Sourcing practices and boundaries of the firm in the financial services industry

Authors

  • M. Hossein Safizadeh,

    Corresponding author
    1. Department of Operations and Strategic Management, Wallace E. Carroll School of Management, Boston College, Chestnut Hill, Massachusetts, U.S.A.
    • Department of Operations and Strategic Management, Wallace E. Carroll School of Management, Boston College, Fulton Hall 350, 140 Commonwealth Avenue, Chestnut Hill, MA 02467-3808, U.S.A.
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  • Joy M. Field,

    1. Department of Operations and Strategic Management, Wallace E. Carroll School of Management, Boston College, Chestnut Hill, Massachusetts, U.S.A.
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  • Larry P. Ritzman

    1. Department of Operations and Strategic Management, Wallace E. Carroll School of Management, Boston College, Chestnut Hill, Massachusetts, U.S.A.
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Abstract

We investigate sourcing decisions related to the back-office operations of 108 processes used by financial services companies. Guided by the arguments of transaction cost economics and the resource-based and knowledge-based view of organizations, we hypothesize that service customization and volume represent two key drivers of a service company's sourcing decisions. The inherent uncertainty of service customization gives rise to the transaction cost risks of opportunism and holdups and thus favors insourcing. Moreover, the competency gained from performing high-volume back-office operations aligns with the tenets of the resource-based view, which also favors insourcing. The empirical results corroborate these theoretical expectations. Copyright © 2007 John Wiley & Sons, Ltd.

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