Strategic risks in BPO

Length: 858 words

Strategic risks in BPO arise if ? bank loses its ability to react flexibly and unconstrained to changing market conditions. Strategic hazard replaces safety hazard in ? original PRT framework (Cunningham 1967) as in our research context there is no threat to ? life and health of ? manager involved, but rather its equivalent for ? organizational unit ? manager is responsible for. Managers considering outsourcing need to analyze its effects on strategic flexibility, which is particularly at hazard if there is ? dependency on ? service provider.

Resource Dependency Theory (RDT) (Thompson 1967; Aldrich 1976; Pfeffer and Salancik 1978) was used to explore strategic hazard. RDT expresses dependency as ? result of ? organizational necessity of adapting to environmental uncertainty, coping with problematic interdependence, and actively managing resource flows (Pfeffer and Salancik 1978). In order to determine ? dependency of ? company on another company, three factors have to be analyzed: ? importance of ? resource, ? company’s discretion of resource utilization and ? availability of alternative resources.

Applying RDT to ? concept of BPO, ? degree of dependency is determined by (1) ? importance of ? outsourced resources, (2) ? number of vendors able to provide ? outsourced service alternatively, and (3) ? anticipated costs of switching service providers (Cheon, Grover and Teng 1995). ? analyzed business processes are without doubt serious banking processes which are specifically regulated by ? UK banking authority (Bundesbank 2001). So, banks depend on ? proper execution of these services regardless of whether they are produced internally or externally.

Though, as ? data gathered in this research shows, 60% of ? participants state that no specialized know-how is required to execute ? processes. This complements ? statement by more than 85% of ? responses that UK has ? mature BPO market with ? wide range of alternative service providers. So, ? concern of dependency concentrates on ? expected switching costs. ? issues surrounding costs for back sourcing ? service have been intensively discussed by (Cheon et al. 1995; Earl 1996; Aubert et al. 1998). Switching costs prevent one from changing service providers or back sourcing and have been operationalized as ? hazard of lock-in.

As outlined above, AT predicts opportunistic behaviour by both ? bank and ? service provider which is caused by contrary objectives. Contrary objectives might prevent ? vendor from utilizing its best resources or capabilities in service delivery. This issue has been operationalized as ? strategic hazard of contrary business objectives. Outsourcers might be reluctant to retain in-house capabilities (Aubert, Patry and Rivard 2003). If ? bank does not preserve internal procedure know-how, it can hardly identify new business opportunities in this area and might find it increasingly difficult to react to market changes.

This might lead to ? long-term loss of innovation capabilities. As outlined by Willcocks et al. (2004, p. 10), ? bank will spend “much time fire-fighting and experiences little value-added or technical/ business innovation. ? final hazard assumed to form ? strategic hazard facet is ? hazard of loss of control. This hazard arises from ? contractual ties of ? bank with ? service provider and hinders ? bank from acting as unrestricted as it could with internal production of ? procedure (Cullen and Willcocks 2003).

Hypothesis 5: ? higher ? perceived strategic hazard of BPO, ? higher ? overall perceived hazard. Psychosocial Hazard We define psychosocial hazard as ? hazard that ? decision to outsource ? business procedure has ? negative effect on ? responsible manager’s peace of mind or self-perception (i. e. , loss of position in one’s social group). This hazard facet is generally seen as ? most difficult facet of PRT to measure, due to its multiple sources of influence on ? individual’s level (Mitchell 1999).

? social hazard within this facet is operationalized by ? question relating to ? results for ? personal reputation of ? manager amongst his internal (colleagues) and external (business partners) peers in ? context of ? outsourcing decision. ? items relating to psychological hazard aspects focus on issues which are assumed to create ? greatest pressure for ? peace of mind of ? manager in conjunction with ? outsourcing decision. These are ? possible lock-in situation with ? vendor and ? indisputable responsibility of ? bank (towards its customers) for errors produced by ? service provider.

? issue relating to ? hazard of lock-in arises from ? virtual irreversibility of ? decision. This increases ? pressure on ? manager due to ? difficulty of correcting or readjusting ? decision once it is made. ? other main pressure arises from ? responsibility for ? errors of ? service provider though ? manager can only exert indirect control on ? vendor’s processes. As ? bank remains fully and indisputably responsible for its operations (whether outsourced or not) towards ? end client (Bundesbank 2001), all mistakes in ? execution of ? outsourced procedure can potentially damage ? reputation of ? bank.

This direct responsibility of ? manager for actions he can only control indirectly is assumed to put psychological pressure on him during ? outsourcing decision procedure. To test ? causal model depicted in Figure 1, it had to be converted into ? questionnaire. Each construct is represented by ? set of indicators which form ? questions in ? survey. All questions were measured on ? positive-to-negative 7-point Likert scale. Questions regarding ? perceived hazard state ? hazard and ask how ? manager rates ? hazard on ? following scale: “Very high – high – rather high – neutral – rather low – low – very low.

” Questions on ? benefits of attitude and intention give ? statement and ask for ? level of agreement on ? following scale: “Strongly agree – predominantly agree – rather agree – neutral – rather disagree – predominantly disagree – strongly disagree. ” ? questionnaire was discussed intensively within our research institute and pre-tested independently with three managers from banks which were not included in ? model. Based on ? acquired insights ? questionnaire was modified and finalized.

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