E-Business Plan: Operations

E-Business Plan: Operations

Beginning with the operations section, the scope of the business plan changes. Previous sections of the business plan, especially the mission statement, value proposition, target markets, and competitive positioning, mostly focused on the strategic aspects of developing your business and writing the business plan. Although we couldn't do the hard work of writing the business plan itself, previous lessons have provided specific guidelines and assignments to help you do so.

In the operations section and financial statements section that follow, the scope of the business plan changes from the strategic to the operational. This change makes it more difficult to specify exactly what you need to include in the operations section (or "operations plan") because many of the operational details depend on the nature of the business. For example:

All these factors, and more, directly impact the specification of the operations plan. One how-to-write-a-business-plan book lists 198 questions companies should consider in business location, operating facilities, purchasing procedures, inventory management, quality control, customer service, organizational structure, and personnel. It is beyond the scope of this lesson to attempt to list, much less answer, those 198 questions for you.

Accordingly, the first part of this lesson moves away from a step-by-step approach of writing a business plan. Instead, we take a more general, descriptive approach to what should be in the operations section, leaving it up to you to use the resources in the Top Ten Resources for Writing an E-Business Plan and guidance from your instructor to develop an operations plan with the detail required for your course assignment.

The second part of the lesson, establishing a Web presence, returns to the standard lesson format. We provide instructions for considering three operational aspects that each e-business will have to face: Web site hosting, Web site development, and selecting a domain name.

The lesson outline is:

Writing an Operations Plan

Content of the Operations Plan

Establishing a Web Presence

Writing an Operations Plan

What Are Operations? Formally, an operation is the process through which resource inputs are converted into useful outputs. Inputs include raw materials, capital facilities, equipment, labor, and management talent. Outputs include manufactured products, services, information, and anything else the customer values. The operations function creates what the business will sell, and the operations section of the business plan describes the inputs, processes, procedures, and activities required to do so.

Operations are not the twenty-first-century equivalent of "factory work." Operations play a critical role in the success of the organization because operations are where value is produced. While the business description section defines the product and its value proposition, the operations section describes how the business efficiently produces value.

Should Operations Be in a Business Plan? We ask this question because some business plan books and software do not include operations as part of a business plan. Maybe they do this because it is a difficult section to prescribe (see the previous discussion) or because they don't consider it appropriate for a business plan.

The majority of business plan readers are most interested in the viability, feasibility, and profitability of the business. The previous sections, especially the value proposition and competitor analysis, should have presented a convincing argument for viability. The financial statements section that follows addresses the profitability question. That leaves the feasibility question, which the operations section addresses. The business plan reader will want to understand the process that creates the value proposition and how this process contributes to the success of the business. Therefore, most business plans should include an operations section, and your plan should too.

However, with that conclusion in mind, we rush to add that it is essential that you write the operations section selectively and concisely. You do not need to meticulously describe simple or obvious operational details, if at all. What you should do is write succinctly, and always with the needs of the business plan reader in mind. A good rule to follow in writing the operations section is "when in doubt, don't include it," and don't be afraid to use the phrase "more details are available upon request" in this section too. A short, concisely written operations section that shows you have put considerable thought into how your business will create value will interest the reader and demonstrate that you are a capable businessperson.

Content of the Operations Plan

The following paragraphs present a menu of subsections that you can include in the operations plan. Not every one of these sections will need to be in your business plan, it depends on the nature of the business. For example, inventory management is a negligible factor in a service-oriented business so you may cover it briefly or not at all. Similarly, the organization structure and management plan for a small business are likely to be simple and self-evident so you would barely mention them here or include them in the business description section, as suggested earlier. The sections that should get full attention in your operations section are those that describe how your product delivers value to customers.

Business Location As an online business, the primary location of your business is the Internet, and we discuss various aspects of establishing and maintaining your business location in cyberspace in the Web presence section that follows. However, every e-business will also have a physical presence, even if it is in the entrepreneur's home. If your e-business sells product out of a physical storefront, stores product in a warehouse, ships product from a distribution depot, or services customers from a call center, you should identify those location-specific aspects of your business here. If location is an important consideration for business success, then be sure to highlight that here. For example, Amazon.com locates its warehouses in small population states such as Delaware and Nevada so it can ship books into the large East Coast and California markets without charging sales tax, giving it a competitive price advantage over local bookstores.

Operating Facilities and Equipment Concurrent with the discussion of location, or immediately following, is a description of the operating assets the business will require, including buildings, equipment, fixtures, vehicles, and software. Again, the information that you provide should be brief and focus on facilities that contribute to the value proposition (e.g., an equipment patent or software application that allows unique or highly efficient production techniques).

Production and Operating Procedures This subsection outlines the day-to-day operating procedures that describe how your product or service creates value for customers. It is easy to "over describe" in this section. A business plan reader generally will not want to know the nitty-gritty details about steps in the production process, how many service representatives per customer are required, production volumes, contribution margins, and so on (there is an exception—see Business Case Box 6). You should only highlight operating procedures and policies that are unique or special. For example, if the business will use new technology to speed workflow and achieve new efficiencies in information or product handling, say so here.

Business Case Box 6

Because the business case is written for senior management, they will know much of what is normally included in the operations section. The subsection likely to be of most interest to them is the operating procedures section. The policies and procedures necessary to produce the product or service should be in sufficient detail to inform employees and supervisors of what the business expects from them. Similarly, you must highlight significant changes in normally accepted work procedures and processes.

Purchasing Procedures If operations is about converting inputs into outputs, then you should consider including purchasing inputs in the operations plan. The nature of these inputs will largely depend on the business—raw materials for manufacturers, components for assemblers, finished products for retailers, equipment and supplies for service providers. Highlight any major purchasing considerations, such as e-procurement or participation in a digital exchange that will give the business increased efficiencies over competitors.

Inventory Management Procedures Efficiently managing both incoming inventory and finished goods is critical to companies that hold any material or product for a significant length of time. For these companies, inventory represents a substantial investment of funds and the ability to effectively control inventory levels is a management quality that the business plan reader will expect.

Quality Control Procedures Total quality management (TQM) experts define quality as meeting or exceeding the customer's expectations the first time, every time. Before TQM, quality control was something that was done after product manufacture or service delivery. Today, quality control procedures begin with product design and are monitored throughout the production and delivery process. Quality control also has moved out of the factory, into the service industries.

Quality control is an important part of business plans when the business will operate in a highly competitive market and the nature of the product or customer implies quality will be a major factor in the purchase decision. One key selling point in quality control is to investigate the feasibility of obtaining a quality control certification for your industrial sector (e.g., ISO 9000).

Customer Service Procedures Of all the subsections of the operations plan, customer service policies and procedures is the one most likely to be included in an e-business plan. Why? Not just because every e-business has customers, but also because one of the best ways for an e-business to distinguish itself in the online marketspace is to be passionate about customer service.

Questions that you might address in this section include:

Organization Structure For tax and legal purposes, most countries require an organization to declare a legal form of ownership. In the United States, the general choices are sole proprietorship, partnership, and corporation. Similar options exist in most other countries, with slight variations in meaning and names. In the United Kingdom and most Commonwealth countries, for example, a corporation is known as a limited company (here, limited means the owners are only responsible for a certain level of company debt, as in a "limited liability company").

If the business is a medium-sized or large company, then a business plan reader will want to know how the business intends to organize itself to achieve the goals set out in the business plan. This organization design or structure defines the formal lines of authority that exist between managers in order to coordinate the efforts of each department so that the firm operates as a whole. The usual way to present this is in an organization chart that shows all major divisions (e.g., marketing and sales, production, customer service, information technology) with reporting relationships. Explain the organization chart with comments on management issues such as delegation of authority, managerial hierarchy, and span of control.

Management Plan Complementing the organization structure section is information about the background, skills, and expected contributions of each of the principals of the business. If you have recruited senior management personnel, you can include their qualifications for the positions they hold in the management plan or in an appendix.

Establishing a Web Presence

One operations requirement that all e-businesses will have is a Web site. In this portion of the Operations lesson we return to our step-by-step approach to describe what you need to establish a Web presence.

Web Site Hosts As suggested in the business location discussion, an operational decision that you need to make is where you intend to locate your Web site. Chapter 16 in your textbook describes the four hosting options, and variations, in considerable detail. Briefly, the Web site hosting options, from the most simple and inexpensive to most complex and expensive, are:

Although a Web site can be hosted anywhere in the world, most e-business owners host their Web site locally. Why? Because it is important to get telephone or face-to-face assistance if problems arise. If this suits your needs, start your search for an ISP hosting service with the local Yellow Pages and consult local businesses for ISP recommendations.

If you want to host your site in another location for cost-saving or customer-location purposes, then you can find lists of Internet service providers at The List of ISPs, Providers of Commercial Internet Access, and Yahoo's list of Internet service providers.

  • A dedicated Web hosting service, such as Opsware or Hostway, offers the widest range of services and functionality such as database integration, shopping carts, shipping and tax calculators, site search engines, and comprehensive site statistics.
  • Self-hosting means your company purchases the necessary hardware, software, and dedicated telecommunications services to set up your own Web site. You should only consider this if your company intends to have a significant Web presence or some other critical reason (e.g., maximum data security, protection of intellectual property). The Web hosting options listed previously allow the host companies to amortize the setup and running costs across hundreds or thousands of customers. Your company will have to bear these costs alone. Internet-savvy business plan readers will question a self-hosting Web presence unless the plan clearly justifies it.

    Assignment 16: Based on your intended Web site host requirements, select: (a) storebuilder service, (b) Internet service provider, (c) dedicated hosting service, or (d) self-hosting and investigate the feasibility and cost of hosting a Web site for your e-business (you will use the cost information in the financial statements). As part of your operations plan, briefly explain and justify your decision. Follow the guidance provided by your instructor to submit, present, or save this analysis.

    Web Site Development Concurrent with your investigation of Web site hosting options, consider the requirements and options for constructing your Web site. Web site development is really about three options—internal development, outsourcing, or partnering—spread over two time periods—start-up construction and ongoing maintenance. Again, Chapter 16 of your textbook fully discusses these options. Briefly, the basic three Web site development options are:

    Selecting a Domain Name: A marketing and operational consideration is selection of the company's domain name. The domain name will be the business's online identity, its Web address, and it is an opportunity to create branding. So for the highest level of e-commerce positioning, you need a domain name that distinguishes your site from all others.

    A full discussion of selecting a domain name is in Chapter 16 of your textbook (see especially the list of suggestions for selecting a good domain name in Online File W16.2).

    Although domain name assignment is under the authority of the Internet Corporation for Assigned Names and Numbers, most e-business owners purchase their domain name from one of ICANN's registrars. An online business that wishes to purchase a domain name in one of the global top-level domains (e.g., .com, .biz, .info, .net, .org) should purchase it through one of the ICANN-accredited registrars. An e-business that wishes to purchase a domain name in a country-code top-level domain (e.g., .uk for United Kingdom, .au for Australia, .jp for Japan) should consult the appropriate ICANN-appointed regional Internet registry.

    Registrars don't only sell domain names, most of them also provide tools to assist prospective buyers in selecting a domain name. For example, if the preferred domain name is not available, most registrar sites will automatically generate a list of similar names that are available for purchase. Most registrars also link to a whois database of registered domain names. This database contains contact details of the current owner of a domain name. Expect an established business to be reluctant to give up a domain name, but if the domain name is reserved but not in use the owner may be willing to sell it for a reasonable price.

    In addition to using resources at the registrars' sites, there are a number of Web sites that can assist with the process of selecting a domain name. Here are a few suggestions:

    Assignment 18: Find an available domain name (one currently available at the time you investigated it) for your e-business and write a brief paragraph to explain and justify it. Follow the guidance provided by your instructor to submit, present, or save this name and explanation.

    Navigation Guide for the E-Business Plan Tutorial
    Introduction to the E-Business Plan Tutorial
        Top Ten Resources for Writing an e-Business Plan
    Fundamentals of e-Business Planning
    Writing a "Read Right" Plan
    Executive Summary
    Business Description
       Mission Statement
       Business Goals
       Project Objectives
       Business Model
    Market Analysis
    Competitor Analysis
    Operations
    Financial Statements
    Making an Effective Business Plan Presentation
    Appendix: e-Business Plan Tutorial Assignments

    This E-Business Plan lesson was last updated on May 29, 2007. You can send questions, comments, and suggestions for improvement to Peter Marshall (Peter.marshall@utas.edu.au).