Outsourcing of Business Processes in the IT and Financial Service Industry, Thesis of Marketing Management

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Capstone Proposal

MS International Management

Literature Review

Contents

• LITERATURE REVIEW...........................................................................................................
  • 1. Introduction.....................................................................................................................
  • 2. Outsourcing of Business Processes.................................................................................
  • Sector...................................................................................................................................... 3. Factors influencing Business Process Outsourcing in the IT and Financial Service
  • 4. Influence and Impact of Business Process Outsourcing on Vendor Organisations........
  • Industry.................................................................................................................................. 5. Benefits and Challenges in Business Process Outsourcing in Financial and Banking
  • 6. Strategies for Successful Business Process Outsourcing................................................
  • 7. Theoretical Framework...................................................................................................
    • 7.1. Transaction Cost Economics (TCE)............................................................................
    • 7.2. Resource-Based View (RBV) Theory.........................................................................
  • 8. Literature Gap.................................................................................................................
  • 9. Conclusion.....................................................................................................................
• METHODOLOGY...................................................................................................................
  • 1. Philosophical Concerns.................................................................................................
  • 2. Data Collection..............................................................................................................
  • 3. Data Analysis................................................................................................................
• REFERENCE LIST.................................................................................................................

is the cost-effectiveness of outsourcing. The process of outsourcing ensures operational efficiency without compromising the cost-effectiveness of the process as per Gambal et al. (2022). It is important to note that cost-effectiveness as the underlying cause of adopting outsourcing can be problematic for the organisation because when the focus is on cost- effectiveness, the core competency or activity of the business is compromised and that can also fail to ensure an innovation-driven approach affecting the overall performance of the company as well as the operational efficiency (Gambal et al. 2022). Amid the ominous perspective that commonly prevails, outsourcing is considered critical for the success of the business because it allows firms to utilise the resources of a third party to operate the core activity and benefit from the skills as well as the specialisation of the third party, which clearly implies that outsourcing of business process facilitates agility, flexibility, simplified management and cost-effectiveness of the business. It is evident that there are both, positive as well as negative consequences of outsourcing for business and these consequences create a dilemma surrounding outsourcing, and since it cannot be predicted whether outsourcing will work in favour or against the business (Dekker et al. 2020).

3. Factors influencing Business Process Outsourcing in the IT and Financial

Service Sector

Influence and Impact of Business Process Outsourcing in the contemporary era, the focus has shifted towards information technology and a lot of businesses have developed their core competency by outsourcing strategically in the information technology (IT) sector. This was a way by which companies who had IT-related services transferred these services to a third party or external service providers so that the activities alongside time, cost and efficiency could be managed in a better manner (Hanafizadeh and Zare Ravasan, 2017). In recent times financial organisations and banking institutes have adopted outsourcing as a strategy to ensure proper management and especially services like security, legal, transportation services and technical IT services have been outsourced by banks (Hanafizadeh and Zare Ravasan, 2017; Kaźmierczyk and Macholak, 2014). The main factor influencing business process outsourcing is the decision-making process, the outsourcing decisions influence outsourcing, and some of the third-party or outsourcing companies are not suitable for the core service of the business (Zameer and Ali, 2013). The main reason why decisions matter and influence business process outsourcing is because of labour costs and various risks as well as benefits as per Jain and Natarajan (2011). The second factor that influences business process

outsourcing in the IT and financial services sector is commitment and management. the management in terms of financial as well as IT has a serious impact on how outsourcing performs for the business. The commitment of the outsourcing service provider is critical because if the service provider is not committed towards the business, the operational efficiency cannot improve which can hamper the success of the business as well (Lacity et al. 2009). The third factor that is important and influences outsourcing in business processes is cooperation and coordination. Coordination is critical for functioning for both the business and the service provider, and when there is effective cooperation outsourcing can turn out to be a boon for businesses as the performance will improve alongside the core competency which is the identity of the concerned business will become a competitive edge for the business allowing it to improve its profitability (Marco-Simó and Pastor-Collado, 2020). The cost reduction factor also influences, it is importance for the outsourcing partner to be cost- effective so that the company that is associating with the outsourcing partner knows about the benefit of outsourcing, often cost minimization has been a criterion for companies before they choose outsourcing as a business mostly choose to outsource for cost savings reason (Gantman and Fedorowicz, 2020). If cost minimisation is not a consideration then the relationship between the outsourcing partner and the company can severely affect the performance of the business and the overall efficiency of organisations, especially considering the IT and financial sectors.

4. Influence and Impact of Business Process Outsourcing on Vendor

Organisations

For outsourcing, the critical aspect is vendor organisation and it is important so that strategic decisions can be made, which will leave a lasting positive impact on the organisational performance and success. The aim behind vendor selection is to provide satisfaction to the clients that are the business organisation and provide them services that are high quality, cost- effective and efficient. The choice of vendor organisation is what determines the outcome of the outsourcing process for the business and therefore choosing a suitable vendor organisation to ensure the outsourcing process is beneficial for the business and its operational efficiency (Singh et al. 2013). The vendor organisations are chosen based on their capabilities which are mostly based on industry-specify, so that the management is accurate for outsourcing the required services for the business. For the corporate giants, vendors are chosen based on their capabilities for outsourcing repetitive tasks, especially in the finance

Information and Communication Technology (ICT) have contributed to cost efficiency and higher competitiveness in the global market. A major challenge is the high competition of BPOs in countries like Vietnam, India, and Malaysia. There are four main categories of benefits from outsourcing, as per Domberger, namely cost saving, flexibility, market discipline, and specialisation (Shitaye, 2016). BPO allows companies to focus on their core business practices while outsourcing anything less important. This enables them to improve the quality of business and enhances the operational expertise since the company can now focus on the core practices. BPO also enables companies to get access to talent, reduce the time required to market, and enhance the capacity for innovation, risk management, and scalability amongst others (Shitaye, 2016). On the other hand, Shitaye (2016) noted that identifying and evaluating the correct activities for outsourcing is a major challenge that organisations face. While some activities can be outsourced to reduce the burden on the in- house team, outsourcing sensitive activities can lead to a lack of control over services and can become a liability. This makes implementing BPO strategies considerably challenging in terms of planning and implementation. Sansui (2020) also agrees with other authors, noting benefits like reducing costs and increasing efficiency through BPO. Apart from saving the direct costs of employee hiring and training, outsourcing also saves indirect costs like the reduced need for infrastructure and support systems. At the same time, offshoring jobs leads to the creation of jobs in new locations leading to employment opportunities in countries where industries perhaps could not be established directly yet employment could be contributed to (Groizard et al. 2014). Poor quality of services due to communication issues between stakeholders and not meeting expectations are also major challenges of BPO (Sansui, 2020). As per the study by Rautela et al. (2021), in the context of the Indian banking sector, it was found that benefits like strategic competitive advantage, better quality of customer service, more efficient use of resources, and capitalisation on technological advancements apart from the cost-effectiveness were the key motivating factors for BPO. Outsourcing of IT, marketing, and Human Resources (HR) concerns are the most popular in banks in India (Rautela et al. 2021). Overall, it can be noted that the benefits and challenges associated with outsourcing are consistent across the world in these sectors and otherwise.

6. Strategies for Successful Business Process Outsourcing

To undertake BPO successfully, suitable strategies and approaches are necessary on the part of the organisation that is outsourcing. For example, in the case of the banking sector, it was found that horizontal business activities were the most prominently outsourced ones, which included payroll, customer care, training and development, and recruitment (Ravi et al. 2011). However, banks in India were found to refrain from following such practices, particularly having reservations about outsourcing customer service and marketing. Vertical outsourcing is something banks were noted predominantly to be refraining from. Banks were also noted to prefer working with single vendors and onshore outsourcing instead of having multiple vendors from offshore (Ravi et al. 2011). Another study, albeit not limited to the finance and IT sector, in the case of Kenya, found that firms were outsourcing both core and support activities for the sake of improvement in performance. Essentially, the paper suggested that instead of simply outsourcing non-core activities and retaining in-house activities, the approach should be concerning the identification of non-essential primary activities and if possible, in terms of feasibility and safety, outsourcing such activities too (Awino and Mutua, 2014). On the other hand, Jain et al. (2020) evaluated the strategies that companies undertake when choosing vendors for IT outsourcing. It was found that firms may choose to consider either a single-sourcing or dual-sourcing strategy based on the learning efficiency of the vendors. This means that the firms often choose to either outsource their activities to one vendor or distribute the activities between multiple vendors based on the cost and adaptability of the vendors and their suitability to meet the requirements of the client firms (Jain et al. 2020). For example, banks like Barclays and JP Morgan Chase and Co. have significant BPO businesses in India albeit very limited banking presence or functionality in the country (Rebello, 2013). HSBC also has outsourced a significant chunk of its activities to India and the Philippines (Bloomberg, 2006). Adudu et al. (2020) noted several alternative strategies that can be used when outsourcing, namely contracting strategy, comprehensive strategy, licensing agreement strategy, and selecting strategy amongst others. In the Nigerian banking sector, a contracting outsourcing strategy was found to be commonly implemented where a contractor is awarded a contract for performing a task and paid by the hours, days, or weeks. A comprehensive strategy, which refers to complete outsourcing for the long term, was also noted to be used albeit contracting showed the best results in Nigerian banks in terms of performance and competitive advantage (Adudu et al. 2020). Fabian et al. (2023) also

8. Literature Gap

Following the evaluation of the relevant literature, it was noted that the existing academic literature has certain gaps and shortcomings in terms of addressing the topic being considered. The foremost gap that one could notice is that studies have been done in a broader scoped approach and the number of articles addressing the concerns of the particular financial and IT outsourcing is somewhat limited. Particularly, despite the growth of outsourcing practices, one noticed that a greater share of the research and literature was undertaken almost a decade ago. The limited research in the contemporary context particularly considering the aftermath of the COVID-19 pandemic and its influence on outsourcing practices. This makes it particularly challenging to get a significant grasp of the BPO practices in the contemporary day and age from the literature search. Apart from these, the existing literature also appears to be quite fragmented and fails to grasp and present a complete picture of the situation regarding BPO and the needs and strategies for undertaking outsourcing.

9. Conclusion

In this chapter, a systematic review of the academic literature was undertaken concerning outsourcing practices to explore the benefits, challenges, and strategies that drive BPO in the IT and finance sector. The literature review presented in this chapter allowed for a foundational understanding of the present state of research in the field and also the gaps and theoretical underpinnings concerning this field topic. Major themes relevant to the research question were presented and the existing academic literature concerning the topics was compared and contrasted against each other. It is expected that this chapter will contribute to the foundation of the approach towards the collection and analysis of data and consequently the findings of this study.

METHODOLOGY

1. Philosophical Concerns

The research philosophy covers the assumptions, set of beliefs, and principles guiding the process of research and covers the epistemological, ontological, and methodological stances. The research philosophy that this study will follow is interpretivism, which focuses on interpreting phenomena from a subjective perspective. This philosophy is considered in favour against of positivism because the latter considers an objective worldview which does not suit this research since outsourcing and BPO and its concerns vary from country to country and industry to industry which a positivistic philosophy cannot suitably cover. The research approach considered for this study is inductive instead of deductive as this study will not confirm the hypothesis but rather take the approach of developing a theory from data. The collected data and its interpretation will give rise to the theoretical understanding of the concepts. The study will be undertaking a secondary qualitative approach to data collection and analysis, which essentially means that the data that will be considered for this study will not be collected from individual participants, but rather from existing literature where the data has been analysed already by scholars and systematically refined. This has been chosen as the suitable means of collecting data considering the limitations of resources, accessibility, and time of the researcher. Qualitative data, which refers to data in the form of textual content rather than numerical data, was found to be the suitable choice for this study as numerical data will not be able to capture the nuances and present an in-depth understanding that is required in this study and only a qualitative approach can potentially answer the relevant research questions and thus meet the research objectives.

2. Data Collection

As noted in the previous section, the data to be collected will be qualitative secondary, which refers to textual data that is already present in existing literature. To collect relevant data for this study, one would undertake a systematic search of peer-reviewed academic and industrial articles that have been published in recent years. To undertake the search, suitable keywords would be chosen and searched on databases like Google Scholar, ProQuest, Elsevier, and EBSCOHost amongst others. Then, relevant articles based on their titles and Abstracts would be filtered before further refining the articles based on selection criteria like language, relevance, source, and date of publication. The PRISMA framework will be the most suitable

REFERENCE LIST

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