The perceived benefits of business process outsourcing: An empirical study of the German banking industry

The purpose of this paper is to provide an in‐depth analysis of the benefits senior management associate with business process outsourcing (BPO) and how these benefits are valued against each other.

A quantitative empirical study of the 200 largest banks in Germany was conducted: 218 senior managers from 126 different banks responded giving a response rate of 36.8 per cent. The answers were analysed using the partial least squares method (PLS).

The quantitative analysis shows surprising findings. A remarkable one is that there is a significantly higher value associated to the programmability of cost in a BPO case than to actual cost savings. This implies that the BPO market gained in maturity and that banks are much more critical to the marketing statements of outsourcing service providers than in previous years.

This paper supports the case for a more detailed analysis of the benefits associated with BPO. Although it is empirically supported that the benefit perceptions differ significantly, more questions need to be asked about the actual differences and thus what organizations learned over the last decades when IT outsourcing (ITO) was the predominant form of outsourcing. More research needs to be devoted to transforming the knowledge gained into advantages for the future. Additionally, for the research community using PLS, this paper offers a variety of successfully tested formative indicators in a BPO context.

For outsourcing service providers this paper provides a straight forward message. Potential clients of BPO are valuing other benefits than those ITO promises. Therefore, new concepts are needed to communicate the value of BPO to these customers.

This is the first quantitative research study on the perceived benefits of BPO. It provides valuable insights into management's perception and how the benefit associated with BPO are valued.