An Exploratory Study of Organizational Impacts on BPO using Coordination Theory

Increasingly organizations are outsourcing their business processes to offshore locations. The goals cited include cost savings, supporting the firm's strategy, supplementing organizational skills and improving process capabilities. Current research indicates that results of Business Process Outsourcing (BPO) are challenging to evaluate and many BPO goals are not measured and/or not fulfilled. Moreover, high technology firms that rely on innovation may face greater adversity when pursuing BPO. This research focuses on such high technology firms and uses Coordination Theory to build a research model to measure the outcome of a BPO on the client using vulnerability, production and coordination costs. Organizational, strategic and process characteristics that impact the success of BPO are explored for high technology organizations that have established offshore BPO. Empirical data is collected to measure strategic profile, organizational profile and process profile along with the BPO costs. The results indicate that for an organization with dynamic processes and a customized market strategy, the BPO outcome will be higher production costs and lower vulnerability and coordination costs. For an organization with a stronger structure, more defined processes and standardized strategy, the impact of a BPO will be higher vulnerability and coordination costs but lower production costs. Long term BPO relationships are recommended for the former organizations and short term contracts for the latter.