Cagayan State University

BME 11 –
Operations
Management in
Tourism and
Hospitality

Belinda B. Melad
Mitzsigrid S. Quintos

2020
Unit 1: Introduction to Operations Management
(18hours)

Introduction
Have you ever wondered how honey is made? It is the combination of
different types of nectar and pollen, and the efficient and effective collection
of hard-working bees. The color, flavor, and design of the honeycomb
determine the quality and price of the healthy sweet syrup. If you carefully
think about it, you will have the simplest sense of what operations
management is. The size, shape, quantity, quality, price, profitability and
delivery time of a business output, whether the company produces goods like
coffee machines or delivers service like a tour around a destination, is affected
by the management of the company’s processes.

This unit will provide the concept of operations management and describes
some of the decision areas it covers.

Learning Outcomes
At the end of this unit, you should be able to:
 use specialized knowledge in Operations Management to solve
business processes in hospitality and tourism industry
 understand the content of an operations strategy and the decisions
involved
 describe and relate the global strategy options to gender-responsive
operation decisions

Activating Prior Learning

Fill in the box with terms that you can relate with the term Management and
give at least 3 specific words or phrases that you associate it with.

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Topic 1: Overview of Operations Management

Learning Objectives
At the end of this topic, you should be able to:
 describe operations management
 apply the role of operations management to real life situation
 discuss the interrelationship among policy, processes, performance
and practices
 characterize the operations in the good/service or two-product sectors
 distinguish contingency theory from system, chaos, and probability
theories

Hunting for Information

Let’s get started!

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What is Operations Management?
Operations Management is the management of the processes to produce or
deliver goods and services. It is the set of activities that create value in the
form of goods and service by transforming inputs into outputs. In an
organization, it describes the functional area responsible in managing the
operations that produce the organization’s goods and services for internal or
external customers or clients. In its simplest sense, it is what the company
does before product and services reach its target market.

The role of operations management is to control the transformation of an

organization’s inputs into finished goods and services.

Figure 1.1 The role of operations management (Heizer, 2004)

The input activity includes:

 Transforming resources – which are the components that act on, or
carry out the transformation process. This includes the facilities such
as building, equipment and process technology and staff or the people
involved in the operation process.
 Transformed resources – which are the components acted on by the
transforming resources. This includes the materials, information, and
customers which can be changed either physically, by location, by
ownership, by storage, by property, or by physiological state.

The transformation process modifies the transformed resources in order to

produce goods and services. It involves any activity or group of activities that
uses one or more inputs, modifies and adds value to them, and provides
outputs for customers or clients.
Transformation processes include:
 Physical transformation or the alterations in the physical
characteristics of materials or customers. In a restaurant set-up, this
idea would mean the cutting, slicing, and cooking of raw ingredients to
come up with a sumptuous meal.
 Location transformation or the modifications in the location of
materials, information, or customers. A guest who got a room upgrade
from a standard to a deluxe room would be a good example.

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  Possession transformation or the changes in the ownership of materials
or information. When you order your favorite cocktail from the bar and
have control over the drink once it is served then you are doing
possession transformation.
 Storage transformation or the storage or accommodation of materials,
information, or customers. When a guest rents a room for a night in a
lodging facility, the guest experience being “stored” or “kept”
overnight.
 Informational transformation or the changes in the purpose or form of
information. When checking in in a hotel you normally would provide
basic information like name, contact information and the like. The
information you provided to the front desk officer will be used to make
a guest folio.
 Physiological or psychological transformation or the changes in the
physiological or psychological state of customers. When a guest visits
a destination for the first time, they normally have high expectation
and a heightened level of excitement. Those emotions can change
depending on the services they received. They can leave happy and
contented or angry and complaining.

The output produced can be classified as goods or service.

Below are the distinct characteristics between goods and service.
Goods Service
Tangibility Product is generally concrete Service is intangible
Ownership Transferred when sold Not generally transferred
Resale Can be resold Cannot generally be resold
Demonstrabili Can be demonstrated Does not exist before
ty purchase
Storability Can be stored by providers Cannot be stored
and customers
Simultaneity Production precedes Production and consumption
consumption occur at the same time
Location Production/selling/consumpt Production/selling/consumpt
ion locally differentiable ion occur in one place
Transporta- Can be transported Generally not (but producers
bility might be)
Production Seller alone produces Buyer/customer takes part
Contact Indirect contact possible Direct contact usually
between client and provider necessary
Internationali- Can be exported Service usually cannot (but
zation delivery system often can)
Quality Can be inspected in site Cannot be checked before
being supplied
Table 1.1. Typical differences in products’ feature (Brown, et al., 2001)

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Goods and service operations are different but are both important in the
operational success of an organization.

Below are the characteristics of operations in the two product sectors.

Goods Service
Task The creation of physical All activities are not
products concerned in the
creation of physical
product
Volume: variety High volume – low Low volume – high
variety variety
High level of capital Usually flexible
investment, technology, people and
systemization, systems performing
routinized work and high value-adding work
flow through resulting in high unit
transformation system, costs
resulting to low unit
costs
Environment Hyper-competition Niche
Organizations are Organizations optimize
pursuing any possible existing systems to
avenue to create maximize return on their
competitive advantage, investment
or simply to survive
Position in supply Supply end Removed from final
chain customer/user customer/user
Driven by needs of Driven by needs of
consumers, must intermediaries in the
integrate supply process, work as part of
networks to deliver supply networks
these needs
Table 1.2. General characteristics of operations (Brown, et al., 2001)

Guided by the operations management role in the company, operations

managers handle company activities along with the four P’s: Policies,
Practices, Processes and Performance.

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Figure 1.2 The four P’s of operations management (Brown, et al., 2001)

Policies are organization’s stated aims, objectives and strategies for the
organization including operations. It is based on where the company wants to
be in the future. The mission and vision statement of the company guide them
in crafting their policies. Strategy is the means of achieving the goals set by
the company. Policy defines the practices – the systems, procedures and
technological capabilities – that need to be in place within the organization,
and between the organization and its suppliers and customers. Policies crafted
are of no use if there are no appropriate practices.
Policies and performance also need to be aligned with each other. Performance
describes how the organization fares in terms of time, cost, quality and
flexibility. Operations management need to make improvement on the gap
between policy and the desired level of performance.
Performance is closely related to practice. To improve the performance, a
company needs to continuously change their practices to adopt with the
competitive business environment.
Both policies and practices will determine the important performance
measures. Key Performance Indicator (KPI) such as customer’s waiting time,
product quality or quantity will provide feedback as to how well the operation
is performing in relation to its function and to the business as a whole.

Contemporary Theories in Operations Management

The following theories of operations management explains how managers
decide for the company.
1. Contingency Theory
This theory asserts that when managers make decision they must take into
account all aspects of the current situation and act on those aspects that are key
to the situation at hand.
Basically, it’s the “it

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depends” approach where there is no precise managerial action or
organizational design that is appropriate for all situations. There is no best way
to make a decision because the best decision is dependent (contingent) on the
external and internal conditions. Imagine Angel who has been operating
Restaurant Branch A for 20 years. This restaurant is recognized as one of the
best restaurants in Luzon for its cuisine and excellent service. Because of
Restaurant Branch A’s success, the management transferred Angel in
Restaurant Branch B located in the Visayas, a branch not doing well in terms
of sales. With the contingency theory in mind, increasing sales for Restaurant
Branch B will not be the same for Restaurant Branch A because of several
internal factors like the branch’s staff, style of service, available facilities, etc.;
and external factors like the locals living within the area and their culture.
Decisions must be based on the current situations and conditions.

2. Systems Theory
This theory looks into four
parts of the organization
that make up the system:
input, process, output and
outcome. Systems have
these four interconnected
aspects which share
feedback among each
other. Resources such as
money and material go
through a well-planned,
organized and controlled
process to ultimately
produce the output.
Outcomes are effects to the
clients after
acquiring/purchasing the
output. It focuses on the
arrangement of and
connections between the
components which connect
them into a whole. It is
how a part of a company or
organization interacts with the organization as a whole, or even with the
market or industry for that matter.
Take a look at the picture of a beautifully crafted triple chocolate mousse cake
above. See how each layer was perfectly assembled to make this mouth-
watering piece of art. Imagine that cake as an organization, with each layer
serving a particular function and/or a department. Now imagine the bottom
part crumble, will the cake still look nice? The right inputs and the proper

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processes should be combined together to come up with this sweet delight and
exceed customer satisfaction.

3. Chaos Theory
This theory recognizes that events are rarely controlled. This suggests that
systems normally become more complex, and as they do, these systems
become more changeable and must exhaust more energy to maintain the
complexity. The more energy these systems exhaust, the more they seek for
structures to maintain stability. This practice continues until the systems splits,
combines with another complex system or falls apart entirely. This theory goes
with unpredictability. Thus organizations cannot plan for their future and
cannot predict what forces they will have to deal with. So this theory suggests
understanding what is going on in the world and the different driving forces to
influence the processes that produce change and initiate small changes that can

produce larger effects and big changes. The Coronavirus pandemic came as a
surprise to the world. It spread at an alarming speed, infecting millions and
bringing economic activity to a near-standstill. With health and human life
issues on the line, many countries imposed tight restrictions on movement to
halt the spread of the virus. This decision caused economic damage that is
already evident and represents the largest economic shock the world has
experienced in decades. The crisis emphasized the need for urgent
organizational decisions for change. Organizations started changing their

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processes to slowly adapt to the “new normal”. This would enable them to
cope with the health and economic consequences brought about by the disease
outbreak and continue operating.

4. Probability Theory
This theory uses the concepts of mathematics in business operations. It is the
concept that pays attention to knowing the degree by which individual
operations
may differ
from expected
averages, as
well as
knowing how
the average
depends on the
variables
involved. It
uses
calculation in
analyzing
operational
data to be able to estimate how likely the next operation will succeed. It
provides the means to logically model, analyze, and solve problems where
future events cannot be predicted. In various managerial decision problems, it
is impossible to establish the results to be obtained when choosing a course of
action. In such cases, if one wants to act rationally —to maximize the chances
of attaining one’s goal— it becomes essential to deal with the unpredictability
posed by the problem. Thus, probability theory is crucial for rational
judgment.

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 Assimilating Learning
Let’s practice what you have learned!
1. Applying your knowledge about the role of operations management in
businesses, observe one food service provider in your area then complete
the table below with the business’ details.
Input
Transforming Transformed Process Output
Resources Resources

2. Using the same business in number 1, substantially discuss, in not more

than 250 words, the 4P’s in relation to the business’ operation.
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3. Select a specific business in Tourism and Hospitality Industry, and then
use no more than 30 words of substantive content to differentiate 5
characteristics on the two product segments.
Business:
Characteristics
Goods Service

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 Moments of Truth
Let’s test your knowledge!
In not more than 250 words, answer the following substantially.
1. Using a specific example, define what operation management is.
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2. Based on your understanding, differentiate contingency from system

theory and chaos from probability theory.
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