Business process virtualization : an empirical study of performance implications and contextual factors of success

Abstract

Following recent advances in information technology, the modes of communications and interactions between people, in general, are changing rapidly. This is also true at the organizational level; the modes of interactions between firms and their stakeholders, particularly customers, are undergoing rapid transformations. In this context, business process virtualization (BPV) is becoming an increasingly important topic for both academics and practitioners. BPV seeks to eliminate the physical interactions traditionally required between people engaged in business processes. However, in light of several operational issues and psychological barriers, questions have remained with respect to how effective BPV has been in practice. According to social presence theory, physical modes of interaction carry communication cues better than virtual ones. Quality improvement and innovation at the firm level requires effective interactions among the stakeholders. Customer encounters and personal attentiveness can achieve customer delight; customers become more loyal to the firm by getting attached to specific service employees. The poor communication flows and the lack of interpersonal warmth resulting from BPV are likely to reduce customer satisfaction in the long run. However, notwithstanding such problems, BPV is still considered an essential strategic tool in view of its ability to reducing the cost of deploying human resources and physical facilities needed in implementing business processes. Clearly, there is a need to empirically examine whether BPV implementation has an overall positive impact on firm performance and determine the types of companies or business processes that are more likely to benefit from BPV. We studied a sample of 323 BPV cases drawn from the period 1989-2011. We found that BPV is associated with increases in labor productivity rather than with sales growth and cost of goods sold. Following an application of the long-horizon event study methodology, we found that BPV is associated with firm performance particularly in terms of return on assets (ROA). We found that, as compared to other processes for internal operations, the adoption of BPV in customer-related or customer-oriented processes could provide stronger abnormal ROA. In particular, firms with extensive customer contact gained more benefits. We also found empirical evidence showing that BPV could help low-market-share firms to penetrate high industry concentration markets (e.g., oligopoly markets). We argue that the removal of physical interactions between firms and their customers does not necessarily create interaction barriers within the business processes conducted on a BPV platform. BPV might also provide a cushioning effect among firm-customer interactions and customer identification with a given firm.