Modes of Governance in Business Process Outsourcing: Equity Control or Tradability of Services? An Executive versus Market's Perspective

Abstract

"Outsourcing success - it's all in Governance" reported Lauren Bielski in the ABA Banking Journal 2006 and consequently, governance represents the key concept when discussing outsourcing in practice.

However, when analyzing the business process outsourcing practice of Swiss Retail Banks, governance aspects seem so far only to play a minor role in the evaluation of outsourcing decisions. This article deals with outsourcing in Swiss retail banking and raises the question whether the mode of governance does matter from the capital markets' point of view, and what modes of governance might be valued most. Our findings provide evidence that governance concepts applied in practice might divert when viewed from the executive's versus the market's perspective or in other words, outsourcing governance in the banking industry is much more a matter of coping with uncertainty than a process of truly aligning contracts in an optimal way. We conclude that the easiest way to cope with uncertainties in BPO practice is to move towards open markets, hence to make services tradable.

Keywords: BPO, Governance, banking

JEL Classification: L22, D21, D23