The Influential Role of Perceived Risks versus

TheInfluentialRoleofPerceivedRisksversusPerceivedBenefitsintheAcceptanceofBusinessProcessOutsourcing:EmpiricalEvidencefromtheGermanBankingIndustryHeikoGewaldE-FinanceLabInstituteofInformationSystemsUniversityofFrankfurtMertonstraß[e-mail]nformatio[e-mail]2005TheInfluentialRoleofPerceivedRisksversusPerceivedBenefitsintheAcceptanceofBusinessProcessOutsourcing:EmpiricalEvidencefromtheGermanBankingIndustryAbstractBusinessprocessoutsourcing(BPO)hasbeensuggestedasoneofthebiggestareasofgrowthintheoutsourcingmarket.Nevertheless,manyorganizationsarestillreluctanttooutsourcebusinessprocessesthatarepartoftheircorebusiness.Inordertohelpovercomethisdivergencebetweenexpectationsandreality,wesystematicallyanalyzethefactorsthatformanorganization’sattitudetowardsBPOaswellastheirintentiontoadoptBPO.WedevelopaBPOadoptionmodelwhichisbasedontheargumentthatBPOposesbothrisksandbenefitsandthatdecisionmakersneedtobalancebothbeforeadoptingBPO.ThemodelistestedbasedondatathatwascollectedintheGermanBankingIndustry.Altogether218datapointsontheperceptionsofbusinessmanagersinthefourareasoftransactionprocessing(credits,securities,domesticpayments,andforeignexchange/moneymarket)wereavailableformodeltestingviaPartialLeastSquares.TheresultsshowthattheintentiontooutsourcetheseIT-intensivebusinessprocessesisstronglyinfluencedbythemanager’sattitudetowardsBPO.Othernon-rationalfactorsplayaminorrole.Onlypeerinfluencesinthebankingindustrywerefoundtosignificantlyinfluenceintentions.Around77percentofthevariationsinattitudeareexplainedbyperceivedrisksandperceivedbenefits.TheperceivedbenefitshaveamuchstrongerinfluenceonBPOacceptancethanrisks.Thisindicatesthatrisksmaybesomewhatunderrepresentedintheadoptionprocess.Moreover,itisinstructivetonotethattheabilitytofocusoncorecompetenciesisthestrongestadvantageforBPO,followedbyqualityimprovementsandcosttransparency.Interestingly,anticipatedcostreductionshavelessinfluencethanthepreviousthreefactors,andaccesstobetterresourcesplaysnoroleinattitudeformation.Ontheotherhand,overallBPOrisksareclearlydominatedbyfinancialrisks.Strategicrisksarealsoimportantand,toalesserextent,performancerisks,whilepsychosocialrisksandprivacyrisksarenotsignificantpredictors.ThesefindingssupporttherecommendationthatprovidersofBPOservicesshouldemphasizeriskmitigationproposalsintheirofferings.SubjectAreas:BusinessProcessOutsourcing,Risk-benefitconcept,Attitude-BehaviorStructure,PerceivedRiskTheory,PartialLeastSquares,Questionnairesurveys11IntroductionTheconceptoftheindustrializationofthebankingindustry,i.e.thesegregationofformerlytightlyintegratedvaluechainshasbeenaroundforseveralyearsnow.Althoughbankshavedevotedconsiderableresourcestothere-organizationoftheirproductionchains,anindustry-widechangeinparadigmtowardsdistributedvaluechainshasnotyettakenplace(Gellrich,etal.,2005).Theavailabilityofbusinessprocessoutsourcing(BPO)maychangethisinthenearfuture.BPOisarelativelynewphenomenon,butitissuggestedthatitwillbeoneofthelargestareasofgrowthintheoutsourcingmarket.Forexample,GartnerGroupestimatedthattheworldwidemarketwouldincreasefromUSD110bnin2002toUSD173bnin2007(Gartner,2004).BPOisdefinedasthedelegationofoneormoreentirebusinessprocessestothirdpartyproviders,includingtheinformationsystems(IS)servicesthatsupportthoseprocesses(HalveyandMelby,2000).Itisthecombinationoftraditionalinformationtechnologyoutsourcing(ITO),whichhasbeenamajortrendoverthelastfifteenyears(Dibbern,etal.,2004),andtheoutsourcingofnon-ISbusinessfunctions(KakabadseandKakabadse,2002).ThegrowingpracticeofBPOiscloselylinkedtothedigitalizationoftheenterprise.Today,informationtechnology(IT)playsanintegralroleinvirtuallyeverybusinessprocess.Mostofthedataandinformationthatisneededinordertocarryoutabusinesstaskisnowavailabledigitallyandthemajorityoftheprocessingisdoneusingspecializedsoftwarepackages,andincreasinglyusingautomatedroutines.ItisthereforehardlysurprisingthatthosebusinessprocessesinwhichITplaysanimportantroleforprocessing,havebecomeprimecandidatesforBPO.ExamplesareadministrativeservicessuchasthepayrollfunctioninHR,claimsmanagementinfinanceorwarehousinginlogistics(RouseandCorbitt,2004).Duetothedigitalizationofbusinessprocesses,theirexecutionhasbecomeincreasinglyindependentoflocation.Manyfinalproducts2suppliedtotheclientareavailabledigitallyvianetworkconnections(e.g.,aprocessedpayrolllistoranewinventorylistmaybetransferredtotheclientbyElectronicDataInterchange).Theprogressofthedigitalenvironmentservesasakeyenablerforthedigitallyenabledextendedenterprise.OneindustrywheredigitalizationhasdramaticallyalteredthewayinwhichbusinessprocessesarecarriedoutistheBankingIndustry.Almosttheentireportfolioofbankingproductsisavailableindigitalformandmanyservicesarenowprovidedthroughtheinternet.Thebalanceinacurrentaccount,aninternationalpayment,orthepurchaseofmutualfundsisnowadaysmerelyanelectronictrans