As service processes become candidates for outsourcing, interest in the global business process outsourcing (BPO) industry has grown considerably. In this study, drawing on information processing theory, we examine the role of integration in BPO and its effect on BPO firm performance. BPO Integration is concerned with the overall coordination of business processes and activities across different units within the outsourced environment. It involves both internal process integration – effective integration of task execution within the BPO and external process integration – effective integration between the BPO and their clients. Using survey data gathered from 205 Indian BPO service providers, we analyze the antecedents of process integration and its impact on BPO performance. The antecedents we examine are task complexity, task security, end customer orientation of the client and IT capability of the BPO. Among other results, we find that both internal and external process integration partially mediate the impact of the antecedents on performance. We draw managerial implications of our research to practicing BPO and client managers on how BPO outsourcing can be made successful.
Continuous improvements in telecommunications and information technology (IT), along with the availability of a skilled global workforce and reduction in international trade barriers have spurred the breakdown of service delivery value chains (Apte and Mason, 1995, Metters, 2008 and Mithas and Whitaker, 2007). Many firms have now shifted from a strategy of ownership of assets to a strategy of outsourcing some or all the components of a service to offshore locations to reduce cost, improve cycle times and to gain innovation capabilities (Kulkarni, 2008). These services, given their reliance on information technology for delivery, are labeled information technology enabled services (ITES). In particular, the offshoring of service work from developed countries to emerging market economies has gained significant public attention (Metters and Verma, 2008). This trend is part of a larger emerging phenomenon of business processes outsourcing (BPO) to a third party service provider. These BPO organizations play an important role in a buying firm's strategy by allowing clients (outsourcer) to specialize in their core competencies and serve as the client's extended enterprise (Aron and Singh, 2005).1 The BPO market over the past few years has grown significantly and the spending for IT–BPO services is estimated to be about $976 billion (NASSCOM, 2009). Further, the BPO component of this spending grew the highest at 12% in 2008 underscoring the importance of this sector (NASSCOM, 2009).
Notwithstanding any substantial potential savings, a number of firms are unable to realize the benefits of offshoring. Some practitioners have noted that BPO problems are related to “dark underbelly of integration failures” (Cioni, 2007, p. 1). For example: (a) Alster (2005) predicted that during 2005–2008, 60% of organizations outsourcing customer facing services would face customer defections and incur hidden costs that may nullify savings; (b) Aron and Singh (2005) indicated that half the firms that shifted processes offshore failed to generate expected financial benefits; and (c) Robinson et al. (2008) indicated that more than 75% of service providers they interviewed felt that clients were ill prepared for the outsourcing initiative and lacked a well-developed strategy and understanding of how outsourcing would work. These anecdotal findings suggest that the BPO firm's performance may not be aligned with the expectations of the client. Past literature suggests that an important reason for this problem could be the inability of the service providers and their clients to manage the interdependencies of the processes, thus leading to their failure in offshore environments (Mani et al., 2007, Aron and Singh, 2005 and Cioni, 2007). Effective process integration, both within the service provider and with their client, may alleviate poor performance.
This study is the first to examine process integration issues in a BPO environment taking the service provider's perspective for this investigation. This contributes to the operations and supply chain literature in multiple ways. We first present an outsourcing model that identifies the key antecedents to both internal and external process integration and the consequences to such integration on BPO firm performance. The model is grounded in theory and identifies specific factors associated with higher levels of firm performance that real-world practitioners should consider when making outsourcing decisions. Second, a rigorous multi-stage methodology was used to refine and validate scales for various constructs used in this study. We also utilized a thorough empirical methodology to establish key prescriptions for managing outsourcing engagements between a client and its service provider.
This study also contributes to and provides empirical evidence of the importance of both internal and external process integration in the context of service operations. Our analysis also raises many areas for future research. For example, performance of global BPO firms can also be impacted by the diverse structural, administrative and relational governance mechanisms that the BPO firm might employ with its client. The role of these governance control mechanisms in improving BPO performance need to be examined. In addition our research raises the important question of the role of cultural sensitivity in driving BPO firms to move closer to the customer market.
