An Empirical Exploration of How Process Standardization Reduces Outsourcing Risks

Are standardized business processes less risky to outsource? Despite the importance, of both areas, neither the outsourcing nor standardization literature has so far offered a conclusive picture of the value of standards to outsourcing. We aim to provide an exploratory first step by suggesting that process standards have a positive impact on business process outsourcing (BPO) risk. Theoretically drawing from perceived risk theory and the theory of reasoned action we develop a model of BPO risk and empirically show that indeed risk perception is higher for less standardized processes. Using data from 126 German banks, it turns out that financial and performance risks significantly differ between high- and low-standardized processes and are consistently higher for low-standardized processes. While this work is very explanatory and the findings are quite preliminary, they are very encouraging as they indicate promising further research into the value of standards for business and outsourcing