Outsourcing Non-Core Business Processes: An Exploratory Study

Outsourcing Non-Core Business Processes: An Exploratory Study

Adriana Romaniello (Universidad Rey Juan Carlos, Spain) and B. Dawn Medlin (Appalachian State University, USA)
DOI: 10.4018/978-1-60566-086-8.ch027
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This study examines corporate performance effects when banks outsource noncore business processes. Additionally, the article proposes that knowledge management process plays a significant role in determining the outcomes of outsourcing. Drawing from resource theory and knowledge management literature, the authors develop the concept of managerial outsourcing competence and then propose a conceptual model. Also presented is an exploratory study of members of the North Carolina Bankers Association to assist in identifying the business processes they are currently outsourcing and their principal reasons for outsourcing.
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Outsourcing has been defined as a results-oriented relationship in which a business organization transfers ownership of a business process to an external service provider rather than perform the activity in house (Halvey & Melby, 2000). For some, the hint of outsourcing may be found as early as 1776, when, in The Wealth of Nations, Adam Smith wrote the following: “If a foreign country can supply us with a commodity cheaper than we can ourselves make it…” (Adam Smith Institute, 2007). This may have been one of the hints of the forthcoming principles related to outsourcing and later building on Adam Smith’s ideas was British economist David Ricardo and his principle of comparative advantage, where he hypothesized that each nation should specialize in what it does best and trade with others in order to best meet their needs (Ricardo, 2004).

Certainly, the issues of competitive pressures, customer demands, cost efficiency, and the ability to gain access to world-class capabilities are considerations that have all manifested themselves in the increased use of outsourced functions. When the choice is made to outsource, and the move involves a vendor located in a different nation, outsourcing then becomes offshoring.

Business process outsourcing is another type of outsoucing that also relates to the investment of physical resources while still attempting to maintain internal effectiveness. In fact, one of the most commonly cited reasons for outsourcing is that management expects that they can gain cost advantages by hiring outsiders to perform certain services and produce certain products (Loh & Venkatraman, 1992). Banking activities that are not inherently or typically part of a bank’s core functions are therefore logical processes thought generally suitable by management for outsourcing. Additionally, the implementations of such activities in-house can be prohibitively costly to smaller institutions.

For years, the financial industry has relied on the outsourcing of services where banks could seek advanced technologies and greater economies of scale while still lowering costs. It should be expected that the use of outsourcing will only increase as banks expand their product lines (e.g., Check 21 processing). Check 21 was specifically designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation. More specifically, the Check 21 law that was created in 2004 introduced the notion of a substitute check, which permitted banks to process check information electronically.

Other methods of electronic processing have also been introduced to handle electronic check transfers. As an example, Amar Gupta and a team of MIT researchers have developed a fully electronic check transfer that can read handwritten infomation in order to increase check processing efficiency and accuracy, which may be of interest to countries outside of the U.S., where powerful banks are in a position to better control their overall check processes (“Gupta Eyes,” 2007). Within the current process, check processing is an expensive prospect for banks due to the high cost of the technology required, and thus makes Check 21 processing a logical process to be outsourced by community banks.

In his March 17th, 2004, satellite address before the Independent Community Bankers of America Convention, Alan Greenspan stated, “Over the past 5 years, for every four bank mergers that have been approved, three de novo bank charters have been granted” (“Technology Outsourcing,” 2005). Additionally, he added that 90% of all start-up banks will choose to outsource and that, overall, it is expected that all banks will use some type of outsourced services.

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Table of Contents
Chapter 1
Tobias Kollmann
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Chapter 2
Barbara Roberts
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The Role of Government in E-Business Adoption
Chapter 3
Firas M. Alkhaldi, Mohammad Olaimat
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The Role of Simulation in Business Process Reengineering
Chapter 4
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Environmental Drivers of E-Business Strategies Among SMEs
Chapter 5
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Conflicts, Compromises, and Political Decisions: Methodological Challenges of Enterprise- Wide E-Business Architecture Creation
Chapter 6
Vichuda Nui Polatoglu
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Nazar Foods Company: Business Process Redesign Under Supply Chain Management Context
Chapter 7
Pericles Loucopoulos, Wan M.N. Wan Kadir
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BROOD: Business Rules-driven Object Oriented Design
Chapter 8
Henk J. de Vries, Florens J.C. Slob
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Best Practice in Company Standardization
Chapter 9
Ehap H. Sabri
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Best Practice in Leveraging E-Business Technologies to Achieve Business Agility
Chapter 10
Timon C. Du, Eldon Y. Li
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Building Dynamic Business Process in P2P Semantic Web
Chapter 11
Michael Weiss
Agents are rapidly emerging as a new paradigm for developing software applications. They are being used in an increasing variety of applications... Sample PDF
Patterns for Designing Agent-Based E-Business Systems
Chapter 12
Jiyong Zhang
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Performance Evaluation of Consumer Decision Support Systems
Chapter 13
Nikos Manouselis
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E-Business Technologies in E-Market Literature
Chapter 14
Jan-Hendrik Sewing, Michael Rosemann
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Process-Oriented Assessment of Web Services
Chapter 15
Stanley Oliver
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Application of Web Services in the Context of E-Procurement: An SME Foci
Chapter 16
Mark Xu, Ravni Rohatgi, Yanqing Duan
The lack of anticipated engagement in e-business by Small and Medium sized Enterprises (SMEs) is a rising concern to the UK government and service... Sample PDF
E-Business Adoption in SMEs: Some Preliminary Findings from Electronic Components Industry
Chapter 17
Avinash Waikar
Small businesses need Internet service to be competitive, and their spending on IT activities continues to grow. How can Internet Service Providers... Sample PDF
How Can Internet Service Providers Tap into the Potentially -Lucrative Small Business Market?
Chapter 18
Dominik Vanderhaeghen
In the chapter, a framework for cross-enterprise business integration management addressing the organizational and technical dimension is developed.... Sample PDF
Process-Driven Business Integration Management for Collaboration Networks
Chapter 19
Damon Aiken
This chapter is designed to answer two fundamental questions related to research on electronic surveys and measures. First, what are some of the... Sample PDF
Measurements in E-Business
Chapter 20
Peter V. Raven
The Internet has changed the way many companies do business, but has also tended to increase the disparity between firms in developed countries and... Sample PDF
E-Business in Developing Countries: A Comparison of China and India
Chapter 21
Dieter Fink, Tobias Huegle
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A Model of Information Security Governance for E-Business
Chapter 22
Jun Du, Yuan-Yuan Jiao, Jianxin ("Roger") Jiao
This chapter develops a security blueprint for an e-business environment taking advantage of the three-tiered e-business architecture. This security... Sample PDF
A Security Blueprint for E-Business Applications
Chapter 23
Kathleen Mykytyn
The emergence of e-business as a viable business model is unquestioned and global in its involvement and impact. Further, the value that... Sample PDF
E-Business Process Management and Intellectual Property: Issues and Implications
Chapter 24
Ganesh Vaidyanathan
In order to understand the different types of e-business risks, this chapter uses a framework focusing on five dimensions of e-businesses. This... Sample PDF
E-Business Risk Management in Firms
Chapter 25
Jing Quan
Electronic business (e-business) has been popularly lauded as “new economy.” As a result, firms are prompted to invest heavily in e-business related... Sample PDF
Evaluating E-Business Leadership and its Links to Firm Performance
Chapter 26
Claudia-Melania Chituc
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Business Networking: The Technological Infrastructure Support
Chapter 27
Adriana Romaniello, B. Dawn Medlin
This study examines corporate performance effects when banks outsource noncore business processes. Additionally, the article proposes that knowledge... Sample PDF
Outsourcing Non-Core Business Processes: An Exploratory Study
Chapter 28
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