STRATEGIC OPERATIONS MANAGEMENT

Strategic Operations Management

Strategic Operations Management

Introduction

Making the decision to outsource human resource processes is a major step for many NOVOTEL. Once a company has decided to outsource one or more human resource processes and has selected a vendor, the next major task is to implement an effective outsourcing arrangement. Transitioning to an outsourcing arrangement can pose a unique set of risks that must be proactively managed, given the complexities associated with transferring significant operational processes to a vendor while maintaining ongoing service to internal customers.

Novotel Case Study: Using BTO for supporting operational process

Most case studies of profit-making companies focus strongly on the financial performance of the firm. This case on Novotel, while in no way discounting the importance of financial performance, does not focus on financial performance. In fact, sufficient financial data are not provided in the case to support a financial analysis of the firm. Case studies of profit-making firms also focus frequently on a specific business strategy or on the appropriate business strategy for the attainment of specific organizational objectives. Again, while business strategy does underlie the essence of this case, that strategy is not the overriding focus of the Novotel case.

To get anywhere close to a reasonable valuation, one must also know investors' attitudes toward risk, for only then can future cash flows be discounted to meaningful present values (which, after all, is what a share price is). So, if the risk appropriate interest rate is known for a stock, can its fundamental value be determined?

Not even close. Investors translate fundamental information into share valuations by forming expectations based on fundamentals. The expectations refer to beliefs about things such as next year's earnings, future growth rates, dividend payouts, and risk. The introduction of expectations, however, opens a door to a major complexity: what happens when different investors, even when they possess the same “fundamental” information, form different expectations? (Academicians use the term divergent expectations here.) We commonly observe divergent expectations in action. Stock market gurus, research analysts, cocktail party pundits, and others, commonly voice different opinions about what “the fundamentals” imply for share valuation. This divergence of opinions accounts for much of the trading that we observe on any given trading day. And it is not at all surprising that different investors will form different expectations. Information sets are too huge, too complex, too imprecise, and too incomplete to yield straightforward conclusions about share values that all investors will agree with.

Another factor is also at work. Investors with divergent expectations, in communicating with each other, can be swayed by each other's opinions. This “swaying” is referred to as adaptive valuations. Here is an example: a preponderance of buy orders comes into the market, pushes valuations up and, in so doing, convinces some people who had been relatively pessimistic (read “bearish”) to switch their expectations and be relatively optimistic (read “bullish”). When adaptive valuations are operative, a stock's price depends not only on “the fundamentals,” but also on the way in which investors communicate individual beliefs in ...