Drivers and Inhibitors for Outsourcing Financial Processes - A Comparative Survey of Economies of Scale, Scope, and Skill

Economies of scale, scope, and skill are known to be major drivers or inhibitors for outsourcing business processes but they may play different roles for outsourcing primary or secondary processes. In this paper, based on two empirical surveys with Fortune 1,000 non-banks and Fortune 500 banks in Germany, a comparative analysis reveals different appreciation of (the impact of) economies of scale, scope, and skill by managers responsible for outsourcing financial processes in non-banks and banks. Consistent with the theory, economies of scale and skill are identified as drivers for outsourcing business processes while economies of scope represent an inhibitor. Overall, Chief Credit Officers estimate scale and skill effects due to outsourcing to be higher than non-bank Chief Financial Officers do. Furthermore, economies of scope, which inhibit selective sourcing, are evaluated as being less problematic. As a result, Chief Credit Officers are more likely to outsource (parts of) their-primary-financial processes. The surveys also suggest that quite in contrast to common perception German banks are on the verge of industrialization and modularization.