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Practices in IS outsourcing

? strategic hazard facet is formed by ? individual risks of lock-in with ? vendor (0. 446), contrary objectives (0. 338), loss of innovative capabilities (0. 330), and loss of control (0. 179). All of these individual risks had ? significant impact on ? hazard facet, though loss of control only at ? 0. 1 level. ? dependency of ? bank on ? service provider had ? highest effect on strategic hazard, which complements ? analogous discussion of ? psycho-social hazard facet below and is in line with previous findings (e.g. , (Barthelemy and Geyer 2001; Quelin and Duhamel 2003).

In addition, managers perceive great hazard from divergent objectives between ? partners of ? BPO engagement and ? possible loss of innovative ability. These risks have before been identified by scholars (Earl 1996; Lacity 2002) and add to findings which spotlight on dependence and lock-in (Cheon et al. 1995; Aubert et al. 1998; Bahli and Rivard 2005).

? loss of organize loads moderately low, which is surprising, as loss of control was previously reported to be ? main hazard (Quinn and Hilmer 1994; Jurison 1998) ? clarification for ? fact that ? hazard of losing control has declined in importance could be

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that ? deployment of outsourcing governance mechanisms has turn out to be more widespread in recent years (Gewald and Helbig 2006). By establishing effectual governance structures ? association at all levels of ? involved corporations increases, therefore decreasing ? bank’s hazard of losing control over vital decisions.

? psychosocial hazard facet is constructed by one social and two psychological risks. As mentioned above it is very difficult to measure this facet, which has also turned out to be ? case in this research, as ? psychosocial hazard facet has ? lowest (yet still significant) loading of all hazard facets in ? perceived hazard construct. Nevertheless, ? three indicators tested offer interesting insights. As already shown in ? strategic hazard facet, ? possible lock-in with ? service provider causes ? perception of high hazard for ? manager (0.502), due to ? virtual irreversibility of ? decision (Jurison 1998).

? loss of personal reputation amongst peers due to outsourcing ? business procedure is also regarded as being ? high hazard (0. 490). This is understandable, taking contemporary press coverage into account, which is overwhelmingly negative towards outsourcing due to ? expected loss of jobs and wage cuts. ? third most significant psychosocial hazard for ? manager is ? indirect responsibility for procedure execution (0. 458).

Even if ? manager is no longer in charge of ? operation, she (and ? bank) will still get blamed for all errors that are made. This responsibility without direct control obviously causes ? high hazard perception. Despite ? mounting proof in support of transaction cost explanations, ? completeness of these has been questioned (Eisenhardt and Brown 1992). In fact, ? fundamental critique of transaction cost analysis is that it focuses solely on efficient organizational boundaries and ignores other factors.

Consequently, transaction cost analysis isolates or atomizes organizational economic actions when such actions should be construed more appropriately as publicly embedded in ongoing networks of relationships with internal and external institutional constituents (Ang and Cummings 1997; Granovetter 1992; Hesterly et al. 1990). With an under socialized conception of economic actions, production and transaction cost analyses then could overemphasize efficiency concerns and ignore other non-efficiency organizational goals for example legitimating, approval, and power.

Besides approaching ? research of IS outsourcing through other substantive dimensions, researchers should also explore ? use of alternative methods. Though appropriate to ? research questions being explored in this research, ? banking model clearly limits ? generalizability of results, as outsourcing becomes pervasive across industries and develops longer decision-making histories in these organizations, future researchers will want to gather samples that extend ? external validity to all industries.

Perhaps ? most severe limitation of ? research is ? cross-sectional nature of ? research. Degree of outsourcing could influence perceptions of transaction costs as well as ? opposite effect. Furthermore, though ? key informant was ? senior manager, there are always methodological limitations associated with gathering data from ? single source. There are certain points to be kept in mind when interpreting ? results of this research. This research has focused exclusively on ? BFI in Uk. So, ? results might not be representative of other industries or across countries.

This is of special importance if one takes ? inherent reference framework of outsourcing and ? associated risks and responsibilities into account, as required by tight national regulation. ? national character might change in years to come, when ? international supervisory body for ? banking system (? Bank for International Settlements) lastly releases its recommendations for outsourcing in financial services (BIS 2004b) to be incorporated into national regulations. Furthermore, ? digital character of ? banking and finance industry acts as ? driver for outsourcing.

Applying ? findings of this research to other industries might introduce additional risks or change hazard magnitudes due to increased staff operations. Therefore, our findings are only directly applicable to ? BFI in UK. Further Research After analyzing ? perceived hazard of BPO in greater detail ? comparable approach to ? perceived benefits of BPO seems promising. ? combination of ? findings of both measures and their influence on managers’ attitudes might add to ? understanding of ? outsourcing decision.

Furthermore, ? development of innovative hazard-sharing approaches seems to be ? relevant area for additional research, especially taking into account ? advances of ? Bank for International Settlement regarding ? sanctions for operational hazard in ? banking system (BIS 2004a). ? transfer of hazard in accordance with ? transfer of ? hazard-carrying business processes from bank to service provider is ? main field for further research with great potential for ? academic and practitioner community. Conclusion

Supply and demand forces place in perspective ? interesting conflict of ? reluctant organization striving to maintain its independence from others while knowing that it must assent to inter organizational ties to procure ? resources it needs (Lacity, et al. , 1995). Outsourcing poses challenges for both user organizations and service providers: in estimating ? “true” costs and savings of outsourcing; in managing power dependencies in ? exchange; and in balancing ? opportunities offered by open boundaries and free-flowing information against ? need to protect ? organization’s unique capabilities.

This research is ? first attempt to compare ? relative effects of production and transaction costs on managerial outsourcing decisions in ? IT context. Both production costs and transaction costs can and, it is argued, should have ? 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 ? outsourcing intention could be empirically supported.

This was done by conducting ? quantitative empirical research within ? UK BFI by questioning 593 senior bank managers. ? high response rate of 36. 8% provided significant high loadings and high R^sup 2^ values on ? applicable constructs. ? research differs from previously conducted studies on hazard in outsourcing by emphasizing how BFI managers actually deal with risky choices. It was shown that ? BFI manager’s attitude changes according to ? perception of hazard magnitude.

? ranking of ? individual risks per hazard facet provides valuable insights into ? causes and drivers of risks. In particular, ? formation of strategic hazard with its individual risks adds to ? scarce knowledge of ? possible outcomes of outsourcing on ? bank’s flexibility and innovativeness. Therefore, BFI managers might use our formatively measured strategic risks to assess ? impact of outsourcing on their institutional agility.

? theoretically deduced and empirically tested indicators are not only useful for scholars calibrating future surveys, but also for hazard managers trying to identify ? causes and drivers of overall outsourcing risks. Managers in ? BFI might use these results to construct hazard assessment tools – for example cause-effect-models – which guide hazard analysis within ? outsourcing decision procedure. ? findings of this research also offer insights to readers in charge of service provider operations into ? ‘gut feelings’ of their clients.

This might lead to ? better understanding of ? clients’ needs and ? issues which make them reluctant to accept BPO offers. Contributing to improving ? mutual understanding of goals – and of fears – of both outsourcers and service providers also follows ? recommendations of ? recent outsourcing literature and resembles ? claim of Chua et al. for net-enabled organizations to consider ? wider variety of stakeholders (Chua, Straub, Khoo, Kadiyala and Kuechler 2005). We expect ? better understanding of these issues to lead to ? higher adoption rate of BPO in ? UK BFI.

Furthermore, this research contributes to theory as perceived hazard theory has not yet been successfully applied to ? outsourcing decision procedure. ? insights into ? structure of ? perceived hazard of BPO segregating it into four hazard facets have proven to be an especially valuable approach to explaining BPO in ? BFI, adding arguments to ? discussion on antecedents of ? outsourcing decision. To our knowledge this is also ? first quantitative empirical research which uses ? SEM with formative indicators to analyze ? perceived risks of outsourcing in ? BPO context.

Other scholars might benefit from our work by analyzing ? 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.

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