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Operating managers are responsible for managing the day to day business operations. Owners are ultimately responsible for success or failure of the business. Ideally these two groups are working closely together.
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Quick reference
Operations and Ownership
Operating managers are responsible for managing the day to day business operations. Owners are ultimately responsible for success or failure of the business. Ideally these two groups are working closely together.
When to Use Operations and Ownership
All businesses have both operating managers and owners. In some cases, these are the same individual. Normally owners take a long range strategic view of the business and operating managers are more focused on the short term execution of strategy and tactics.
Instructions
- Operating managers run the business. They are responsible for managing the day-to-day business processes. They are making the decisions on how to implement the strategy and tactics of the operation. Their decision will usually have an immediate effect on operational performance.
- Operating managers are normally measured on how well the business is achieving key performance metrics that have been established by or with the owners. These are normally measured monthly, quarterly, and annually.
- Owners are the individual with legal title to the organization’s assets once all liabilities have been paid. The profit or loss of the business is borne by the owners.
- Typically owners will take a longer term view of business performance than operating managers. Although owners will hold the operational managers accountable if they consistently miss performance targets.
- There are many legal forms of ownership and the details vary depending upon the laws of the country in which the organization operates. However, they generally fall into one of three broad categories:
- Publically owned corporation – in this case the owners are shareholders who can buy and sell the company stock to others. The ownership can quickly change if there is run on the stock. Shareholder owners normally have very little say in the day-to-day operations of the company. They often will elect a Board of Directors who are to represent their interest in overseeing the company’s operations. Publically owned companies typically have rigorous financial reporting requirements so that the public is fully informed about the business.
- Privately owned corporations normally have fewer owners, often it is a small circle of family and friends. There are usually less onerous financial reporting requirements since the shares are not traded publically. In many cases, some of these owners will also be operating managers in the company.
- Non-profit organizations usually don’t have owners, but they have trustees. In many countries, non-profit organizations do not have rigorous financial reporting requirements. The trustee’s role then is to provide oversight and ensure that the organization’s operating managers are acting wisely and not mishandling the assets of the organization.
- Many organizations require that senior operating managers have at least a small ownership position in the company. This is to ensure that their interests stay aligned with the interest of owners, since they are themselves an owner. Otherwise, the fear is that the operating managers will be short term focused on achieving the metrics and create long term problems for the organization.
- Active owners can be a valuable asset to the company providing strategic oversight and direction. Meddling owners can create havoc by constantly over-riding the decisions of the operating managers.
- Passive owners do not get involved in operational oversight – they just cash the quarterly dividend check.
Hints and Tips
- In publically traded companies, the owners typically exert their control by who they elect to the Board of Directors. The Board of Directors is supposed to represent the owners in making strategy decisions, setting targets, and ultimately in hiring and firing senior operating managers.
- Small family owned businesses often have family members in operational management positions. This works well to balance the long term and short term view. However, family politics can sometimes override good business decisions.
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