The Impact of Business Process Outsourcing on Firm Performance and the Influence of Governance: A Long Term Study in the German Banking Industry

44 Pages Posted: 18 Dec 2007

See all articles by Markus Fritsch

Markus Fritsch

Goethe University Frankfurt - Chair of Banking and Finance

Mark Wahrenburg

Faculty of Economics and Business Administration

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Kim Wuellenweber

University Frankfurt - E-Finance Lab

Date Written: November 15, 2007

Abstract

Does BPO pay off at the firm-level? Although there are several studies which analyze the potential benefits of BPO, there is a virtual absence of research papers on BPO outcomes. Based on an analysis of 137 Business process outsourcing (BPO) ventures at 254 German banks in a period between 1994 and 2005, we found that the outsourcer's financial performance in terms of profitability and cost efficiency was increased significantly compared to industry peers without BPO. The increase stems not from workforce reductions but rather from increased employee productivity. Further, we show how BPO governance ensures BPO success: individually negotiated outsourcing contracts help to improve cost efficiency and profitability measures. Relational governance based on trust has only positive effects on profitability.

Keywords: Business Process Outsourcing, firm performance, firm characteristics, banking, German banks, governance

JEL Classification: G21, L14, L21, L24

Suggested Citation

Fritsch, Markus and Wahrenburg, Mark and Hackethal, Andreas and Wuellenweber, Kim, The Impact of Business Process Outsourcing on Firm Performance and the Influence of Governance: A Long Term Study in the German Banking Industry (November 15, 2007). Available at SSRN: https://ssrn.com/abstract=1076422 or http://dx.doi.org/10.2139/ssrn.1076422

Markus Fritsch (Contact Author)

Goethe University Frankfurt - Chair of Banking and Finance ( email )

Mertonstr. 17
P.O. Box 11932
60054 Frankfurt (Main)
Germany

Mark Wahrenburg

Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Kim Wuellenweber

University Frankfurt - E-Finance Lab ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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