Interdependencies between automation and sourcing of business processes

Abstract

Automating business processes or relocating the processes to low-wage countries are two frequently used measures to decrease cost. With the main focus on cost reduction, however, productivity differences between locations as well as interdependencies between automation and sourcing are often inadequately considered. In fact, automation and sourcing opportunities are usually evaluated independently of each other. This common practice can systematically lead to decisions that consume expected savings. In this paper, a decision model is proposed that is designed to simultaneously derive optimal degrees of automation and relocation for business processes. Our approach considers various process execution costs and productivity levels as well as the effects of business process automation on sourcing decisions in order to maxime the return of a firm. We find that a false decision on the extent of automation may have significant influence on return. Furthermore, in the case of higher complexity, retaining work at the high-wage site becomes more attractive. Finally, we find that staff fluctuation at low-wage sites may not necessarily reduce attractiveness of such sites in general. This research helps executives to better understand the influence certain parameters may have on joint automation and sourcing decisions. INTRODUCTIONIncreased competition and economic pressure forces global companies to reduce business process execution costs. Two frequently used measures to achieve this goal are automation and sourcing. On the one hand, advances in information technology facilitate business process automation to increase efficiency (Miller & Parkhe, 1999;Parkhe & Miller, 2002). On the other hand, enabled by globalization, processes can be sourced entirely or partially to foreign countries to exploit wage differences. This is accomplished either by outsourcing the business processes to external service providers that are located abroad or by shifting the processes internally from one site to another.Relocating business processes, whether in-house or through outsourcing, has become very attractive in recent years and had been facilitated by improved communication technologies (Agrawal, Farrell, & Remes, 2003).In general, business processes dealing with information instead of physical goods are largely independent of the location and at the same time provide potential for automating at least part of the process. In these cases, automation and sourcing decisions are closely interrelated. For example, simple tasks in the financial services domain, such as entering paper orders into an order processing system, could be cost effective if they are performed by staff members in low-wage countries or if they are completely or partially automated. For example, optical character recognition (OCR) technologies can be used for the automatic scanning and processing of paper orders. Therefore, an integrated decision support model considering automation and sourcing is crucial.The objective of this paper is to analyze automation a...

A Review on Business Process Management System Design: The Role of Virtualization and Work Design

“…This study established that offsite and offshore labor forces are becoming increasingly available to businesses to perform specific tasks. Another study investigated the commercial impact of BPM, focusing on the automation of business processes and relocation of business processes to low-wage countries [85]. This study examined cost reduction and productivity differences between locations.…”