Risks and benefits of business process outsourcing: A study of transaction services in the German banking industry

Abstract

We developed a model of the adoption of business process outsourcing (BPO) based on risk–benefit analysis. The model was tested in the German banking industry in four areas of transaction processing. Our results showed that, in general, perceived BPO benefits have a substantially stronger impact on intention to increase the level of BPO than perceived risks. However, the experience that banks have with the BPO process, [whether already decided on BPO (Pro), still in the pre-decision phase (Neutral), or opted against BPO (Contra)], moderated the impact of factors affecting the perceived risks and benefits of BPO. Banks that opted for BPO were mostly driven by a desire to focus on their core business while considering financial risks. Banks in the neutral position had the most balanced view of risks and benefits, mainly financial and performance ones, and also focusing on the core business and increased business process performance. Those banks that decided against BPO mostly focused on benefits while the perceived risks were mostly formed by strategic and performance risks rather than financial ones. The results point out the path dependencies of the BPO decision.