The Influence of Perceived Risks

Information Technology (IT) is a key productive factor in the banking and finance industry (BFI) as almost the entire production and delivery of services can in principle be digitized. Driven by cost pressure and new competitors, outsourcing IT together with the relevant business processes is a promising way to focus on core competencies and to restructure the corporate value chain. While there is a rich literature on the risks and benefits of IT outsourcing, little is known about the next step of business process outsourcing (BPO) and especially the associated risks. Our main hypothesis is that the perceived risks associated with BPO strongly influence managers' intention to outsource business processes. Based on an empirical survey of BFI managers covering 90% of the cumulated German BFI balance sheet, it is shown that perceived risk does indeed have a significant impact on managers' attitudes towards BPO and that these attitudes strongly influence the outsourcing decision. Financial risks turn out to be a major risk facet, exerting pressure on banks which decide solely in terms of potential cost savings. In addition, the high importance of performance risk requires banks to invest in sophisticated vendor management.