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.
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
- Increase the value of the business assets
- Secure the income and value of the business
The three imperatives are interdependent. 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 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.