The impact of business process outsourcing on firm performance and the influence of governance : a long term study in the German banking industry

Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability. Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance JEL Classifications: G21, L14, L21, L2

The impact of potential flexibility gains and losses on the intention to outsource business processes

In an ever accelerating world demanding fast adjustment to changing business environments, organizational flexibility becomes increasingly important. By outsourcing business processes (BPO), there are both potential flexibility losses (e.g. loss of control) and potential flexibility gains (e.g. the transformation of fixed to variable costs). Firms have to balance this trade-off to retain sufficient flexibility or even enlarge their strategic and operational flexibility. Based on an empirical study with Germany’s Top 200 Banks it is shown that the perception of both flexibility gains and losses have a profound impact on the outsourcers’ attitude towards BPO. In particular, potential flexibility losses have a higher impact on outsourcers’ attitude than potential flexibility gains. Subsequently, in accordance with the theory of reasoned action it turns out that attitude is an antecedent of the intention towards outsourcing. Therefore we argue that flexibility-related issues should be explicitly considered in outsourcing evaluations and service providers should emphasize on contractual means to demonstrate that organizational flexibility will not be negatively affected

Do german banks successfully outsource back-office processes?

GERMAN BANKS ARE HIGHLY SATISFIED WITH THEIR BUSINESS PROCESS OUTSOURCING (BPO) VENTURES. BENEFITS ARE ACHIEVED THROUGH THE COMBINATION OF A CLOSE VENDOR RELATIONSHIP AND A WELL-DEFINED OUTSOURCING CONTRACT. THE OUTSOURCING OF DOMESTIC PAYMENT PROCESSES IS MOST SUCCESSFUL WHEREAS THE OUTSOURCING OF CONSUMER CREDIT PROCESSES STRUGGLES WITH QUALITY IMPROVEMENTS

ABSTRACT

Information Technology (IT) is a key productive factor in the banking and finance industry (BFI) as almost the entire production and delivery of services can in principle be digitized. Driven by cost pressure and new competitors, outsourcing IT together with the relevant business processes is a promising way to focus on core competencies and to restructure the corporate value chain. While there is a rich literature on the risks and benefits of IT outsourcing, little is known about the next step of business process outsourcing (BPO) and especially the associated risks. Our main hypothesis is that the perceived risks associated with BPO strongly influence managers ' intention to outsource business processes. Based on an empirical survey of BFI managers covering 90 % of the cumulated German BFI balance sheet, it is shown that perceived risk does indeed have a significant impact on managers ' attitudes towards BPO and that these attitudes strongly influence the outsourcing decision. Financial risks turn out to be a major risk facet, exerting pressure on banks which decide solely in terms of potential cost savings. In addition, the high importance of performance risk requires banks to invest in sophisticated vendor management

Business process outsourcing studies: a critical review and research directions

Organizations are increasingly sourcing their business processes through external service providers, a practice known as Business Process Outsourcing (BPO). Worldwide, the current BPO market could be as much as 279 billion and is predicted to continue growing at 25% annually. Academic researchers have been studying this market for about 15 years and have produced findings relevant to practice. The entire body of BPO research has never been reviewed, and this paper fills that gap. We filtered the total studies and reviewed 87 empirically robust BPO articles published between 1996 and 2011 in 67 journals to answer three research questions: What has the empirical academic literature found about BPO decisions and outcomes? How do BPO findings compare with Information Technology Outsourcing (ITO) empirical research? What are the gaps in knowledge to consider in future BPO research? Employing a proven method that Lacity et al. (2010) used to review the empirical ITO literature, we encapsulated this empirical literature on BPO in a way that is concise, meaningful, and helpful to researchers. We coded 43 dependent variables, 152 independent variables, and 615 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of BPO: one model addresses BPO decisions and one model addresses BPO outcomes. The model of BPO decisions includes independent variables associated with motives to outsource, transaction attributes, and client firm characteristics. The model of BPO outcomes includes independent variables associated with contractual and relational governance, country characteristics, and client and supplier capabilities. Overall, BPO researchers have a broad and deep understanding of BPO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We propose nine future paths of research pertaining to innovation effects, retained capabilities, environmental influences, global destinations, supplier capabilities, pricing models, business analytics, emerging models, and grounded theory development