Chapter 9
Operations Plan and Product (or Service) Development Plan
Key Words
Operations plan section—outlines how your business will be run and how your product
or service will be produced
Operations flow diagram—shows the key steps in the production of a product or the
delivery of a service
product’s ease of use and the user’s perception of the experience
Intellectual property—any product of human intellect that is intangible but has value in
the marketplace
Trade secret—any formula, pattern, physical device, idea, process, or other information
that provides the owners of the information with a competitive advantage in the
marketplace
Chapter Overview
This chapter is divided into two parts. The first part of the chapter describes the
operations section of a business plan, which focuses on how you will produce your
product or service and run your business. The second half of the chapter focuses on the
status of the development of a product or service.
Chapter Summary
1.
This chapter is divided into two parts. The first part of the chapter describes the
operations section of a business plan, which focuses on how you will produce
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2.
The most important rule of thumb for writing the operations and the product
design and development sections of your business plan is to focus on the aspects
3.
topics may be included depending on the nature of the business.
The operations plan section of the business plan outlines how your business will
be run and how your product or service will be produced. The topics that are
4.
A useful way to illustrate how a product or service will be produced is to include
5.
it will be turned over, a description of the length and nature of your product’s or
occur in your manufacturing process or service delivery and how these will be
handled, an explanation of how seasonal production loads will be handled
be handled.
Although the operations flow diagram explains how a product or service is
produced, there are other issues that are relevant for this section. These issues
include an explanation of how your inventory will be stored and how frequently
6.
service turned out to be more difficult than anticipated.
This product design and development section of your business plan has four
parts: development status and tasks, difficulties and risks, costs, and intellectual
7.
the sophistication of your product or service development process, products and
services typically pass tests that probe their performance and technical merits as
next.
Most products follow a logical path of development that includes product
conception, prototyping, initial production, and full production. Depending on
9.
If you are a very early stage firm and have only an idea, you should carefully
explain how a prototype of your product will be made. A prototype is the first
physical depiction of a new product.i
and quickly.
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10.
One sticky point in business plans is to decide how much to reveal about a
company’s potential intellectual property, knowing that the plan will be read by
people who ultimately won’t be involved with the venture. While a company
wants the readers of its business plan to fully grasp its potential, the fear is that
Chapter Outline
I. Introduction
II. Operations Plan
a. Operations Model and Procedure
III. Product (or Service) Development Plan
a. Development Status and Tasks
Chapter Notes
I. Introduction
• If you are developing a non-existent product, you’ll need to include a
section that describes the design and development of the product
II. Operations Plan
• The operations plan section of the business plan outlines how your
business will be run and how your product or service will be produced
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a. Operations Model and Procedure
o The primary objective of this section is to show that you
have a firm grasp on the operational details of launching
and running your business
o Another useful way to illustrate how a product or service is
produced is to include an operations flow diagram
o An operations flow diagram shows the key steps in the
production of a product or the delivery of a service
o Some issues need to be singled out and discussed in more
detail in this section:
• An explanation of how your inventory will be
stored and how frequently it will be turned over
b. Business Location
o This section describes the geographic location of the
business
o There are several specific instances in which a business’s
location is a critical factoring its capability to operate
efficiently and effectively:
• Proximity to qualified labor
• Closeness to suppliers
o You should describe the rationale for your location in this
portion of your business plan
c. Facilities and Equipment
o You should list your most important facilities and
equipment and briefly describe how they will be (or have
been) acquired
o If you will be producing your own product, you should
describe the production facility that you have or are looking
for
d. Operations Strategy and Plans
o This section deals with strategic and longer term issues
pertaining to your operations strategy
o An important issue that is normally covered is the portion
of your production process that you’ll perform in house as
opposed to the activities that will be done by others
III. Product (or Service) Development Plan
• Many seemingly promising start-ups never get off the ground because
their product development efforts stall or the actual development of a
product or service turns out to be more difficult than anticipated
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a. Development Status and Tasks
o Most products follow a logical path of development that
includes product competition, prototyping, initial
production, and full production
o If you have involved prospective customers in testing early
versions of your product and services, you should briefly
comment on the process you’ve used and the results to date
o If you are in the very early stages and have only an idea,
you should explain how a prototype will be made
b. Challenges and Risks
o You should be very candid and transparent in identifying
any major anticipated design and development challenges
(and risks) for two reasons:
c. Costs
o This section should provide a budget for the remaining
design and development work that needs to be done to
bring your product or service to market
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d. Intellectual Property
o This section should describe any patents, trademarks,
copyrights, or trade secrets that you have secured or plan to
secure
o The federal Economic Espionage Act criminalizes the theft
of trade secrets
o The primary rule of thumb for deciding if intellectual
property should be protected is to determine whether it’s
related to a firm’s competitive advantage
o Although trademarks and copyrights can be obtained fairly
inexpensively, patents are expensive to obtain, which poses
a challenge for many start-ups
Review Questions
1.
Why is it important to include an operations plan in a business plan?
Answer: The operations plan section of the business plan outlines how your
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2.
When writing the operations plan and the product (and service) design and
development plan sections of a business plan, why is it important to strike a
careful balance between adequately describing the topics and not going into too
much detail?
Answer: Your readers will want an overall sense of how the business will be run
3.
product design and development sections of your business plan is to focus on the
What is the most important rule of thumb for writing the operations and the
product design and development sections of your business plan?
Answer: The most important rule of thumb for writing the operations and the
4.
ready their products or services are to being sold. From Level 4—Going
been developed, but is being produced and sold to customers who are satisfied to
idea for a product or service but no movement beyond the idea stage. No
According to the chapter, there is a vast difference between thinking up a new
product idea and actually designing and manufacturing the product. Explain the
nature and importance of this difference.
Answer: According to Stanley Rich and David Gumpert, authors of Business
5.
What is an operations flow diagram and why is it important?
Answer: A useful way to illustrate how a product or service will be produced is
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6.
Identify three specific instances in which a business’s location is a critical factor
in its ability to operate efficiently and effectively.
Answer: Among the possible choices are: proximity to qualified labor, closeness
7.
What is a product prototype and why it is important?
Answer: If you are a very early stage firm and have only an idea, you should
8.
Describe what usability testing is and why it is important.
Answer: Usability testing is a form of product/service feasibility analysis that
9.
To what extent should a start-up be candid and transparent regarding the
challenges and risks associated with its product development process?
Answer: You should be very candid and transparent in identifying any major
10.
competitive advantage for the firm.
What are the four types of intellectual property, and why is it important to
address intellectual property issues in a business plan?
Answer: The four types of intellectual property are patents, trademarks,
to suppliers, access to transportation, such as major airport or an interstate
highway, access to international shipping alternatives, proximity to customers
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Application Questions
1.
Radar Golf (http://www.radargolf.com) is the name of a company that places
tiny electronic tags inside golf balls to make them easy to find when lost. Spend
some time looking at Radar Golf’s website to acquaint yourself with its product
offerings. What do you think were the major “operational” issues that Radar
Golf included in its business plan?
2.
an overall sense of how the business will be developed, but generally are not
Gene Patterson, a professional acquaintance of yours, asked you to review his
business plan. Gene’s plan is for a new iPhone accessory that will allow people
to use their iPhone as a karaoke machine. Gene is particularly proud of the
operations section of the plan, which describes in painstaking detail the
technology behind converting an iPhone into a karaoke machine and explains in
a step-by-step manner how the business will be run. In total, the operations
section of Gene’s plan comprises 11 of the 29 pages of the plan. Give Gene some
feedback regarding the scope and length of the operations section of his plan.
Answer: Gene needs to drastically edit this section of his plan. His readers want
3.
Imagine that you have invented a new type of backpack for students to carry
their books on campus. As part of your business plan, you have decided to
“outsource” the actual manufacturing of the backpack to a company in China.
Do some research to determine how you would locate a company in China to
manufacture your backpack. Once you locate an appropriate company, how
much information should you include in your business plan about the company
that will manufacture your backpack?
Answer: Student responses will vary but may include a discussion about the
4.
Suppose you launched a new social networking website for college students to
compete against Facebook and MySpace. What factors should you consider in
selecting the physical location of your business? How would you determine how
much attention to devote to this issue in your business plan?
Answer: Student responses will vary.
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5.
Suppose you were the founder of Slingbox (http://www.slingbox.com), the
company that produces a device that allows people who are away from home to
tap into their home television cable box or satellite receiver and watch any
program that is being played at home on their remote computer. (Spend some
time looking at Slingbox’s website and its product.) How would you have gone
about putting together the product design and development chapter of your
business plan? What sections in the product design and development section
would you have particularly emphasized?
Additional Activities
1. An Amazing Operating Model
Purpose: students will recognize the importance of an operating model on the success of
a business.
Prior to leading this activity review what’s new at Amazon.com.
After lecturing on operating models, ask your students why they think Amazon.com has
Although students’ answers will vary, the correct answer is that Amazon has developed a
unique operating model. It is unique because the model allows them to sell a wide variety
of products at a very low operating cost. For example:
o Instead of humans retrieving items from inventory, Amazon uses robots. Labor
costs are dramatically reduced.
2. Flowing Pizza
Purpose: students will draft an operations flow diagram.
After lecturing on an operations flow diagram, tell students that developing such a
diagram is not as easy as it sounds. Ask students to recall the last time they went to a
pizza restaurant to dine in (not for take-out or delivery). Which restaurant did they go to?
For this exercise, identify a restaurant that provides a host/hostess and servers.
Now they should imagine walking through the door of the restaurant. What is the first
thing they see or encounter? (Answers should include being greeted by a host or hostess,
being seated at a table with chairs, and being provided with a menu.) Ask them what
items are on the tables, and what items are on the walls. Again, instruct students to write
these items down on their paper.
Debrief the exercise by asking, on a scale of 1 to 5 (5 is high) how easy this process was.
Your final question is the most important one: How could this restaurant’s operating
model be improved to make it operate more efficiently?
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3. Barbeques and Barbies
Purpose: to demonstrate the importance of an operations plan on seasonal businesses.
Ask students to think of products or services that experience high and low seasonal
impacts. For example, barbeque grills sell very well in late spring and early summer,
while toys sell faster in November and December.
4. Intellectual Property Audit
Purpose: to determine the extent of the intellectual property of a business.
After lecturing on intellectual property, explain that new ventures often do not realize the
extent of their intellectual property. Ask students to identify a well-known locally owned
business and to identify what intellectual property they believe this business
demonstrates. Students will likely list the business’s name and logo, but often that is
about all they can think of.
Explain that every business should conduct this kind of an intellectual property audit at
least once a year.