Implications of onshore and offshore business process outsourcing for firms and customers.

Abstract

One of the key strategic decisions for a firm is to select the governance and geographic platform for its primary and support functions. Firms are increasingly utilizing business process outsourcing (BPO) to manage their operations and achieve their strategic objectives. In BPO, a firm delegates one or more IT-intensive business processes, such as HR or accounting, to be managed and delivered by an external vendor. BPO emerged as IT outsourcing vendors gained understanding during the 1990's, and then began specializing in functional areas where they would handle business processes along with the underlying IT. One differentiating factor for BPO compared with the outsourcing of other goods and services is the rapid speed with which offshore vendors have emerged as a viable mechanism to deliver BPO services. Despite the growing significance of BPO, there is limited understanding of the characteristics of firms that engage in BPO, the performance of those firms, and the implications for customers. This dissertation begins to address these considerations. The first chapter studies the characteristics of firms that engage in onshore and offshore BPO. Our empirical analysis indicates that firms with stronger IT infrastructure and business process codification are more likely to engage in BPO. These findings suggest that IT infrastructure may play an enabling role for BPO, consistent with recent research that IT enables organizational capabilities. The second chapter studies the quality, cost and time performance of firms that engage in onshore and offshore BPO. Our empirical analysis indicates that quality benefits from BPO lead to cost and time benefits. These findings suggest that firms should focus on quality when adopting and implementing BPO. The third chapter studies the implications of offshoring for customer satisfaction. Our empirical analysis indicates that the offshoring of customer-facing front office processes is negatively associated with customer satisfaction, and the offshoring of back office processes is positively associated with customer satisfaction. These findings suggest that firms must carefully consider which functions are suitable for offshoring. Collectively, the findings in this dissertation are important as firms more broadly incorporate the outsourcing and offshoring of business functions into their global sourcing strategies.