Operations in Financial Services—An Overview

We provide an overview of the state of the art in research on operations in financial services. We start by highlighting a number of specific operational features that differentiate financial services from other service industries, and discuss how these features affect the modeling of financial services. We then consider in more detail the various different research areas in financial services, namely systems design, performance analysis and productivity, forecasting, inventory and cash management, waiting line analysis for capacity planning, personnel scheduling, operational risk management, and pricing and revenue management. In the last section, we describe the most promising research directions for the near future.     

Operations Risk Management: Overview of Paul Kleindorfer's Contributions

This paper reviews Paul Kleindorfer's contributions to Operations Management (OM), with a special focus on his research on risk management. An annotated bibliography of selected other contributions reviews the breadth of topics that have occupied Kleindorfer's research attention over his now 45 + years of research. These include optimal control theory, scheduling theory, decision sciences, investment planning and peak load pricing, plus a number of important applications in network industries and insurance. In the area of operations risk management, we review recent work that Kleindorfer and his colleagues in the Wharton Risk Center have undertaken on environmental management and operations, focusing on process safety and environmental risks in the chemical industry. This work is directly related to Kleindorfer's work in the broader area of “sustainable operations”, which he, Kal Singhal and Luk Van Wassenhove recently surveyed as part of the new initiative at POMS to encompass sustainable management practices within the POMS community. Continuing in the area of supply chain risks, the paper reviews Kleindorfer's contributions to the development of an integrated framework for contracting and risk hedging for supply management. The emphasis on alignment of pricing, performance and risk management in this framework is presaged in the work undertaken by Kleindorfer and his co‐authors in the 1980s on after‐sales support services for high‐technology products. This work on supply chain risk, and its successors, is reviewed here in light of its growing importance in managing the unbundled and global supply chains characteristic of the new economy.     

A Resource‐Process Framework of New Service Development

Motivated by the increasing attention given to the operational importance of developing new services, this paper offers a theoretical framework that integrates both process‐ and resource‐oriented perspectives of new service development (NSD) by defining and organizing 45 practice constructs for NSD‐related practices and activities that occur in contemporary service firms. We employ a rigorous procedure whereby both quantitative and qualitative data were gathered through multiple rounds of interviews and card‐sorting exercises with senior service managers. This iterative refinement process helps ensure that the construct domains and definitions are consistent and that they are applicable across multiple service sectors. A primary contribution of this research is to provide precise operational definitions of theoretically important NSD practice constructs. Importantly, this study expands on the NSD literature by including both resource‐ and process‐centric perspectives within a single framework. A second contribution is to illustrate a general methodology for developing clear, concise, and consistent construct definitions that may be generally useful for production and operations management scholars interested in new construct development for emerging areas. Empirical results suggest that the resource‐process framework can help guide and organize future research on, and provide insight into, a more comprehensive view of new service development.     

Decoupling thinking in service operations: a case in healthcare delivery system design

The notion of decoupling thinking has been well established in the manufacturing operations and supply chain management literature. This paper explores how this decoupling thinking can be applied in service operations and in particular in health care. It first reviews the relevant literature on decoupling fundamentals, the front- and back-office distinction, and new emerging decoupling thinking in service operations. Subsequently, a flow-based framework including content and process is developed for decoupling thinking in service operations. The framework provides an integrated perspective on customer contact, flow driver and flow differentiation (level of customisation). The framework hence, through flow differentiation, introduces the concept of standardisation versus customisation in a service context. This is followed by a health care case example to illustrate how the framework can be applied. The managerial implications are primarily in terms of a modularised approach to system design and management. The framework offers potential for benchmarking with other service systems as well as with manufacturing systems based on the shared foundation in decoupling thinking. Finally, suggestions are provided for further research opportunities derived from this research.     

Analysis of the Market‐Based Adjustable Outsourcing Contract under Uncertainties

The market‐based adjustable contract for customized goods or services has emerged in outsourcing practices. Its objective is to minimize the operational risks inherent in today's volatile environment of operations. Our research reveals several important properties of this contract through a continuous‐time analytical approach. Specifically, we consider the determination of this contract between two risk‐averse firms through a Nash bargaining process. We derive the optimal adjusting mechanism analytically and extensively analyze the application boundary of the market‐based adjustable outsourcing contract. We conclude by discussing implications for practice and research.     

Understanding Business Process Management: Implications for Theory and Practice

This paper presents an empirically validated framework of business process management (BPM) to enable the pursuit of BPM theory. Phase 1 of the research focused on the development of an initial framework of BPM, derived from a synthesis of current literature. This comprised five key themes, subsequently categorized as ‘application components’ of BPM. The empirical validation of the framework was approached through case‐based research, utilizing semi‐structured interviews with managers of a large financial services organization, to explore the dimensions of the framework. The results suggest that, in addition to confirming the five ‘application components’ of the initial framework, three additional ‘conceptual components’ are important. These concepts differentiate BPM from other process management activities, and suggest that developing a prerequisite ‘process mindset’ is a fundamental component of a BPM approach.     

Uncertainty Reduction Approaches,Uncertainty Coping Approaches,and Process Performance in Financial Services

Developing a better understanding of the impact of uncertainty on process performance has been recognized as an important research opportunity in service design ( Hill, et al., 2002 ). Within this general research stream, our study focuses on the question of what managers can do to most effectively address operational uncertainty and mitigate its negative effects. To begin to address this question, we report on an exploratory study using a sample of professionals in the financial‐services industry who acted as informants on 108 financial‐services processes. These professionals were sampled from a population of graduates of a university in the northeastern region of the United States who were employed in the financial‐services industry. Based on these processes, we empirically examine the relationship between responses to operational uncertainty and process performance after controlling for customer mix, other uncertainty sources, and process type characteristics. Our findings suggest that process improvement—an uncertainty reduction approach related to the internal functioning of the process—as well as several uncertainty coping approaches are associated with better performing processes. However, uncertainty reduction approaches related to customer involvement with, and demands on, the process are not associated with better performing processes. We discuss the implications of our findings for determining what actions managers can take to reduce the negative performance effects of operational uncertainty and how managers can decide which of these actions to take. We conclude with a discussion of the limitations of our study.     

A Decisional Framework of Offshoring: Integrating Insights from 25 Years of Research to Provide Direction for Future*

Mirroring the growing trend for firms to support their operations by locating activities abroad, research on the practice of offshoring has increased considerably in recent years. However, despite the mounting research, understanding of the key factors influencing decision‐making for offshoring remains surprisingly limited due to fragmentation. In this study, we synthesize and integrate insights from different research domains in order to develop a comprehensive decisional framework for key offshoring decisions. The integrative decisional framework is based on a systematic review of offshoring research published in the most influential management and business journals in the past 25 years. In addition to providing a snapshot of the state of research on decision‐making for offshoring, this study aims to stimulate future research by identifying promising research opportunities. In particular, we propose that future research should use alternative theories to incorporate overlooked aspects of decision‐making, integrate different theories to account for the interdependencies between decisions, and adopt a portfolio perspective that considers each decision as part of an overall offshoring strategy.     

Performance management of suppliers in outsourcing project: case analysis from the financial services industry

This study investigates the characteristics of an effective performance management framework for outsourcing projects in a UK-based financial services organisation and how this may contribute to the success of the outsourcing arrangement. The analysis draws on outsourcing and performance management theory, and uses both primary and secondary data. Valuable information was found on objective setting, performance measurement and performance improvement in the outsourcing project. An adapted version of the Balanced Scorecard, termed a Logic Scorecard, is suggested as a measurement tool; a service credit system and a continuous improvement schedule used to enhance supplier performance. The performance management framework, which is one of the pillars of the supply chain operations reference (SCOR) model, was developed, and provides practitioners with step-by-step guidance for the implementation of performance management in outsourcing projects. This combines both suggestions for performance management before and after the outsourcing decision, thus considering the entire outsourcing lifecycle. The proposed 10-step framework for outsourcing not only incorporates strategic propositions but also shows its implementation at an operational level.     

Human Error in Autonomous Underwater Vehicle Deployment: A System Dynamics Approach

The use of autonomous underwater vehicles (AUVs) for various applications have grown with maturing technology and improved accessibility. The deployment of AUVs for under-ice marine science research in the Antarctic is one such example. However, a higher risk of AUV loss is present during such endeavors due to the extremities in the Antarctic. A thorough analysis of risks is therefore crucial for formulating effective risk control policies and achieving a lower risk of loss. Existing risk analysis approaches focused predominantly on the technical aspects, as well as identifying static cause and effect relationships in the chain of events leading to AUV loss. Comparatively, the complex interrelationships between risk variables and other aspects of risk such as human errors have received much lesser attention. In this article, a systems-based risk analysis framework facilitated by system dynamics methodology is proposed to overcome existing shortfalls. To demonstrate usefulness of the framework, it is applied on an actual AUV program to examine the occurrence of human error during Antarctic deployment. Simulation of the resultant risk model showed an overall decline in human error incident rate with the increase in experience of the AUV team. Scenario analysis based on the example provided policy recommendations in areas of training, practice runs, recruitment policy, and setting of risk tolerance level. The proposed risk analysis framework is pragmatically useful for risk analysis of future AUV programs to ensure the sustainability of operations, facilitating both better control and monitoring of risk.     

Learning from the Piper Alpha Accident: A Postmortem Analysis of Technical and Organizational Factors

The accident that occurred on board the offshore platform Piper Alpha in July 1988 killed 167 people and cost billions of dollars in property damage. It was caused by a massive fire, which was not the result of an unpredictable "act of God" but of an accumulation of errors and questionable decisions. Most of them were rooted in the organization, its structure, procedures, and culture. This paper analyzes the accident scenario using the risk analysis framework, determines which human decision and actions influenced the occurrence of the basic events, and then identifies the organizational roots of these decisions and actions. These organizational factors are generalizable to other industries and engineering systems. They include flaws in the design guidelines and design practices (e.g., tight physical couplings or insufficient redundancies), misguided priorities in the management of the tradeoff between productivity and safety, mistakes in the management of the personnel on board, and errors of judgment in the process by which financial pressures are applied on the production sector (i.e., the oil companies' definition of profit centers) resulting in deficiencies in inspection and maintenance operations. This analytical approach allows identification of risk management measures that go beyond the purely technical (e.g., add redundancies to a safety system) and also include improvements of management practices.     

管理理论的实践相关性问题研究综述

介绍了管理理论缺乏实践相关性问题产生的历史背景以及其主要证据,并从管理理论传播过程、管理理论生产过程、管理研究方法论和管理理论框架、管理学者的价值观和管理学院追求的目标4个方面,对问题的原因进行了综述和分析,最后提出了需要进一步研究的几个问题。     

Revenue Management in Business Services

A significant portion of the services industry is focused on providing services (medical, legal, financial, personal, and travel) to individuals. However, studies have shown that a less visible but rapidly growing segment of the service sector comprises firms that provide business functions to other businesses. The sector covers tasks such as payroll processing, procurement, and information systems management, as well as business consulting, technical support, call center operations, and software development. Firms may choose to purchase, rather than perform, these business functions to reduce costs, to mitigate risk, or simply to focus on their processes that provide marketplace differentiation. Transferring a business function from within a firm to an outside supplier is often called “outsourcing”; when the supplier provides the service from a lower‐cost country, it is called “offshoring.” The risks and benefits of outsourcing to the firm purchasing a business service have been studied in some detail by both academics and consultants. In this paper, we outline revenue management issues faced by business service providers and describe some new opportunities for the use of analytic methods in the service science sector.     

A Framework for Examining the Interface between Operations and Information Systems: Implications for Research in the New Millennium*

Even though much research has been published in operations and information systems, both functional areas find their roots in other disciplines. While operations management evolved from operations research in the 1960s, the field of information systems is of more recent vintage and traces its original roots to computer science. Both disciplines now naturally have come closer together as information and process-technology-based changes force manufacturing firms to become more efficient and customer focused. Market and technology-driven e-commerce initiatives that are likely to dominate business strategies in the future cannot be successfully achieved without a successful integration of operations and information systems. In this paper, we present a unifying framework that can be used to better understand the management of the functional interface between operations and information systems. We also categorize and highlight the contributions of the articles that appear in this special research focus issue. Finally, research directions that emerge from our understanding of this interface are outlined in an effort to stimulate further thinking and research that can advance our knowledge of this interface area.     

基于动态因子Copula模型的行业间系统性风险分析

国际金融市场间的相关关系以及系统性风险受到很多学者的重视，本文则以我国股市的行业指数作为研究对象进行实证研究。通过构建动态因子Copula模型，文章对行业的日收益率数据进行了动态相关性分析，并基于风险预期占比度量了我国行业之间系统性风险的溢出效应。本文分析了2006年1月4日至2016年7月1日的28个行业指数数据，基于GAS动态负荷因子的变化路径来刻画其相关关系，通过风险预期占比来研究行业间的风险溢出效应。研究表明，各个行业指数收益率之间存在较强的关联性。就单个行业来说，化工行业与其他行业关系最为不稳定。就金融与非金融行业而言，金融行业对非金融行业的影响较大且较为平稳。本文所得研究结果可以为投资者和风险管理者在进行决策时提供一定的指导。     

'It's a Very Foreign Discipline': the Genesis of Expenses Control in a Mutual Life Insurance Company

This paper is drawn from an intensive case study of Pensco - a mutual life insurance company in the South of England. The original objective of the research was to examine corporate strategy as an aspect of management control. As the research proceeded, it became clear that a new system of budgeting and expenses control was a crucial element of the transformation of the company from its 'sleepy’ paternalistic traditions into an aggressive, competitive financial services company. The paper contextualizes the development of budgeting and expenses control in Pensco within changes in the British economy. These are associated with the rise of the New Right, transformations in the financial services sector relating to deregulation and the establishment of a new regulatory framework. The argument of the paper is that budgeting and accounting control in this company has a complex genealogy revolving around a number of conditions coinciding at a particular point in time. Our case study material also reveals a variety of tensions, contradictions and resistances to the new management regime that placed, considerable obstacles in the way of an effective implementation of the new accounting and management controls     

Chemical Manufacturing and Refining Industry Legitimacy: Reflective Management,Trust, Precrisis Communication to Achieve Community Efficacy

Calls for emergency right‐to‐know in the 1980s, and, in the 1990s, risk management planning, motivated U.S. chemical manufacturing and refining industries to operationalize a three‐pronged approach to risk minimization and communication: reflective management to increase legitimacy, operational safety programs to raise trust, and community engagement designed to facilitate citizens’ emergency response efficacy. To assess these management, operational, and communication initiatives, communities (often through Local Emergency Planning Committees) monitored the impact of such programs. In 2012, the fourth phase of a quasi‐longitudinal study was conducted to assess the effectiveness of operational change and community outreach in one bellwether community. This study focuses on legitimacy, trust, and response efficacy to suggest that an industry can earn legitimacy credits by raising its safety and environmental impact standards, by building trust via that change, and by communicating emergency response messages to near residents to raise their response efficacy. As part of its campaign to demonstrate its concern for community safety through research, planning, and implementation of safe operations and viable emergency response systems, this industry uses a simple narrative of risk/emergency response—shelter‐in‐place—communicated by a spokes‐character: Wally Wise Guy.     

Modeling Finite‐Time Failure Probabilities in Risk Analysis Applications

In this article, we introduce a framework for analyzing the risk of systems failure based on estimating the failure probability. The latter is defined as the probability that a certain risk process, characterizing the operations of a system, reaches a possibly time‐dependent critical risk level within a finite‐time interval. Under general assumptions, we define two dually connected models for the risk process and derive explicit expressions for the failure probability and also the joint probability of the time of the occurrence of failure and the excess of the risk process over the risk level. We illustrate how these probabilistic models and results can be successfully applied in several important areas of risk analysis, among which are systems reliability, inventory management, flood control via dam management, infectious disease spread, and financial insolvency. Numerical illustrations are also presented.     

An analytic approach for planning computerized office systems

The increasing demand for timely business information as well as the need to improve the effectiveness of administrative operations are forcing managements to consider installing automated office systems. These systems provide text word processing capabilities, information management and communication options. Their planning and evaluation process considers decision issues that are, at times, in conflict with each other. This paper presents a decision framework for the planning and evaluation of computerized office systems. Attention is focused, in particular, on the selection and the integration of word processing systems in the broader context of future office developments. It evolved from several real acquisition cases where such systems had to be planned, evaluated and selected.