Layer 1 team

The European banking landscape seems to be evolving from a highly vertically integrated banking landscape into a value network of specialized banks. This can also be seen in the credit product indus-try where consumer credit specialists take over portfolios from other banks. While decision models for IS, operations and production outsourcing are discussed in the literature, we lack a model for credit product outsourcing which reflects the change of risk capital as discussed in the literature about credit sales. In combining these two literature strands, we develop a model to determine whether it is beneficial to internally produce or externally source a credit product.

The financial services industry is operating in highly volatile markets. To consider the impact of uncertain market environments on in- and outsourcing decisions, we introduce a real options based decision support model. We apply the model to an IT infrastructure outsourcing decision and determine - based on cost savings resulting from outsourcing and option values accounting for uncertainty - different “trigger” output volumes which indicate if in- or outsourcing is preferable. Finally we show that the model can also be transferred to sourcing decisions of transaction based business processes like clearing and settlement of securities.

In this paper a sourcing decision framework is developed combining the resource based view transaction cost economics and production economies. The combined theories are used to provide a sequential application of the main arguments of resource based view, transaction cost theory and production cost theory to decide on making, buying or sharing an activity. A further key contribution of this paper is the introduction of share as an alternative to make or buy. Share means the bundling of resources between competitors and reflects the importance of cooperation between competitors as a way of improving the efficiency of production. The developed framework regards IT as a portfolio of activities and can be used to evaluate which IT activities should be produced internally and whether cost savings expected from IT outsourcing may be realizable.

The banking landscape in Europe and Germany has a polypolistic market structure with an average vertical range of integration of 80%, implying high process redundancies. Accumulating processes for standardized products is one way to achieve efficiency improvements. “Smart sourcing” can change the production mix of banks lead to a concentration of processes. A challenge is the lack of consistent frameworks for the banking industry to systematically support the sourcing decision process. In this paper, drawing on the resource based view and transaction cost economics it is shown that, in addition to a make or buy decision, co-operation between competitors should be included into a sourcing analysis as the third alternative. To support the decision on making, buying or sharing an activity, a quantitative analysis of each activity of the banking value chain is necessary. We propose an analysis framework based on a generic banking value chain. Since the recent literature mostly focuses only on the outsourcers’ case, a formalized model is developed to consider both the objective function of the out- and the insourcer. Since the market might restrict sourcing options, as there may be no providers of relevant activities, it can be shown that “sharing” as part of a co-opetition concept instead of buy or make can be a way to break up the value chain. The framework thus supports decision makers to approach an optimal degree of vertical integration for both market sides.