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value chain marketing-transactions, operations introduction

business operations

by Kenneth Rudich

The Wikipedia defines a transaction as an agreement, communication, or movement carried out between separate entities or objects. 

As suggested by this broad-sweeping characterization, the term transaction can be applied to many different types of environments, and it can serve a whole variety of purposes.  Transactions can occur in business environments, in databases, in a library, and in almost any other operation you can name. 

In fact, the average person probably conducts more transactions in a day than they realize.

dissecting the transaction channel

In business, a transaction refers to the functions or operations involved in an exchange of goods, services, or money. 

These transactions are often ripe for implementing productivity improvements because they typically involve an explicit cause and effect relationship, which makes them both predictable and measurable.

Take, for instance, the activities and operations that occur when a student applies for college admissions:

  1. the application is distributed or made available to the prospective student
  2. it is filled out and submitted
  3. the receipt of the application is recorded
  4. it is evaluated internally
  5. the results of the evaluations are recorded to update the application status
  6. a letter is sent out to the student

In this sequentially ordered progression, there is a beginning and an end with a group of operations sandwiched in between.  The manner in which the operations unfold as the application moves through the process is known as a workflow or transaction channel, and one pass through that channel (one application processed) may be treated as one unit of work.

Once a unit of work has been isolated, the productivity of the channel can be gauged by evaluating the effectiveness and efficiency of it.

Effectiveness is judged in terms of quality or defect-free reliability within a unit of work.  Defect-free reliability is of singular importance to a transaction.  For a unit of work to be effective all the participating operations should either succeed, or fail and recover together. 

An effective unit of work eliminates the need for re-work and, more significantly, avoids creating a disturbance in the quest to achieve user satisfaction.

Consider, for instance, a cash withdrawal from a bank’s ATM machine.  Several transactions occur during this event.  For the withdrawal to be effective, a personal identification number must be entered and accepted, the appropriate amount of cash must be dispensed, certain records must be updated, and perhaps a receipt must be printed.  An error would increase the cost of the event due to the extra work for recovery, and it can make the customer unhappy too.  

Efficiency acknowledges the benefits of saved time, energy and/or money.  It often is measured by how many transactions — or units of work — can be completed within a given unit of time.

Efficiency enhancements are usually derived from weeding out inefficiencies within an existing process, or altogether replacing less efficient processes with more efficient ones. 

For example, if the unit of work does not absolutely require human intervention, automating it can relieve people from doing the task.  This can often speed up the process for greater effciency, and it can reduce the cost of doing it on a per unit basis.

In addition, individuals freed up by automation then become available for other tasks that require higher order intelligence, thereby making better use of their time. 

Robert Maginn Jr., a specialist in enterprise software, expresses it this way: “Saving time, specifically in tasks that do not directly affect quality of service, such as data entry, can free up staff to spend more time engaging in activities that do affect quality of service.”  This concept is largely responsible for the change in workforce needs that was discussed in an earlier post to this blog. 

automating and re-engineering business processes

Some observers suggest that opportunities for making transaction channel improvements are as endless as time.  Harvard business professor Michael E. Porter asserts, “Today, continued operational improvements is a given.” 

The motivation to spearhead these improvements is usually grounded in a desire to reap one or more benefits, including, but not limited to, greater effectiveness, tighter cost control, reduced overhead, better leveraging of scale economies, lower coordination costs, enhanced service, more efficient use of time, better information management, or a dedication to the learning curve for improving processes.  In short, it can considerably lower the cost of the transaction while increasing the output.

This does not mean, however, that maximum productivity – the lowest transaction costs possible with the highest degree of effectiveness possible – is always the optimal goal.  Apart from being an elusive target, maximum productivity can be an impractical pursuit, because attaining it can either be cost prohibitive or subject to diminishing returns. 

Conventional wisdom suggests that a balance be sought between costs, levels of service, effectiveness, and efficiency.  This means that priorities must be set.  Economists refer to these trade-offs as transaction cost economics.

the impact on perception of value

Dana Mason, a Director of Strategic Technology Consulting Practices, says all organizations should be aware of at least one key implication that comes with modernizing its transaction channels. 

“Although business fundamentals still exist and apply,” she claims, “companies that choose to change their business to utilize new technologies should be prepared for the fact that they will be judged and measured under a whole new set of rules.”

Among the new rules, she says, is the expectation for “immediate fulfillment.”  

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