Antecendents and Consequences of Modularization in BPO - Based on Transaction Cost Theory and Knowledge-based Theory

Business process outsourcing (BPO) is expected to be “the next big wave” in the development of information technology services. However, managing the tacit knowledge underlying the interfaces is costly and complicated. Modularization of the outsourced business process can mitigate such complexity and the risk of knowledge misappropriation. This research-in-progress paper introduces the concept of modularization of outsourced business process (MOBP), which is viewed as the operational concept of “modular global sourcing” proposed by Infosys, a leading Indian outsourcing provider. Standing the position of the client firm, we examine the antecedents and consequents of MOBP based on transaction cost economics theory and knowledge-based theory. We explore the impacts of process human asset specificity, environmental uncertainty, behavioral uncertainty, small-number trading, strategic criticality of process knowledge, and process knowledge ambiguity on the extent of MOBP and also the impacts of MOBP on cost reduction and knowledge spillover. This paper also describes the research plan to test the research hypotheses. Contributions to research and practice are highlighted