From the course: Operations Management Foundations

The importance of providing value

From the course: Operations Management Foundations

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The importance of providing value

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- Companies are constantly juggling to make all sorts of people happy, investors, employees, managers, and of course, customers. For now, let's just consider the customer. If the customer isn't happy, they aren't buying what we have. So, how do we make customers happy? What do customers want? Great products and services? Is that all they want? Not really. Suppose I had the world's greatest cell phone. Suppose each unit of that cell phone cost the customer $100,000. Come on, it's the world's greatest cell phone. Would customers buy it? Probably not. Why? Because customers could probably get the second best cell phone for a lot less. So, what do customers really want? They want great products and services at a great price. In operations, this is what we call value. What's value? Well, to keep things simple, value is a ratio of what do I get divided by how much did it cost me? Suppose you go to the grocery store. You see two cans of corn on the shelf, both cans the same size, 12 ounces. One is the brand name corn for $1.50. One is the generic brand for $1.00. It would seem the better value is the generic can of corn, but it's not that simple. What do I get can mean so many things. The taste of the corn. What the corn looks like when you open the can. The goodwill you have toward the company that makes the corn. Perhaps you just like the label better, it's prettier. Or maybe you want access to the recipes on the label. Even what did it cost me can have an expanded definition, especially in the world of restaurants and retail. What did it cost you to go to Walmart? The cost of the items at Walmart were lower, but you had to drive a long way to get to the Walmart. Also, once you were done shopping the line was long and slow. So, we can see that sometimes consumers pay with money and time. In operations part of your job is to create value for the customer. How can we do that? One way is to improve what do I get? Give the customers more. More product, better products. Make them feel comfortable about their purchase. Offer them a warranty. Provide them excellent customer service. By increasing the numerator in the value equation, I've increased value. Of course, I could also increase value by reducing the what did it cost me part of the formula. How do you do that? Cut the price of the product or service. Provide free delivery. Or perhaps provide other free services. Maybe you should consider having lots of registers open at all times to reduce the size of waiting lines. So as you can see, an operations manager has quite a few options for improving the value they give to their customers. So, I want you to think about your favorite company. What are they doing to improve the value they provide you? Think about the products and services they sell you today, and then think about how they've changed. What they sell you, how you buy it, what you pay. Odds are that the reason they're your favorite company is that they are constantly trying to find new ways to give you more value.

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