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Strategic Outsourcing: An International Journal
Factors influencing the outsourcing decisions: a study of the banking sector in India
Ravi Kumar Jain, Ramachandran Natarajan,
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Ravi Kumar Jain, Ramachandran Natarajan, (2011) "Factors influencing the outsourcing decisions: a study
of the banking sector in India", Strategic Outsourcing: An International Journal, Vol. 4 Issue: 3, pp.294-322,
https://doi.org/10.1108/17538291111185485
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SO
4,3 Factors influencing the
outsourcing decisions: a study
of the banking sector in India
294
Ravi Kumar Jain
ICFAI Business School, IFHE University, Hyderabad, India, and
Ramachandran Natarajan
College of Business, Tennessee Technological University, Cookeville,
Tennessee, USA
Abstract
Purpose – This paper is an empirical study of outsourcing practices in the banking sector in India.
The purpose of the paper is to investigate the impact of factors which influence the decision makers’
attitude towards outsourcing.
Design/methodology/approach – Based on a review of the existing literature, an attitudinal model
of outsourcing was developed. This model was used to: identify the key factors of benefits, risks,
roadblocks, and criticality of outsourcing; develop the instrument to measure the factors; and
formulate hypotheses concerning the impact of these factors. The constructs in the instrument that
measured these factors were validated by factor analysis.
Findings – The impacts of perceived benefits, perceived roadblocks, and perceived criticality on the
attitudes towards outsourcing were found to be strong and statistically significant. The impact of
perceived risk was weak and statistically insignificant. The model explaining the combined impact of
these four factors on outsourcing attitudes was also statistically significant.
Research limitations/implications – An important insight from this study is that the clients, at
least in the banking sector in India, tend to value in outsourcing quality factors such as process
improvement, services improvement and cost transparency more than cost savings. The results of the
study provide a basis for rethinking the value proposition offered by outsourcing vendors and for
refocusing the research on outsourcing of services in particular.
Originality/value – While most studies on outsourcing tend to be theoretical and/or focus on
outsourcing from developed to developing countries, this is an empirical study focusing on
outsourcing by organizations based in developing countries such as India. Therefore, the results are
not confounded by differences in culture-specific communications, business practices, and regulatory
regimes between the countries.
Keywords India, Banks, Outsourcing, IS outsourcing, Business process outsourcing,
Outsourcing strategy
Paper type Research paper
1. Introduction
Outsourcing has emerged as one of the popular and widely adopted business
strategies of this globalized era (Willcocks, 2010). Research indicates that the sheer size
Strategic Outsourcing: An of spending on outsourcing and active involvement of top management executives make
International Journal outsourcing decisions more strategic in an organization today than ever (Willcocks,
Vol. 4 No. 3, 2011
pp. 294-322 2010). Since the 1980s there has been a trend of outsourcing among organizations across
q Emerald Group Publishing Limited various industries starting with basic information systems (IS) outsourcing to advanced
1753-8297
DOI 10.1108/17538291111185485 strategic and transformational outsourcing, which involves outsourcing of core
and strategic business functions (Schniederjans et al., 2007). Further, the global Outsourcing
outsourcing market in terms of total contract value has grown from US$146 billion (Dun decisions
and Bradstreet Barometer Global Outsourcing Survey, 1998) in the year 1996 to US$1.3
trillion in 2007 (ZagadaWaagstein Global Outsourcing 100 Index, 2011). Several global
research agencies including KPMG Report (2007), Potter (2007),
PricewaterhouseCoopers (2007) and Technology Partners International Inc. (TPI,
2009) have reported that world wide, outsourcing engagements have been growing and 295
will continue to grow consistently both in terms of number of contracts and their average
contract value. The latest report by TPI shows a robust growth in global outsourcing
trend post-global financial crisis as more than 20 percent of new entries (companies
outsourcing for the first time) are recorded across several industrial sectors in 2010, at
the same time AVC among Forbes Global 2000 companies across 27 sectors has grown
by 5 percent in 2010 (TPI, 2011).
A great deal of literature has been devoted to studying this phenomenon of outsourcing
and its various aspects such as the rationale for outsourcing, various manifestations of
outsourcing as differentiated by the nature and scope of activities outsourced, and
sourcing models in terms of the services delivery models and vendor location.
Further, arguably, the advanced industrialized economies such as the USA, Japan and
Western Europe are the principal candidates for the origin of outsourcing transactions
(Koveos and Tang, 2004). Hence the literature, though it has addressed a wide array of
aspects of outsourcing, e.g. technical, motivational, cultural, organizational,
strategic, operational, and performance related (as reviewed by Lacity et al., 2009),
is primarily focused on understanding outsourcing phenomenon from developed
countries’ perspective. The literature does not address outsourcing from the developing
country perspective. This lacuna in outsourcing literature is also echoed by recent
studies (Hansen et al., 2008).
Research on outsourcing phenomenon in the context of outsourcing among
companies (referred as “clientele” hereafter) based out of a developing economy such as
India[1] can potentially provide a several new insights on outsourcing decisions.
For a simple reason that the factors influencing outsourcing decisions for an
organization based in India are likely to be very different from the one which is based
in a developed country such as the USA, the UK or Germany. For instance, labor cost
arbitrage, due to differential labor cost in developed vis-à-vis developing countries,
which has been a predominant factor in offshore outsourcing decisions may not apply
when outsourcing client(s) and vendor(s) both are based in a relatively low labor cost
outsourcing destination such as India. Similarly, factors that determine the perception
of risks and benefits of outsourcing which further impacts the outsourcing decisions
will also be different when studied in the context of a country such as India. Further,
with a legacy of highly restrictive regulations and prevalence of strong employee
unions the banking sector in India is often plagued with several roadblocks, internal
and external factors which tend to exert undue influence on outsourcing decision.
Banking and financial services sector in India is one of the robust and fast emerging
sectors in the world (Jain and Natarajan, 2010b). It is globally observed that, given the
nature of information technology (IT)-intensive business processes, the banking
industry has a huge potential for benefiting from outsourcing (Winter, 2002; Tas and
Sunder, 2004). In fact, industry research indicates that Banking and Financial Services
Industry (BFSI) has been the largest sectoral user of outsourcing services worldwide,
SO next only to manufacturing (Ackermann, 2003). Further, the recent liberalization in
4,3 regulations coupled with further advances in information and communication
technology has provided the Indian banking sector with an opportunity to use
outsourcing as a strategic tool to: focus on their core competencies; develop new
capabilities; improve their processes, service quality, and operational efficiency thereby
increasing the reach of their services and reducing the cost of service delivery; and
296 address the impending challenges likely to arise from further liberalization of the sector
in the near future. Given the low rates of adoption of outsourcing in Indian banking
sector (Jain et al., 2010) and the absence of sufficient academic research with special
focus on India coupled with the increased scope and opportunity for banking and
financial services organizations to adopt outsourcing in the future makes the present
study all the more relevant and timely as it sheds light on factors that influence
outsourcing decisions in the Indian banking sector.
An objective of this study is to address the above-mentioned gaps in the literature

on outsourcing. The study attempts to identify and conceptualize various factors that
influence decision maker’s attitude towards outsourcing, with specific reference to the
banking sector in India. Drawing from the existing literature and theories such as
perceived risk theory (Peter and Michael, 1976), innovation diffusion theories (Rogers,
1983), resources theories (Barney, 1991) and other decision theories involving cost –
risk analysis, etc. and Delphi model expert opinion, four theoretical constructs namely,
perceived risk, perceived benefits, perceived roadblocks, and perceived criticality are
developed to conceptualize the influence of various factors on outsourcing decisions in
the context of the banking sector in India.
For several reasons banking sector in India has been chosen for the study. One being
that the banking sector in India has been growing continuously for the last decade and half
(post-banking reforms in the year 1992 and in 1997) with intensified competition thus
requiring the banking organizations to look out for new business practices in order to
improve and sustain their competitive positions. This becomes more relevant, especially,
when further liberalization of the banking space in India is on the cards which possibly
will mark the entry of bigger and stronger foreign banks from developed nations thus
intensifying the competition (Jain and Natarajan, 2010a, b). Moreover, Indian banking
sector is one of the highly regulated in the world where decisions (e.g. to outsource or not to
outsource) are heavily influenced by the prevailing regulatory mechanisms.
2. Literature review
Benefits of outsourcing
Drawing from theories such as transaction cost economics (Williamson, 1979), neo
classical economics (reviewed in Williamson, 1985), the argument of core competency
(Prahalad and Hamel, 1990; Hamel and Prahalad, 1996; Quinn, 1999) and several
others, a number of studies on outsourcing (reviewed by Lacity et al., 2009) have tried
to understand and explain the various facets, including determinants, motivations, and
risks, of outsourcing. Outsourcing decision is often seen as a rational decision by
management motivated by expectations to generate several benefits such as:
.
to reduce and control cost;
.
to exploit the assumed economies of scale and scope offered by the outsourcing
vendors (Loh and Venkatraman, 1992a, b; Slaughter and Ang, 1996; Ang and
Cummings, 1997; Ang and Straub, 1998; Casale, 2001; Janko and Koch, 2005);
.
to improve management’s focus on core competencies and get access to new Outsourcing
technical skills and knowledge base for augmenting the organizations’ skill and decisions
knowledge gap (Lacity and Willcocks, 1998; Casale, 2001);
.
to improve certain institutional aspects such as structure of the organization, style of
management (Loh and Venkatraman, 1992b; Hu et al., 1997; Ang and Cummings,
1997) and complementarity of organizational design (Milgrom and Roberts, 1995);
.
to gain competitive advantage by achieving an unique winning combination of
297
in-house capabilities with that of the outsourcing vendors;
.
to mitigate technological risk and uncertainty (McLellan et al., 1995); and
.
to improve overall business performance, achieve process improvisation and
enhance customer service (DiRomualdo and Gurbaxani, 1998; Quinn, 2000; Chris et al.,
2004) and for other strategic motives (Gulla and Gupta, 2009; Willcocks, 2010).
These studies collectively indicate that the management’s intent behind outsourcing is
to realize a range of tactical, business, and strategic benefits it offers.
Some of the studies observed that, in practice, outsourcing decisions are often driven
by management’s desire to transform fixed costs to variable costs (Huber, 1993;
Baldwin et al., 2001). The case in point was IS outsourcing by the Continental Bank, one
of the large banks in the USA. Another case study of British Petroleum (BP) by Cross
(1995), observes that the primary reasons for IS outsourcing by BP were to cut costs, gain
access to more flexible and higher quality IS resources, focus the IS resources on aspects
that directly improve the overall business, and the desire to trade ownership for results.
These reasons are also supported by Fisher et al. (2008) who confirm that cost saving and
related benefits still remains a major agenda behind outsourcing engagements.
Other major benefits the management expects from their outsourcing engagements
are convenience and flexibility in development, implementation and scaling up of
projects, change management, protection against technical risk, and improvement in
productivity and service quality (Clark et al., 1995; Chin, 2003). Adding an interesting
dimension to the benefits of outsourcing, Quinn (2000) and Koch (2008) conclude that
outsourcing enables the organization to better manage the business and organizational
knowledge and generate superior business intelligence, enable rapid innovation and
introduction of new products/services.
DiRomualdo and Gurbaxani (1998) have identified that after initial years after the
land mark deal of Kodak, outsourcing has moved into the realm of strategic
management as organizations started looking beyond the tactical and operational
benefits that the outsourcing engagements promises to offer. In their widely cited study,
the authors concluded that organizations engage in outsourcing often with a strategic
intent to achieve substantial improvisation of IT and business processes, innovation,
customer service, and gain overall business efficiency. These conclusions were well
supported by the subsequent research in this direction, for instance Quinn (2000),
Chris et al. (2004) and latest by Willcocks (2010).
Risks of outsourcing
Given the long list of benefits that an organization can realize from its outsourcing
engagements several studies pertaining to outsourcing in financial services sector
show a gradually growing trend in outsourcing, both in terms of nature and scope
SO of activities outsourced, and also emphasize that outsourcing is an inevitable and
4,3 critical aspect of financial institutions to survive in a rapidly changing business
environment. However, it is important for the management to understand the various
risks their organization gets exposed to while engaging in outsourcing.
It is evident from the experiences in outsourcing that more often than not outsourcing
engagements lead to situations where client organization end up relying too much on the
298 outsourcing vendors (Earl, 1996; Aubert et al., 1999; Quelin and Duhamel, 2003;
Chris et al., 2004) for their IT, IS, and business needs. The irony is that they often fail to
realize benefits expected from outsourcing (Earl, 1996; Quelin and Duhamel, 2003;
Adeleye et al., 2004). It is also evident that by outsourcing an organization is exposing
itself to the greater risks such as loss of: internal competencies; innovation capabilities;
cross-functional skills; and loss of control over the process and/or the vendor (Quinn and
Hilmer, 1994; Earl, 1996). Aubert et al. (1999), using transaction cost theory and agency
theory, emphasize the risks related to adverse selection of vendor, failure of vendor,
service debasement, etc. which not only makes the vendor relationship management a
complex affair but also adds to the complexity in general business management
ultimately defeating the very purpose of outsourcing. The subsequent studies support
the argument that managing vendor relationship is one of the major risks associated
with outsourcing, which if not managed properly can potentially lead to poor realization
of expected benefits and also damage the organization seriously (Baldwin et al., 2001;
Kern et al., 2002; Rouse and Corbitt, 2003).
Moreover, for banking and financial services organization outsourcing brings in
additional set of risks related to regulatory violations and subsequent legal obligations
and reputational risk (Federal Bank of New York, 1999). Other major risks related to
outsourcing are compromises on data integrity and confidentially (Federal Bank of
New York, 1999; Chris et al., 2004; Shankar, 2005). According to Khalfan (2004),
data-related risks are more prominent than any other risk related to outsourcing.
It is important to understand at this stage that all the above-cited risks of
outsourcing holds good to the entire spectrum of outsourcing from ITO to business
process outsourcing (BPO) with possibly a difference in the degree of impact each
factor exerts on an organization (Gewald and Franke, 2005).
Roadblocks to outsourcing
Roadblocks to outsourcing are those factors, as identified in this study, which are not
directly risks due to outsourcing. These are the factors that impede the outsourcing
process or contribute to the ill preparedness of the organization for outsourcing despite
management fully appreciating the possibilities of benefits and risks of outsourcing
and being favorably disposed towards outsourcing.
For instance, it can be inferred from the study by Adeleye et al. (2004) on outsourcing
among Nigerian banks that the non-availability of a matured vendor market can be a big
roadblock which not only impedes the outsourcing activities but also contributes to the
vendor-related risks of outsourcing. Similarly, it can be understood from the study on
outsourcing in the banking sector in the UK by Chris et al. (2004) and a study by
Yang et al. (2007) on BPO among Korean organizations that resistance from employee
unions can also be a serious impediment to outsourcing. It is important to note that this
factor, resistance from employee unions, becomes a major force influencing outsourcing
decisions in the context of a highly unionized Indian banking sector. Similarly, the size
and scope of operations of an organization is also an important factor the management Outsourcing
needs to take into consideration while making outsourcing decisions (Nam et al., 1996; decisions
Ang and Straub, 1998).
As discussed above, outsourcing literature identifies several factors that influence
the manager’s attitude towards outsourcing. A study on German banking sector by
Gewald and Dibbern (2009) suggests, using a risks vs benefits framework, that while
perceived benefits exert a positive influence in favor of outsourcing decisions; 299
perceived risks exert a negative influence against outsourcing decisions. Using this
framework, this study assumes that the perceived roadblocks to outsourcing will exert
negative influence on outsourcing decisions.
Criticality of outsourcing
Willcocks (2010), in his study on IT outsourcing among 650 organizations
(representing Europe, Asia Pacific, and the USA) sufficiently highlights that given
the quantum of outsourcing expenditure and the strategic role outsourcing plays in
many businesses today, the top management perceives outsourcing as a highly critical
strategic decision that has direct impact on the overall market value of the firm. Thus,
it can be understood that outsourcing decisions depends a lot on the management’s
(strategic level) perception about the criticality of outsourcing given the nature and
scope of their business and industry.
Criticality of outsourcing to business refers the transformational effect an outsourcing
engagement may have on the business by generating sustainable value creation for the
shareholders and its long-term prospects. Criticality of outsourcing can also reflect
the possible adverse consequences or situations an organization may have to face in the
absence of outsourcing. Given this, the study identifies, based on a series of panel
discussions and expert opinions using Delphi technique, management’s perception of
criticality of outsourcing to their business as another important dimension that influences
the decision on the scale and nature of outsourcing an organization may commit to.
3. Research objectives
This study examines the outlook of the top management of scheduled commercial
banks[2] in India towards outsourcing. More specifically, the study focuses on the
impact of the perceived benefits, perceived risks, perceived roadblocks, and perceived
criticality of outsourcing on the managerial attitudes towards outsourcing. The impacts
of the above variables are considered at the individual (H1-H4) and collective levels
(H5). With these objectives, the following null hypotheses were formulated and tested.
The parametric versions of the null hypotheses are given in parentheses:
H1. Perceived benefits of outsourcing have no influence on the management’s
attitude towards outsourcing (the b-coefficient for the “perceived benefits”
independent variable in the regression model is zero).
H2. Perceived risks of outsourcing have no influence on the management’s
attitude towards outsourcing (the b-coefficient for the “perceived risks”
H3. Perceived roadblocks of outsourcing have no influence on the management’s
attitude towards outsourcing (the b-coefficient for the “perceived roadblocks”
SO H4. Perceived criticality of outsourcing has no influence on the management’s
4,3 attitude towards outsourcing (the b-coefficient for the “perceived criticality”
H5. The attitudinal multiple regression model with the above four independent
variables does not explain any variation in management’s attitude towards
outsourcing (the R 2 value for the multiple regression model is zero).
300
4. Research methodology
4.1 Sample selection and data collection
The multi-level stratified sampling method was used for sample selection of the study.
Of the total 63 scheduled commercial banks (list can be made available on request) which
includes eight new private sector banks, 16 old private sector banks, 28 public sector
banks (including State Bank of India and its subsidiaries, and Industrial Development
Bank of India), and 11 foreign banks, a sample of 30 banks was selected for the study.
This sample represents 47 percent of the universe of scheduled commercial banks. And
further, they disburse nearly 80 percent of the loans made by all the commercial banks in
India. Using convenience sampling method, ten executives from the top management
(chairman, directors, chief executives, and functional heads) of each of the sample banks
were selected (Table I), thus taking the number of participants (respondents) in the study
to 300 in total.
The participants, after receiving their confirmation, were sent structured
questionnaire (with close-ended questions) or interviewed, as per their convenience, to
record their responses. The data so collected pertained to two aspects of outsourcing –
first, to assess the level and the nature of outsourcing practices among banks in India on
select (five) parameters; second, to understand and assess the factors that influence the
outsourcing decisions. This paper presents the results and observations of the second
aspect (sections 5-8 of the questionnaire) (the Appendix).
4.2 Model development

For testing the hypotheses, a framework of perceived risks and benefits is used to
assess whether the perceived benefits, risks, roadblocks, and criticality of outsourcing
significantly influence the decision of top management to outsource business process
or IT-related activities. For this purpose an attitudinal model of outsourcing is
developed and tested.
The study draws from the work of Gewald and Dibbern (2009) to understand the
influence of the perceived risks, benefits, roadblocks, and criticality in adoption of BPO
by banks. Though the study uses model suggested by Gewald and Dibbern (2009) as the
base model, the elements of the constructs of perceived risks, and perceived benefits of
outsourcing were appropriately modified to suit the context of Indian banking sector.
S.no. Category/designation of the respondents No. of respondents
Table I. 1 Chairman and managing directors 30

Description of the 2 Chief general managers/presidents 150
respondents at sample 3 Deputy general managers 120
banks Total 300
Further, new constructs of perceived roadblocks and perceived criticality were included Outsourcing
in the present study to develop an attitudinal model of outsourcing. A list of the elements decisions
of risks, benefits which are widely identified in the outsourcing literature, was prepared
and was further screened by using multiple rounds of panel (with six members)
discussions and seeking expert opinions involving senior bank managers,
academicians, and outsourcing vendors. The other two constructs namely perceived
roadblocks and perceived criticality were included to understand in the context of Indian 301
banking sector, the influence of the factors other than those identified in ITO and BPO
literature on outsourcing decisions. Various elements of the construct were identified
and further screened using the same approach used for the other two constructs.
A five-point Likert’s scale, with 1 – being very high and 5 – being very low, is used to
measure the degree of perceived risk, perceived benefit, perceived roadblock and
perceived criticality for every element (indicator) of the constructs of the conceptual
model (Table II).
4.3 Theoretical framework

The review of literature on outsourcing made it apparent that while positive perceptions
are often equated with the advantages of outsourcing and the criticality of outsourcing
for the organization; negative perceptions are equated with the risks of outsourcing and
the roadblocks for implementing outsourcing decisions. Therefore, the study applies a
“risk versus benefits” (Gewald and Dibbern, 2009) framework to understand the factors
influencing the attitude of decision makers towards outsourcing.
Attitude towards outsourcing is positively influenced by the perceived benefits and
perceived criticality of outsourcing; and negatively influenced by the perceived risks and
perceived roadblocks for implementing outsourcing. Thus, they constitute the constructs
of the attitude towards outsourcing. These constructs are further disaggregated into
various indicators of benefits (11 indicators), risks (eight indicators) and roadblocks (five
indicators), criticality (one indicator), respectively. The indicator validity with respect to
each construct is established by using confirmatory factor analysis using principal
Number
S. no. Construct of items What it measures Literature reference
1 Perceived 11 The impact of perceived Gewald (2010) and Gewald and

benefits benefits on the attitude towards Dibbern (2009)
outsourcing decisions
2 Perceived 8 The impact of perceived risks Gewald et al. (2006), Gewald and
risks on the attitude towards Dibbern (2009)
outsourcing decisions Perceived risk theory, Peter and
Michael (1976)
3 Perceived 5 The impact of perceived Nam et al. (1996), Ang and Table II.
roadblocks roadblocks on the attitude Straub (1998), Chris et al. (2004), Constructs for analyzing
towards outsourcing decisions Adeleye et al. (2004) and Yang the impact of perceived
et al. (2007) benefits, perceived risks,
4 Perceived 1 The impact of perceived Willcocks (2010) perceived roadblocks,
criticality criticality (in strategic terms) on and perceived criticality
the attitude towards on the decision makers’
outsourcing decisions attitude towards
Total 25 outsourcing
SO component analysis for component extraction and varimax method for component
4,3 rotation (cut-off loading 0.60). And the association among indicators and their fitness to
the overall construct (construct reliability) is established by calculating Cronbach’s a
coefficient (Table III).
Using these elements, an attitudinal model of outsourcing is developed. The overall
structure of the model is shown in Figure 1.
302 The results of factor analysis for all the constructs are presented in the following
section.
4.4 Testing the scale reliability

It is very important to test the scale reliability of any instrument before using it for the
study. The reliability and internal consistency of a construct vary with the type of scale
used (Peter, 1979). Further, previous researches also suggest that a reliability
coefficient of 0.50-0.60 is sufficient to establish the indicator reliability of a construct

(Nunnally, 1967; Perry, 1973; Peter and Michael, 1976). It is also argued that for a basic
research a reliability of over 0.80 is not required because at that level the correlations
get attenuated very little by measurement error. The indicators which collectively
measure the impact of perceived benefits, perceived risks, and perceived roadblocks on
the attitude towards outsourcing have a reliability coefficient, Cronbach’s a, of 0.818,
0.892, and 0.645, respectively. Thus, reflecting a high construct reliability or, in other
words, the indicators of each construct measure what they are expected to measure.
5. Data analysis
5.1 Construct I: perceived benefits
The confirmatory factor analysis (Table IV) of the construct “perceived benefits”
reveals that all the 11 indicators confirm to the four major factor components, which
can be identified under the following headings:
(1) quality improvement of products and services (rotated sum of squared
loadings ¼ 24.84 percent);
(2) access to new capabilities, skills and resources (rotated sum of squared
loadings ¼ 20.47 percent);
(3) cost-related benefits (rotated sum of squared loadings ¼ 20.20 percent); and
(4) process and business intelligence improvement (rotated sum of squared
loadings ¼ 13.11 percent).
The total rotated sum of squared loadings of these four-factor components indicate that
78.6 percent of the variance is explained by these four factors collectively.
Further, high factors loadings of all the indicators, except one, of perceived benefits
(Table V) reflect that the decision makers perceive that outsourcing is likely to deliver
these benefits. It is to be noted that three indicators cross-loaded in this construct,
however, there is a gap of at least 0.2 between the primary and cross-loadings in all but
one case. Further, in the case where the gap is less than 0.20, the face validity (meaning
of the indicator) is strong and hence it is understood that the cross-loading does not
affect the interpretation of the identified factors.
It is important to note that among all the indicators of perceived benefits of
outsourcing, the benefit of being able to access new technologies (loading ¼ 0.930),
Factor
Construct Construct indicators and their description loading Literature support
Perceived benefits (construct reliability Cost cutting: use outsourcing to achieve cost 0.830 Loh and Venkatraman (1992a), McLellan et al.
score Cronbach’s a – 0.818) saving and/or cost control (1995), Ang and Straub (1998), Federal Bank of
New York (1999), Casale (2001), Baldwin et al.
(2001), The Joint Forum, 2004 outsourcing in
financial services (2004), Chris et al. (2004) and
Fisher et al. (2008)
Improved operational efficiency: use 0.847 Loh and Venkatraman (1992a), McLellan et al.
outsourcing to achieve improvement in (1995), Clark et al. (1995), Baldwin et al. (2001)
productivity of operations and Lancellotti et al. (2003)
Improved customer service: use outsourcing to 0.883 Clark et al. (1995), DiRomualdo and Gurbaxani
be able to deliver improvised service to the (1998) and Chris et al. (2004)
customers
Achieve better focus on core competencies (core 0.861 Quinn (1999), Baldwin et al. (2001), The Joint
business): outsourcing takes away unwanted Forum, 2004 Outsourcing in Financial Services
load off the management and enable them to (2004) and Chris et al. (2004)
focus all energies/resources on the core business
capabilities/competencies
Cost shifting (from “fixed” to “variable”): 0.715 Huber (1993) and Baldwin et al. (2001)
outsourcing will enable the conversion of fixed
cost commitments to variable costs linked with
predefined deliverables/results/output
Access to new and updated technologies on 0.930 McLellan et al. (1995), Cross (1995), Casale
continuous basis: outsourcing will facilitate in (2001), Lacity and Willcocks (1998), Chris et al.
gaining quick and continuous access to the (2004) and Adeleye et al. (2004)
latest technological developments relevant for
the business
Access to new capabilities and skill sets: 0.949 McLellan et al. (1995), Cross (1995), Clark et al.
outsourcing will facilitate to acquire new skill (1995), Lacity and Willcocks (1998), Baldwin
sets and business/technical/operational et al. (2001), Casale (2001), Chris et al. (2004) and
capabilities as and when required Adeleye et al. (2004)
(continued)
the construct reliability

decisions
Outsourcing
their factor loadings and

List of various elements
scores
of four constructs with
Table III.
303
4,3
SO
304
Table III.
Factor
Process improvement (restructuring and process 0.729 DiRomualdo and Gurbaxani (1998), Quinn
standardization): outsourcing will facilitate (2000), Baldwin et al. (2001) and Chris et al.
process improvisation by way of restructuring, (2004)
re-engineering, standardization of processes
Introduce new products/services (with quick 0.611 McLellan et al. (1995) and Quinn (2000)
time-to-market): outsourcing will enable
innovation and rapid development and
introduction of new products and services
Management convenience (spreading risk): 0.706 McLellan et al. (1995), Clark et al. (1995), Hu et al.
outsourcing will make things flexible and (1997), Baldwin et al. (2001) and Chin (2003)
convenient for the management by enabling
them to scale up the operations and also spread
the risk
Improved business intelligence/knowledge 0.791 Quinn (2000), Janko and Koch (2005) and Koch
management: outsourcing (with reference to (2008)
certain specialized services) vendors bring in
newer capabilities of data and knowledge
management and generate superior business
intelligence
Perceived risks (construct reliability score Data security: risk related to loss of data 0.944 Federal Bank of New York (1999), Chris et al.
Cronbach’s a – 0.892) (2004), Khalfan (2004) and Shankar (2005)
Data confidentiality: risk related to data 0.953 Federal Bank of New York (1999), Chris et al.
compromises and breach of data privacy (2004), Khalfan (2004) and Shankar (2005)
Losing process control 0.767 Quinn and Hilmer (1994), Earl (1996), Kern et al.
(2002), Chris et al. (2004), Khalfan (2004) and
Shankar (2005)
Regulatory violations and legal obligations 0.592 Federal Bank of New York (1999) and Chris et al.
(2004)
Complexity in vendor relationship management 0.765 Quinn and Hilmer (1994), Aubert et al. (1999),
Baldwin et al. (2001) and Rouse and Corbitt
(2003)
(continued)
Factor
Over reliance on vendors 0.766 Earl (1996), Federal Bank of New York (1999),
Aubert et al. (1999), Rouse and Corbitt (2003),
Quelin and Duhamel (2003) and Chris et al.
(2004)
Increased management complexities 0.867 Baldwin et al. (2001)
Unable to realize expected deliverables/benefits 0.697 Earl (1996), Baldwin et al. (2001), Quelin and
Duhamel (2003) and Adeleye et al. (2004)
Perceived road blocks (construct Infrastructure inadequacy reflects absence or 0.744 New entry
reliability score Cronbach’s a – 0.645) insufficiency of necessary infrastructure such as
level of computerization, process
standardization and digitization and network
connectivity
Regulatory and policy restrictions refer to the 0.873 New entry
range of statuary obligations, as prescribed by
the RBI, under which banks are supposed to
make decisions and operate in India
Resistance from employee union refers to the 0.425 Chris et al. (2004) and Yang et al. (2007)
resistance to change from the workforce of
banks while adopting outsourcing
Size and scale of the operations/organization 0.676 Nam et al. (1996) and Ang and Straub (1998)
Absence of matured vendor market reflects the 0.931 Adeleye et al. (2004)
non-availability of quality outsourcing vendor,
especially with reference to BPO
Perceived criticality Reflects the managements perception of the NA New entry Willcocks (2010)
strategic criticality of outsourcing to achieve
competitive advantage or overall success of the
organization
Notes: Perceived benefits, perceived risks, perceived roadblocks, and perceived criticality pertaining to outsourcing
decisions
Outsourcing
Table III.
305
SO Improved business intelligence Data security
Data confidentiality
4,3 Management convenience
Perceived Perceived Loss of process control
Improved time to market Regulatory violations
Benefits Risks
Process restruecturing and Complexity in vendor
improvement relationship management
Over reliance on vendors
Access to new skills and Increased management
capabilities
306 Access to new technologics/
complexity
Unable to realize
mitigate technology risk expected benefits
Cost shifting Attitude
(from fixed to variable) towards
Outsourcing
Focus on core competencies
Focus customer service
Improved operational Inadequate infrastructure
efficiency
Regulatory resistance
Cost cutting/labor arbitrage
Perceived Employee resistance
Perceived
Criticality
Roadblocks
Size + Scale of operations
Figure 1.
Attitudinal model Absence of matured
vendor market
of outsourcing
Source: Compiled by the authors
Indicators Extraction sum of squared Rotation sum of squared

of Initial eigen values loadings loadings
perceived Variance Cumulative Variance Cumulative Variance Cumulative
benefits Total (%) (%) Total (%) (%) Total (%) (%)
1 4.242 38.561 38.561 4.242 38.561 38.561 2.732 24.841 24.841

2 2.146 19.505 58.066 2.146 19.505 58.066 2.252 20.473 45.314
3 1.212 11.021 69.087 1.212 11.021 69.087 2.222 20.195 65.509
4 1.049 9.532 78.619 1.049 9.532 78.619 1.442 13.110 78.619
5 0.721 6.558 85.177
6 0.554 5.041 90.218
7 0.471 4.285 94.503
8 0.278 2.530 97.034
9 0.226 2.050 99.084
Table IV. 10 0.077 0.696 99.780
Factor analysis of 11 0.024 0.220 100.000
perceived benefits of
outsourcing Notes: Results from data analysis using SPSS; extraction method: principal component analysis
skills and resources (loading ¼ 0.949) on continuous basis are the predominant
indicators that contribute to the overall perceived benefits while the indicators such as
the ability to introduce new products/services more frequently (loading ¼ 0.611) are not
well considered by the decision makers. It is also interesting to note that, the benefits of
being able to improve operational efficiency (loading ¼ 0.847), customer service
(loading ¼ 0.883), and focus on core competency (loading ¼ 0.861) are favored more
than the benefits related to cost cutting (loading ¼ 0.830), cost shifting
(loading ¼ 0.715), and convenience (loading ¼ 0.706).
Outsourcing
Factor componentsa
Perceived benefits 1 2 3 4 decisions
Cost cutting/labor arbitrage 0.830
Improved operational efficiency 0.847
Improved customer service 0.883
Achieve better focus on core competencies (core business) 0.861 307
Cost shifting (from “fixed” to “variable”) 0.419 0.715
Access to new and updated technologies on continuous basis 0.930
Access to new capabilities and skill sets 0.949
Process improvement (restructuring and process standardization) 0.729
Introduce new products/services (with quick time-to-market) 0.406 0.611 0.499
Management convenience (spreading risk) 0.706 0.460
Improved business intelligence 0.791
Notes: a1 – Quality improvement of products and services, 2 – access to new capabilities, skills and Table V.
resources, 3 – cost related-benefits and 4 – process and business intelligence improvement; results Factor loadings of the
from data analysis using SPSS; rotated component matrix after rotation converged in six iterations; indicators of perceived
extraction method: principal component analysis; rotation method: varimax with Kaiser normalization benefits of outsourcing
5.2 Construct II: perceived risks

The confirmatory factor analysis of the perceived risks of outsourcing reveals that all
the eight indicators of the construct confirm to two major factor components, identified
under the headings:
(1) management and policy-related risks; and
(2) data-related risks, explaining about 72.7 percent of the variance (rotated sums
of squared loadings ¼ 72.7) (Table VI), of which data-related risks appeared
predominant.
And this is substantiated by higher factor loading (Table VII) with data confidentiality
(loading ¼ 0.953) and data security (loading ¼ 0.944) risks being the major factors
contributing to the overall perceived risks.
The data also reveal that various management and policy-related risks such
as increased management complexities (loading ¼ 0.867), risks of losing process
control (loading ¼ 0.767), risk of vendor lock-ins and/or over-reliance on
vendor (loading ¼ 0.766) and the complexities in vendor relationship management
(loading ¼ 0.765) are loaded high and hence indicate that they contribute significantly to
the risk perception of the decision makers towards outsourcing. At the same time, it is
important to note that regulatory violations and legal obligations (loading ¼ 0.592) has
not loaded high enough to be considered for analysis and the risk of not being
able to realize the expected benefits out of outsourcing engagements
(loading ¼ 0.697) also contributes relatively weakly to the over all risk perception of
the decision makers.
5.3 Construct III: perceived roadblocks

There are several factors that are beyond the direct control of a decision maker; more
so in the context of the highly regulated and unionized banking sector in India. Such
factors are the roadblocks that have a negative influence on the decision maker’s
SO
Extraction sum of squared Rotation sum of squared
4,3 Indicators Initial eigen values loadings loadings
of perceived Variance Cumulative Variance Cumulative Variance Cumulative
risks Total (%) (%) Total (%) (%) Total (%) (%)
1 4.626 57.820 57.820 4.626 57.820 57.820 3.455 43.183 43.183

308 2 1.196 14.951 72.771 1.196 14.951 72.771 2.367 29.587 72.771
3 0.760 9.499 82.270
4 0.526 6.573 88.843
5 0.422 5.274 94.117
6 0.315 3.941 98.058
Table VI. 7 0.122 1.531 99.589
Factor analysis of 8 0.033 0.411 100.000
perceived risks of
outsourcing Notes: Results from data analysis using SPSS; extraction method: principal component analysis
Factor componentsa
Perceived risks 1 2
Data security 0.944

Data confidentiality 0.953
Losing process control 0.767
Regulatory violations and legal obligations 0.592
Complexity in vendor relationship management 0.765
Over reliance on vendors 0.766
Increased management complexities 0.867
Unable to realize expected deliverables/benefits 0.697
Table VII.
Factor loadings of the Notes: a1 – management and policy-related risks, 2 – data-related risks; rotated component matrix;
indicators of perceived results from data analysis using SPSS; rotation converged in three iterations; extraction method:
risks of outsourcing principal component analysis; rotation method: varimax with Kaiser normalization
attitude towards outsourcing. These are basically policy, organizational and

market-related factors.
The five key indicators of perceived roadblocks identified and run through the
confirmatory factor analysis (Table VIII) confirms to two major factor components that
can be identified under the two major heads:
(1) organizational factors; and
(2) market-related factors.
These two factors put together explain 63.8 percent of the variance, of which the
organizational and policy-related roadblocks are predominant (rotated sum of squared
loading of 39.12 percent) when compared to the market-related roadblocks (rotated sum
of squared loading of 24.6 percent).
The indicators “regulatory and policy restrictions” (loading ¼ 0.873), “infrastructural
inadequacy” (loading ¼ 0.744), “scale of operations” (loading ¼ 0.676) and “the lack of a
matured vendor market” (loading ¼ 0.931) loaded high indicating a greater contribution
to the decision makers’ perception of roadblocks to outsourcing. While, the indicator
“resistance from employees” loaded very weak (loading ¼ 0.425) reflecting that it is not Outsourcing
perceived to be a serious roadblock for pursuing outsourcing (Table IX). Whether this decisions
indicates a changing trend among banks’ employees to accept new technologies and new
management practices is a subject for further research investigation.
5.4 Validity of the model

A multiple regression analysis is used to test the validity of the attitudinal model of 309
outsourcing. Here the “perceived benefits”, “perceived risks”, “perceived roadblocks”,
and “perceived criticality” are the independent variables and the “attitude towards
outsourcing” is the dependent variable. It is also intended to assess the predictability of
this structural model.
The Pearson’s correlation coefficients reveal that both perceived benefits and
perceived criticality have a strong positive influence, while, both perceived risks and
perceived roadblocks have a weak negative influence on the manager’s attitude

towards outsourcing (Table X). This is consistent with the theoretical foundation
established in the review of literature pertaining to the factors influencing outsourcing
decisions.
The standardized b-coefficients reveal that the perceived benefits (b ¼ 0.532),
perceived roadblocks (b ¼ 2 0.357), and perceived criticality (b ¼ 0.330) of outsourcing
have a strong influence on the attitude of the management towards outsourcing. It is
interesting to note that the perceived risks (b ¼ 0.123) have the least influence among all
other factors on the attitude towards outsourcing (Table XI). This is quite contrary to the
established belief endorsed by the current outsourcing literature.
Extraction sum of squared Rotation sum of squared

Indicators of Initial eigen values loadings loadings
perceived Variance Cumulative Variance Cumulative Variance Cumulative
roadblocks Total (%) (%) Total (%) (%) Total (%) (%)
1 2.157 43.133 43.133 2.157 43.133 43.133 1.956 39.123 39.123

2 1.032 20.632 63.765 1.032 20.632 63.765 1.232 24.641 63.765
3 0.829 16.586 80.351
Table VIII.
4 0.643 12.859 93.210
5 0.339 6.790 100.000
Factor analysis of
perceived roadblocks
Notes: Results from data analysis using SPSS; extraction method: principal component analysis of outsourcing
Factor componentsa
Perceived roadblocks 1 2
Infrastructure inadequacy 0.744

Regulatory and policy restrictions 0.873
Resistance from employee union 0.425
Size and scale of the operations/organization 0.676 0.476
Absence of matured vendor market 0.931 Table IX.
Factor loadings of the
Notes: a1 – Organizational factors and 2 – market-related factors; results from data analysis using indicators of perceived
SPSS; extraction method: principal component analysis; rotation method: varimax with Kaiser roadblocks of
normalization, rotated component matrix: rotation converged in three iterations outsourcing
SO It can also be inferred that the perceived benefits are more important influencing factors
4,3 than the perceived roadblocks and perceived criticality on the attitude towards outsourcing.
The positive influence of perceived benefits is dominating the negative influence of both
perceived risks and perceived roadblocks. Interestingly, perceived criticality also emerged
as an important positive influencing factor in outsourcing decisions.
The t-values (Table XI) suggest that H1, H3 and H4 be rejected as the impacts of
310 perceived benefits, perceived roadblocks, and perceived criticality on the attitude
towards outsourcing are statistically significant. At the same time, the impact of the
perceived risks is not statistically significant at 5 percent level of significance and
hence H2 should be accepted.
Table XII reveals that 49.5 percent (R 2 ¼ 0.495) of the variation in the dependent
variable, that is, change in attitude towards outsourcing, is explained by the four
independent variables (perceived benefits, risks, roadblocks, and criticality of
outsourcing). H5, i.e. R 2 ¼ 0, is rejected at 1 percent level of significance (Table XII)

implying that the overall fit of the model is statistically significant.
Further, it can be concluded that the constructs of the attitudinal model developed in
this study explain nearly 50 percent of the attitude of the decision maker toward
outsourcing. What other factors or conditions can explain the remaining 50 percent is a
matter for further research.
6. Conclusions
6.1 Perceived benefits
From the above data analysis, it is evident that the decision makers, at least in Indian
banking sector, are strongly positively influenced by their perception that outsourcing
Constructs Mean SD Pearson correlation coefficients p-value (one-tailed)

Table X.
Mean, standard Perceived benefits 2.1758 0.57740 0.529 0.001 *
deviation, Pearson Perceived risk 2.3792 0.73291 20.252 0.089 * *
correlation coefficients, Perceived roadblocks 1.6333 0.30210 20.296 0.056 * *
and significance scores of Perceived criticality 2.1000 0.92289 0.423 0.010 *
the constructs of the
attitudinal model of Notes: *Correlation is statistically significant and * *correlation is not statistically significant; results
outsourcing from SPSS using multiple regression analysis on the data from questionnaire
Unstandardized
coefficients Standardized coefficients
Model B SE b t-value p-value
Constant 1.463 0.194 7.527 0.000

Perceived benefits 0.152 0.047 0.532 3.261 0.003a
Perceived risk 0.028 0.037 0.123 0.748 0.461b
Perceived roadblocks 20.195 0.079 2 0.357 2 2.460 0.021a
Table XI. Perceived criticality 0.059 0.027 0.330 2.220 0.036a
Beta coefficients of the
attitudinal model of Notes: aThe null hypothesis is rejected; bthe null hypothesis is accepted; results from SPSS using
outsourcing multiple regression analysis on the data from questionnaire; dependent variable: attitude score
Statistics
Adjusted Std. error of the F- Degree of freedom 1 Degree of freedom 2 Critical F4,25 for 1% level
2 2
Model R R R2 estimate R statistic (Df1) (Df2) of significance
1 0.704(a) 0.495 0.415 0.12637 0.495 6.126 (5 2 1) ¼ 4 (30 2 5) ¼ 25 4.18

Notes: Number of observations n ¼ 30; number of parameters in the regression model k ¼ 5; observed F-statistic ¼ [(R 2/(1 2 R 2))*(Df2/Df1)] ¼ (0.495/
0.505)*(25/4) ¼ 6.126; observed value of F is greater than critical F4,25 which is 4.18; therefore, the null hypothesis R 2 ¼ 0 (or equivalently that all the
regression slope coefficients for the independent variables are jointly equal to zero) is to be rejected at 1 percent level of significance; results from SPSS
using multiple regression analysis on the data from questionnaire
outsourcing
decisions
Outsourcing
attitudinal model of
Predictability of the
Table XII.
311
SO will enable them to achieve improvement in operational efficiency and customer
4,3 services and also allow them to focus on their core competencies. It is also evident that
the indicators such as the ability to access new technologies, skills and
resources/capabilities and cost cutting and cost shifting contribute heavily to shape
the decisions makers’ perception towards the benefits of outsourcing.
While this is partly in line with the conclusions drawn by Gulla and Gupta (2009) in
312 their study of outsourcing decisions in Indian context, it contradicts the popular belief
established by global outsourcing studies that firms outsource primarily for cost-related
benefits (Fisher et al., 2008). It can also be inferred that despite outsourcing, arguably,
not being very prevalent among banks in India ( Jain et al., 2010), decision makers in the
Indian banking sector have been paying attention to the learnings from the global
outsourcing phenomenon. Another possible reason, arguably, for cost-related benefits
not perceived to be very important in this case is the non-existence of labor cost
arbitrage, especially when the client and the vendors both are located in India, exposed
to same legal and economic conditions and are drawing from the same labor pool.
Moreover, given the fact that India is one of the lowest cost outsourcing destinations in
the world, there is little motivation for a firm operating in India to look for other
outsourcing destinations.
Further, it is also interesting to observe that the decision makers in the Indian
banking sector do not really perceive knowledge management and improved business
intelligence, often the underlying reasons for high-end outsourcing globally, as possible
benefits from outsourcing engagements, and hence these factors do not seem to exert
greater influence on their outsourcing decisions. While the trend for high-end
outsourcing is fast emerging fueled precisely by the expectations of such advanced
benefits from outsourcing engagements, the difference in perceptions of decision makers
in India is rather surprising. Whether such a difference in perception can be attributed to
the difference in the “level of maturity” in outsourcing practices in the banking sector in
India vis-à-vis other matured markets is a matter for further research investigation.
Overall, it can be concluded that the decision makers in the Indian banking sector
perceive, predominantly, operational and business-related benefits of outsourcing to be
more important than financial and cost-related benefits.
Further, it is important to note that the overall perception of benefits of outsourcing
contributes significantly in shaping the decision makers’ attitude towards outsourcing
and influence their decisions to outsource.
6.2 Perceived risks

As far as the factors contributing to the overall perception of risks due to outsourcing
are concerned, the study reveals that the decision makers seem to perceive data-related
risks to be more serious than other risks. These findings are very much in line with the
conclusions drawn by several outsourcing studies conducted globally, especially in the
area of outsourcing in banking and financial services sector (Federal Bank of
New York, 1999; Khalfan, 2004; Shankar, 2005). And rightly so because the banks deal
with a lot of sensitive (personal and financial) data of their clients and any compromise
in security and confidentiality of such data will have a direct impact on the reputation
of the bank and may also lead to serious legal problems and litigations due to
data privacy and related issues. Moreover, these data-related risks become more
pronounced in case of BPO engagements, as the outsourcing vendor(s) get access
to the data in non-encrypted form thus increasing the possibility of compromises in Outsourcing
data integrity and confidentiality. decisions
The other contributing factor to risk perception is that of management and
policy-related risks. It is observed that the risk of increased management complexities,
risk of losing process control, risk of vendor lock-ins and/or over-reliance on the vendor(s)
and the complexities in vendor relationship management contribute, in that order of
seriousness, significantly to the risk perception of the decision makers towards 313
outsourcing.
Interestingly, contrary to the popular belief, the evidence shows that the decision
makers do not perceive the risk pertaining to regulatory violations and legal
obligations as an important factor contributing to their overall perception of risks
associated with outsourcing. Also, the data analysis indicates that the decision makers
are relatively certain about being able to realize the level of expected benefits from their
outsourcing engagements as they seem to consider the risk of otherwise as relatively

less. These conclusions are partially consistent with the fact that the service providers
market for IT services in India is mature enough with globally reputed and proven
service providers delivering high quality services. However, the risk of not being able
to realize the desired results assumes more importance in the case of BPO engagements
as the vendor market for BPO (especially vertical services) in India does not seem to be
as mature as it is for ITO.
While it is evident that all, but one, indicators of risk identified in this study
contribute to the overall risk perception of the decision makers as far as the risks
associated with outsourcing is concerned, it is interesting to note that the overall risk
perception is found to be insignificant in terms of its influence in shaping the decision
makers’ attitude towards outsourcing. In other words, the decision makers in the
Indian banking sector seem to feel relatively more comfortable with the risks
associated with outsourcing. The reasons for this comfort level with the risks of
outsourcing – especially in the Indian banking sector where outsourcing practices are
yet to mature – merit further research.
6.3 Perceived roadblocks

The data analysis of the previous section support the following conclusions pertaining
to the construct “perceived roadblocks”. The study reveals, perhaps unsurprisingly,
that the regulatory and policy restrictions are a major roadblock for outsourcing
decision among banks in India. This is very well reflected in the fact that the BFSI,
specifically banks, is one of the tightly regulated sectors in the country. In the context
of this study, regulatory and policy restrictions implies banking specific regulations
and other related laws and policies which are especially important for outsourcing
engagements. In recent years, Reserve Bank of India (RBI), the apex regulatory body
for the banking sector in India, has undertaken some important and encouraging
initiatives to provide a stable and reliable framework for banks to adopt outsourcing
practices (RBI, 2005). However, the restrictions imposed by such regulations are
stringent enough to call for concerted efforts to remain compliant on the part of both
the banks as well as the outsourcing service providers, thus posing a serious roadblock
to engage in outsourcing activities.
Further, it can also be noted that the decision makers seem to be concerned about
the issues such as the infrastructural inadequacy, and the scale of operations – in that
SO order of seriousness – while engaging in outsourcing. Infrastructural inadequacy can
4,3 be attributed, as primarily, to the prevalence of legacy systems and infrastructure built
over the decades of pre-liberalization era to support the traditional working methods in
a majority of the banks (especially many of the public sector banks and even old
private sector banks) in India. These legacy systems made these banks rigid and
inflexible in adopting new business practices which require a new IT-based
314 infrastructure and digitization of necessary (if not all) processes. These are large-scale
changes which usually take longer time periods for implementation. Such inadequacy
of infrastructure is proving to be a big roadblock for the banks to adopt outsourcing,
despite a realization among top management at banks that outsourcing can really open
up a lot of new possibilities for them.
However, a big shift in this situation is likely to happen soon as aggressive,
technology-savvy new age private sector banks and a few public sector banks in India
have been rapidly upgrading their infrastructure and thereby setting new rules of
competition. Further, a central government body, the Institute for Developing and
Research in Banking Technologies, is engaged, since its establishment in 1996, in
developing robust platforms for banking and financial services using latest IT,
telecommunication and internet technologies.
As far as market-related roadblocks are concerned, the lack of a matured vendor
market – especially for BPO – is a major roadblock. India is, arguably, the IT service
provider for the world, with a best-of-the-breed of vendors delivering high quality of
services globally. But, when it comes to BPO services, it is ironic that there are not
enough vendors who can promise and deliver quality services for a required range of
banking (vertical) services. Thus, it poses a big roadblock for adopting outsourcing,
especially in the case of advanced services.
6.4 Perceived criticality

The perception of critically can be associated not with the incremental effect of
outsourcing but with its transformational impacts – for better (if adopted) or for worse
(if not adopted) – on the overall organization and its present and future
competitiveness. This study recognizes perceived criticality as a distinct factor that
can potentially influence a decision maker’s attitude towards outsourcing and hence
their decisions to outsource. It can be inferred from the data analysis that a decision
maker’s perception of the criticality of outsourcing, with respect to its ability to
enhance the overall value of the organization or potential adverse consequences to the
organization in its absence, has a positive and significant influence on the decision
makers and their outsourcing decisions, at least in the context of the Indian banking
sector.
However, with all that it revealed and concluded, this study has focused on
outsourcing in a service industry, i.e. banking services in India, with specific reference
to scheduled commercial banks operating in public and private sectors. Therefore, its
conclusions may not be generalized to the practice of outsourcing in other industries
and other countries.
6.5 Significance of the study

Relevance for the practitioners. This study brings out interesting insights that are
useful for the practitioner, especially for the outsourcing vendors. The analysis
of the perceived benefits showed – contrary to other recent empirical studies Outsourcing
(Lancellotti et al., 2003; Fisher et al., 2008) – that clients are becoming increasingly decisions
cautious regarding cost advantages. The clients, at least in the banking sector in India,
tend to value factors such as improved operational efficiency, customer service
improvement, and access to new skills, capabilities and resources higher than pure cost
savings and convenience. A similar trend was reported in a recent study on the
German banking sector (Gewald and Dibbern, 2009; Gewald, 2010). Therefore, it is 315
important that the outsourcing vendors in the service sectors such as banking start
emphasizing on delivering business value or value creation and not just the cost
reductions while marketing their service offerings.
The results of the study also provide a basis for rethinking on the structure of
outsourcing offers with respect to the risks related to outsourcing. Those outsourcing
vendors who are able to offer additional business value in the form of risk mitigation or
risk sharing approaches to their clients are more likely to succeed in the future. In
particular, practices aimed at lowering the client’s data-related risk, i.e. the possibility
to ensure absolute data security and data confidentiality, coupled with creative
approaches for smooth management of vendor relationship and outsourcing contracts,
become the key in gaining market share, at least among the outsourcing clientele in the
Indian banking sector.
Implications for research. A majority of the previous research in the area of
outsourcing (both ITO and BPO) – where the subjects of study have been clientele
based in developed countries such as the USA, the UK, and Germany – has indicated
that cost-related advantages was (Lacity et al., 1994) and still remains a major reason
(Fisher et al., 2008) for organizations to choose to outsource their IS, IT, and/or business
activities. However, this study indicates a shift in the mindset of the decision makers,
at least in the context of outsourcing by clientele from the Indian banking sector. As
discussed earlier, generating business value – by way of improved operational
efficiency, improved quality of services, and access to new skills, capabilities and
resources – seems to be the predominant reasons for outsourcing. This study points to
new areas of research, especially from the perspective of countries such as India, which
is not sufficiently addressed in the outsourcing literature. Further, it indicates that
research efforts are required in the direction of understanding aspects such as value
added by the outsourcing vendors of services, innovative pricing mechanisms and
creative contract designs that address risk-mitigation and risk-sharing aspects.
Moreover, outsourcing literature is dominated by theoretical studies; while this
study is based on empirical data. Additionally, almost the entire outsourcing literature
focuses on outsourcing from the perspective of clientele based in developed countries
but this study focuses on outsourcing by clientele within a developing country such as
India. Therefore, some confounding variables such as communication with
outsourcing partners, regional and cultural differences among vendors and
outsourcing firms, and differences in regulatory regimes are not issues in this study.
Notes
1. The reference to “developing economy” here is to qualify India as a developing country and
is not intended to generalize the conclusions of this paper to all developing countries.
2. Scheduled commercial banks constitute those banks which have been included in the second
schedule of RBI Act, 1934. The schedule includes only those banks that satisfy the criteria
SO laid down by RBI vide section 42 (6) (a) of the act. Being a part of the second schedule confers
some benefits to a bank in terms of access to RBI’s support, especially during the times of
4,3 liquidity constraints. This status also subjects a bank to abide by certain conditions and
obligations towards the reserve regulations of RBI.
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Appendix. Questionnaire
Section 1: Identification Particulars:

1.1 Name: 1.2 Name of the Bank:
1.3 Designation: 1.4 Length of Service:
1.5 Educational Qualification: 1.6 Age:
1.7 Sex:
Outsourcing
Section 5: Please indicate the ‘degree of expectation’ vis-à-vis the ‘degree of realization’ decisions
of benefits from outsourcing by your bank on a five-point scale.
(Please put [*] in the appropriate cell against each question)
Scale: Very high – 1, High – 2, Neutral – 3, Low – 4, Very Low – 5.
Degree of Degree of
S. No. Benefits Expectation Realization
N.A. 321
1 2 3 4 5 1 2 3 4 5
5.1 Cost cutting / labor arbitrage
5.2 Improved operational efficiency
5.3 Improved customer service
Achieve better focus on core competencies
5.4
(core business)
5.5 Cost shifting (from ‘fixed’ to ‘variable’)

Access to new and updated technologies on
5.6
continuous basis
5.7 Access to new capabilities and skill sets.
Process improvement (restructuring and
5.8
process standardization)
Introduce new products/services (with quick
5.9
time-to-market)
5.10 Management convenience (spreading risk)
5.11 Improved business intelligence
5.12 Any other, please specify
N. A. – Not Applicable
Section 6: Please indicate the ‘degree of perceived risk’ and the ‘degree of actual/ experienced
risk’ of the following risk elements by your Bank due to outsourcing on a five-point scale.
Degree of Degree of Actual/
S. No. Elements of Risk Perceived Risk Experienced Risk N.A.
1 2 3 4 5 1 2 3 4 5
6.1 Data security
6.2 Data confidentiality
6.3 Loosing process control
6.4 Regulatory violations and legal obligations
Complexity in vendor relationship
6.5
management
6.6 Over reliance on vendors
6.7 Increased management complexities
Unable to realize expected deliverables/
6.8
benefits
6.9 Any other please specify
SO
4,3 Section 7: Please indicate the Major Roadblocks for your Bank to outsource, and the ‘degree of
impact’ they have on the management decision to outsource on a five-point scale. (Please put [*]
in the appropriate cell against each question)
Degree of
S. No. Roadblocks Yes No Impact N.A.
322 1 2 3 4 5
7.1 Infrastructure inadequacy
7.2 Regulatory and policy restrictions
7.3 Resistance from Employee union
7.4 Size and scale of the operations/organization
7.5 Absence of matured vendor market
7.6 Any other please specify

Section 8: Please indicate the ‘degree of criticality’ for adopting outsourcing as a business
practice for your organization.
Very Critical Critical Neutral Not so critical Not at all critical
About the authors

Ravi Kumar Jain, PhD, MBA (Finance), PGDITM (E-commerce) is an Assistant Professor
(Finance area) at the ICFAI Business School in Hyderabad, India. Previously he was the
Associate Dean (Research) at Symbiosis International University, Pune, India. His research and
teaching interests are in the area of outsourcing, information systems management, and
investments. He has more than 70 publications in leading national and international
publications, such as International Journal of Education, Economics and Development and ICFAI
Journal of Systems Management. He is serving on the Editorial Board of a few international
journals – Journal of Accounting, Ethics & Public Policy, Journal of Business Management and
Economics, and Progress – A Multidisciplinary International Journal. He has authored/edited the
books – Open Source Software: A Revolution in the Making (authored), Localisation of
Information Technology: An Introduction (edited) and IT Governance: An Introduction (edited) –
published by ICFAI University Press.
Ramachandran (Nat) Natarajan, PhD, CPIM, CIRM is currently the W.E. Mayberry Professor
of Management, College of Business, Tennessee Technological University, Cookeville, USA. His
research and teaching interests are in the areas of operations and supply chain management. He
has published in journals such as International Journal of Operations Management, International
Journal of Production Economics, and Decision Sciences. He is the co-author of book on
manufacturing processes published by APICS and co-editor of a book on technology and
development. In a study published in 1993 in Journal of Operations Management, he was
recognized as one of the “Top 100 Researchers,” in operations management during a five-year
period. He has served as a Senior Examiner for the Baldrige National Quality Award of the USA.
Ramachandran Natarajan is the corresponding author and can be contacted at: rnat@tntech.edu
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An objective of this study is to address the above-mentioned gaps in the literature

4.2 Model development

S.no. Category/designation of the respondents No. of respondents

Table I. 1 Chairman and managing directors 30

model (Table II).

4.3 Theoretical framework

1 Perceived 11 The impact of perceived Gewald (2010) and Gewald and

4.4 Testing the scale reliability

coefficient of 0.50-0.60 is sufficient to establish the indicator reliability of a construct

the construct reliability

their factor loadings and

Indicators Extraction sum of squared Rotation sum of squared

1 4.242 38.561 38.561 4.242 38.561 38.561 2.732 24.841 24.841

5.2 Construct II: perceived risks

5.3 Construct III: perceived roadblocks

1 4.626 57.820 57.820 4.626 57.820 57.820 3.455 43.183 43.183

Data security 0.944

attitude towards outsourcing. These are basically policy, organizational and

5.4 Validity of the model

perceived roadblocks have a weak negative influence on the manager’s attitude

Extraction sum of squared Rotation sum of squared

1 2.157 43.133 43.133 2.157 43.133 43.133 1.956 39.123 39.123

Infrastructure inadequacy 0.744

outsourcing). H5, i.e. R 2 ¼ 0, is rejected at 1 percent level of significance (Table XII)

Constructs Mean SD Pearson correlation coefficients p-value (one-tailed)

Constant 1.463 0.194 7.527 0.000

1 0.704(a) 0.495 0.415 0.12637 0.495 6.126 (5 2 1) ¼ 4 (30 2 5) ¼ 25 4.18

6.2 Perceived risks

outsourcing engagements as they seem to consider the risk of otherwise as relatively

6.3 Perceived roadblocks

6.4 Perceived criticality

6.5 Significance of the study

Loh, L. and Venkatraman, N. (1992a), “Determinants of information technology outsourcing:

Slaughter, S. and Ang, S. (1996), “Employment outsourcing in information systems”,

decision”, Strategic Outsourcing: An International Journal, Vol. 1 No. 2.

Section 1: Identification Particulars:

5.5 Cost shifting (from ‘fixed’ to ‘variable’)

7.6 Any other please specify

About the authors

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

industry technological capability development using outsourcing opportunities. Strategic Outsourcing: An

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