Operations Management in a Service Company

One of the most powerful forces affecting companies since World War II has been the globalization of competition. We have seen transport and communication costs fall, the flow of information and technology across borders increase, national infrastructures grow more similar, and trade and investment barriers ease.

A global strategy, involving operations spread among many countries, has been seen as a powerful means of reaping economies of scale, assimilating and responding to international market needs… (Porter, Competing across locations)

Regardless of the sector, the operations manager (OM) has to process inputs into outputs in the most efficient way possible. Modern techniques such as those of Project Management help the OM beat time and costs records by standardizing processes. Thus, keeping the competitive edge.

Knowing this, how can one even flirt with the idea of a non-existent operations management in the service industry?

Take a financial institution as an example, and ignore for a moment the person who leads the payments, booking of loans and investments, foreign exchange processing teams, etc. Put him, out of the picture for a while and during that period increase all volume activities. What would happen? There is a possibility (but rare) that the department has such efficient, knowledgeable and team-oriented personnel that could handle this indefinitely. But what happens if you add innovative products, overlapping tasks, or a system upgrade on top of this increase in volume? Maybe systems crash down?

Services are defined as activities that provide a combination of time, location, form, and psychological value (Stevenson, 2008). This blend needs to be effectively managed on a consistent basis by an expert in the field, if the company expects to (or has a long-term plan of) be on the top of the customer’s minds, most of the time.

Personally, I believe that ignoring the importance in a systematic approach of operations management will only assure us a similar fait that of the losses the manufacturers had when ignoring the importance of standard gauging systems back in the late 1700s.

A White House Press Release in 2000 stated "Manufacturing accounts for over 70 percent of the value of U.S. exports". At first glance, this quotation sounds big, right? It is indeed. But that did not tell me the whole picture. Well, I found a very interesting comparison made by Michael Porter in an update to his famous article "The five forces that shape strategy" where he illustrates the following information:

The most profitable business during the period of 1992-2006 was Security Brokers and Dealers with 40.9% return on invested capital (ROIC). Scrolling down the chart were some manufacturing sectors followed by Advertising Agencies with 27.3% ROIC. The Average industry ROIC in the US during that period was 14.9%

Don't you think that for a service business to be ranked as the most profitable sector of the U.S. economy had to have a prominent operations management? Granted, among many other things, but as time and cost windows are continuously narrowing I would say that it could have easily been the backbone of the whole thing.

Repsol YPF Selling Argentinean Unit?

According to Bloomberg news, Repsol YPF SA is in talks with China National Petroleum Corp. and China National Offshore Oil Corp. about a sale of a stake in its Argentinean unit.

"China National Petroleum, or CNPC, may make an offer of about $13 billion to $14.5 billion for Repsol’s 75 percent stake in YPF SA this month, said one of the people, who declined to be identified because the talks are private".

Repsol YPF SA is an integrated Spanish oil and gas company with operations in 29 countries. The bulk of its assets are located in Spain and Argentina. Repsol adquired YPF from the argentinean energy firm YPF SA in 1999 during the controversial term of Carlos Menem. It is now the 15th largest petroleum refining company according to the Fortune Global 500.

The argentinean unit is also the largest corporation in the South American country, having more than 30,000 employees and over 12.8 billion dollars in Total Assets as of december 2008. YPF refines 52% of the total production of the country through 3 refineries strategically positioned in Buenos Aires, Mendoza and Neuquén.

Peronists Losing Ground

From The Economist -- Argentina’s first couple, President Cristina Fernández and her husband and predecessor, Néstor Kirchner, fared badly in a mid-term legislative election, losing their majority in Congress. Several centrist leaders did well in a repudiation of the Kirchners’ populist economic policies. Mr Kirchner resigned as leader of the ruling Peronist movement.

A local multinational executive told me how proud he felt when watching the people vote in what he refer to as the "democratic outcome of a civilized Argentina" -- Read more from The Economist...

Swiss Government Selling UBS

Swiss Economy Minister Doris Leuthard said she expects the government will be able to sell its 6 billion-franc ($5.6 billion) investment in UBS AG, the country's largest bank by assets, "relatively fast."

"We'll be one of the first countries without any government involvement," Leuthard, is also Vice President of the seven-member government, said in an interview at her office in Bern yesterday. "UBS is on a good track."

Honduran's President: Overthrown

From CNN -- A military coup "kidnap" President Zelaya and threw him out of the country. Zelaya awoke to the sound of gunfire in his residence and was still in his pajamas when the military forced him to leave the country Sunday morning, he told reporters. He was flown to Costa Rica, where he has not requested political asylum.

"This was a brutal kidnapping of me with no justification," Zelaya said.

He called the coup an attack on Honduran democracy.

The coup was widely criticized in the region, in strongest terms by Zelaya's leftist allies, including Venezuelan President Hugo Chavez.

In separate appearances Sunday, Zelaya, Venezuela's Chavez and Cuban Foreign Minister Bruno Rodriguez said that the military had also detained Honduran Foreign Minister Patricia Rodas, further raising regional tensions.

Speaking in Havana, Rodriguez said that the Cuban, Venezuelan and Nicaraguan ambassadors to Honduras had tried but were unable to protect Rodas from a group of masked soldiers who forcibly took her from their grasp. Further details regarding that incident were unclear.

"If they attack our ambassadors, they will be declaring a state of war," Chavez said. "If they have weapons, then we have weapons, too."

Forbes: Villa D'Este is World's Best Hotel

Since opening to the public in 1873, Villa d'Este, on the lake's southwestern leg in Cernobbio, has welcomed more royalty than Buckingham Palace and hosted more celebrities than Grauman's Chinese Theater. It opens each season in late February.

The poll was conducted among top travel connoisseurs - professionals who stay in five star accommodations at least 20 times per year - like Chef Todd English, Esquire columnist John Mariani and The Today Show's Peter Greenberg, to name a few. They rated properties based on room quality, service, decor and cuisine-800 properties, spanning the globe.

Monetary Policy: No action taken

The Federal Open Market Committee (FOMC) met today and left the fed funds and discount rates unchanged, as expected. The committee was a bit more positive on its economic assessment stating that the US economy is no longer in Free Fall. They made emphasis on stability in consumption and on inventories which are in "better alignment with sales". Moreover, the FOMC is no longer worried about deflation, but still expects inflation to remain low.

There is some discussions about how and when to remove monetary stimulus, but the details are yet to be sketched in. We may see something more definitive by the August meeting.

The FOMC holds eight regularly scheduled meetings per year to direct the conduct of open market operations by the Federal Reserve Bank of New York in a manner designed to foster the long-run objectives of price stability and sustainable economic growth.