Sourcing and Automation Decisionsin Financial Value Chains

Technological progress and globalization foster relocation and automation of business processes.Especially financial services providers oftentimes have the choice either to automate informationprocessingtasks or to relocate them to foreign sites to profit from differences in wage levels. Bothstrategies bear enormous economic potential in terms of cost savings. However, with the main focuson cost reduction, risk due to the uncertain development of effective labor costs or future transactionvolumes are oftentimes either inadequately considered or completely neglected. This systematicallyleads to false decisions, in particular since the two strategies – relocation and automation – result intodifferent risk profiles. In this paper, we analyze the conditions for automating or relocating parts ofprocesses and propose a decision model for allocating business processes to these alternatives in arisk/return efficient way. In particular, we consider how uncertainties of the effective labor costs andtransaction volumes influence the decision. As shifting tasks to other locations or their automation haseffects on the workload at the original location, we also consider costs for social effects. Thepracticability of our approach is demonstrated with a real world case with data from a majorfinancial services provider....