreneurship’, International Entrepreneurial Management Journal, vol.5, no.1, pp. 1-22.

Neely, A & Adams, C 2001, Perspectives on Performance: The Performance Prism in Handbook of Performance Measurement: Theory and Practice, Cambridge University Press, Cambridge.

Neves, J & Lourenco, S 2009, ‘Using data envelopment analysis to select strategies that improve the performance of hotel companies’, International Journal of Contemporary Hospitality Management, vol. 21 no. 6, pp.698-712.

Philips, P 1999, ‘Hotel Performance and competitive advantage: a contingency approach’, International Journal of Contemporary Hospitality Management, vol.11, no.7, pp.359-365.

Philips, P &Louvieris, P 2005, ‘Performance Measurement Systems in Tourism, Hospitality, and Leisure SMEs: A Balanced Scorecard Perspective’, Journal of Travel Research, vol.44, no.2, pp. 201-211.

Robbins, S & DeCenzo, D 2005, Fundamentals of management: Essential concepts and applications, 5th edn, Pearson/Prentice Hall, Upper Saddle River, NJ.

Southern, G 1999, ‘A systems approach to performance measurement in hospitality’, International Journal of Contemporary Hospitality Management, vol.11, no.7, pp.366-376.

Young, S 2010, Essentials of Operations Management, Sage Publications, Inc, California.

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