Decisions to outsource

Both production costs and transaction costs can and, it is argued, should have а main impact on decisions to outsource. Managers need to be especially vigilant to see that estimates of both kinds of costs figure into their calculations of ROI. In this paper, our main overall hypothesis that perceived hazard negatively influences managers' attitude towards BPO and that attitude strongly influences а outsourcing intention could be empirically supported. This was done by conducting а quantitative empirical research within а UK BFI by questioning 593 senior bank managers.

А high response rate of 36. 8% provided significant high loadings and high R^sup 2^ values on а applicable constructs. А research differs from previously conducted studies on hazard in outsourcing by emphasizing how BFI managers actually deal with risky choices. It was shown that а BFI manager's attitude changes according to а perception of hazard magnitude. А ranking of а individual risks per hazard facet provides valuable insights into а causes and drivers of risks.

In particular, а formation of strategic hazard with its individual risks adds to а scarce knowledge of а possible outcomes of outsourcing on а bank's flexibility and innovativeness. Therefore, BFI managers might use our formatively measured strategic risks to assess а impact of outsourcing on their institutional agility. А theoretically deduced and empirically tested indicators are not only useful for scholars calibrating future surveys, but also for hazard managers trying to identify а causes and drivers of overall outsourcing risks.

Managers in а BFI might use these results to construct hazard assessment tools - for example cause-effect-models - which guide hazard analysis within а outsourcing decision procedure. А findings of this research also offer insights to readers in charge of service provider operations into а 'gut feelings' of their clients. This might lead to а better understanding of а clients' needs and а issues which make them reluctant to accept BPO offers.

Contributing to improving а mutual understanding of goals - and of fears - of both outsourcers and service providers also follows а recommendations of а recent outsourcing literature and resembles а claim of Chua et al. for net-enabled organizations to consider а wider variety of stakeholders (Chua, Straub, Khoo, Kadiyala and Kuechler 2005). We expect а better understanding of these issues to lead to а higher adoption rate of BPO in а UK BFI. Furthermore, this research contributes to theory as perceived hazard theory has not yet been successfully applied to а outsourcing decision procedure.

А insights into а structure of а perceived hazard of BPO segregating it into four hazard facets have proven to be an especially valuable approach to explaining BPO in а BFI, adding arguments to а discussion on antecedents of а outsourcing decision. To our knowledge this is also а first quantitative empirical research which uses а SEM with formative indicators to analyze а perceived risks of outsourcing in а BPO context. Other scholars might benefit from our work by analyzing а indicators we have used and applying them to their own research.


Adams, D. A. ; R. R. Nelson and P. A. Todd; "Perceived Usefulness, Ease of Use, and Usage of Information Technology: A Replication," MIS Quarterly, (16:2), 1992, pp. 227-247. Adeleye, B. C. ; F. Annasingh and M. B. Nunes; "Risk management practices in IS outsourcing: An investigation into commercial banks in Nigeria," International Journal of Information Management, (24:2), 2004, pp. 167-180. Ajzen, I. ; "The Theory of Planned Behavior," Organizational Behavior and Human Decision Processes, (50), 1991, pp. 179-211. Ajzen, I. and M. Fishbein; "Understanding Attitudes and Predicting Social Behavior," Prentice-Hall, Englewood Cliffs, NJ, USA, 1980.

Aldrich, H. ; "Resource Dependence and Interorganizational Relations: Relations between Local Employment Service Offices and Social Services Sector Organizations," Administration and Society, (7:4), 1976, pp. 419-455. Alexander, M. and D. Young; "Strategic Outsourcing," Long Range Planning, (29:1), 1996, pp. 116-119.