1734
Sourcing and Outsourcing Arithmetic
WR PHGLFDO ¿QDQFLDO RU SHUVRQDO LQIRUPDWLRQ
A survey conducted by the UK-based research
agency, Mori, on behalf of the unions of Lloyds
TSB Group, has concluded that half of the bank’s
customers would consider moving their accounts
to a different one if they discovered the calls were
being managed from India. These are short-term
isolated issues.
Long-Term Trends
Business process outsourcing services worldwide
reached US$405 billion in 2003. Forecasts based
on client survey by the International Data Cor-
poration shows it will grow 11% through 2008,
reaching $682 billion.
A. T. Kearney released a study on March
30, 2004, ranking various offshore locations for
EDFNRI¿FHZRUN,QGLDHPHUJHVRQWRSE\DZLGH
margin among the 25 countries in Kearney’s
³2IIVKRUH/RFDWLRQ$WWUDFWLYHQHVV,QGH[´ZKLFK
employs 39 criteria to rank the locations. China
is ranked second, followed by Malaysia and the
Czech Republic. This result is consistent with other
surveys by other consulting companies.
For India, BPO employs 0.1% of the labor force,
but it contributes 2% of GDP and a substantial
20% of its exports in 2004. There are a number of
JURZWKDUHDVEDQNLQJEDFNRI¿FHZRUNVXFKDV
DFFRXQWLQJZRUN¿QDQFLDOVHUYLFHVDQGLQVXUDQFH
(such as claims processing), telecom, healthcare

(billing, claims management, accounting), human
resources (payroll processing), retail (managing
payables and receivables).
How much of it will come to India?
A study released by McKinsey-NASSCOM
showed some 140 billion dollars could be com-
ing to India by 2008. The result of their survey
is reproduced in Table 3.
Black Clouds in the Long Run
Legislative changes in the United States/United
Kingdom pose the biggest threat to this growth
Table 3. Estimate of outsourcing market size in India by 2008 (Source: McKinsey NASSCOM Survey,
2002)
Type of service Value
Customer interaction services 15.0
Finance & Accounting services 15.0
Animation 2.0
Translation, Transcription &
Localization
1.2
Engineering & Design 5.0
HR Services 44.0
Data search, Integration and
Management
18.0
Remote education 15.0
Total 140.0
Note: Figures in billions of U.S. dollars
1735
Sourcing and Outsourcing Arithmetic

Box 1. Terminologies
BPO Business process outsourcing. An entire line of business such as automobile
design or insurance claims management process is farmed out.
IT Information technology.
ITeS Information technology enabled services. Services that use information
technology intensively.
CMM Capability maturity model articulated by the Software Engineering Institute
(SEI) at the Carnegie Mellon University. The CMM/SEI framework aims to
distinguish mature processes from immature processes. Level 5 is the highest
grade.
Box 2. List of outsourced services (Adapted from the United Nations Conference on Trade and Develop-
ment E-Commerce and Development Report, 2003)
Banking Services Asset Management Services
Account opening services Account creation
Account information capture Account maintenance
Customer queries Transfers and additions
Check clearing Dividend payments
Check payment reconciliation Brokerage payment
Statement processing MIS reporting
ATM reconciliation Customer service
Investment account management
Customer Care
Management reporting Customer service
Loan administration Customer analysis
Credit debits card services Call centers
Check processing Consumer information services
Collections Customer relationship management
Customer account management
Human Resources Services
Mortgage Services

3D\UROODQGEHQH¿WVSURFHVVLQJ
$SSOLFDWLRQYHUL¿FDWLRQDQG
processing
Training and development
Disbursals and collections 5HWLUHPHQWLQYHVWPHQWDQGEHQH¿WVPDQDJHPHQW
Payment reconciliation +LULQJDQGVWDI¿QJ
Account information updates Recruitment screening
Mortgage loan servicing Administration and relocation services
Financial Services
Payroll processing
Document management Compensation administration
Billing %HQH¿WVSODQQLQJ
Shareholder services Administration and regulating compliance
Claims processing
Sales and Marketing Services
Accounts receivable Telemarketing services
Accounts payable Direct marketing and sales campaigns
1736
Sourcing and Outsourcing Arithmetic
of BPO. These changes could take the form of
EDQQLQJWUDQVIHURIFRQ¿GHQWLDOLQIRUPDWLRQWR
a foreign country. This would mean payroll or
medical bills cannot be processed outside the
country.
RISKS OF OUTSOURCING
Outsourcing is not without its risks. When East-
man Kodak decided to outsource many of its
core businesses, it did not realize that it lost key
skills and capabilities. Short-term advantage was
Box 2. continued

General ledger
Web-Related Services
Accounting services Web site designing
Treasury operations management Web site management
Credit Card Services
Site personalization
Applications screening and card
issuance
Site marketing
Customer account management
Search engine, directory optimization and position-
ing services
Collections and customer follow-up Catalog/content management
Account queries and limit
enhancements
Web analytics
Accounting and payment
reconciliation
Database design
Insurance Services
Web security services and integration with CRM
Policy owner services %DFNRI¿FHV\VWHPVIRULQYHQWRU\PDQDJHPHQW
Claims processing Web enablement of legacy applications
Transaction & reinsurance accounting Electronic bill presentment and payment services
Statutory reporting Graphics/animation
Annuities processing Web-based e-mail processing
%HQH¿WDGPLQLVWUDWLRQ Web-based help desk
Customer information capture Web-based chat support
Risk assessment and premium
computation

E-learning: Web-based online education services
Policy processing and account
monitoring
E-publishing
Claims management
Payment reconciliation
Health Care
Medical transcription services
Diagnostics
1737
Sourcing and Outsourcing Arithmetic
their prime concern at the time. Similarly, IBM
outsourced PC-related business too early. It did
not recognize that the market was not mature
enough. Many innovations were to come.
0RGHUQEXVLQHVVLVDOODERXW³NQLWWLQJWRJHWKHU
people, processes and platforms” (Aron, 2003). If
the risks of the processes are not properly evalu-
ated and priced, outsourcing will simply not be
the right solution. Consider the backlash some
companies suffered when they moved their call
centers to India. Clearly, these companies did not
value the risk properly. The cost due to the loss of
XQKDSS\FXVWRPHUVFDQRXWZHLJKWKHEHQH¿WVRI
cutting the cost of delivering the service. Simi-
larly, future possible backlash through legislative
FKDQJHV WKDW SURKLELW ³H[SRUWLQJ´ FRQ¿GHQWLDO
client information need to be fully evaluated.
Therefore, Aron (2003) suggests that instead of
RXWVRXUFLQJEXVLQHVVVKRXOGHPSKDVL]HRQ³ULJKW

sourcing.” By outsourcing, companies can lose
control of their own processes and the people
(both customers and employees). Thus, outsourc-
ing may lead to higher risk and therefore loss of
future revenue.
Microlevel risks taken by a company are the
following: (1) exposure of sensitive and critical
information of a company; (2) exposure of cus-
tomer information; (3) exposure of a company’s
intellectual property such as source code, pat-
ented processes; (4) relocation of IT equipment
from a known, safe environment to an unknown
environment; (5) no direct control over business
continuity of the outsourced processes (Twing,
2005). Like any other risk management process,
WKHULVNVDUHWREHLGHQWL¿HGPHDVXUHGDQGVWHSV
for mitigation are to be taken.
CONCLUSION
Outsourcing of any service requires trust. Indian
companies, over the past decade, have worked at
earning that trust. It requires a high volume of
sophisticated human resources. India has provided
such a workforce. The Indian IT industry has been
moving from low-end simple tasks to high-end
complicated tasks in outsourcing in the form of
BPO. Could Indian experience be duplicated in
other countries? Many elements in India were
present at the right place at the right time. Thus,
it would be unlikely that some other country
will be able to emulate India’s experience. India

has already made inroads into core business in
VRPHLQGXVWULHVHVSHFLDOO\LQ¿QDQFLDOVHUYLFHV
All indicators point to more consolidation in the
future.
ACKNOWLEDGMENTS
We thank Bradly J. Condon and Rebecca Bene-
dict for their comments. Our thanks to the many
participants from the Indian IT Industry, who
generously gave their time to discuss various
issues. We thank the Asociación Mexican de
Cultura AC for supporting this research. Com-
ments from anonymous referees have allowed
us to refocus the chapter. However, we alone are
responsible for the opinions expressed. They do
not represent the views of the institutions with
ZKLFKZHDUHDI¿OLDWHG
REFERENCES
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Condon, B. J., & Sinha, T. (2003). Drawing lines
in sand and snow: Border security and North
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Farrell, D. (2003). Offshoring: Is it a win-win
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Feenstra, R. (2005, January 16-18). The future
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Heckscher, E. F. (1919). Utrikeshandelns verkan
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Kakabadse, N., & Kakabadse, A. (2000). Out-
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rewrites lexicon for jobs outsourcing. Congress
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Leavy, B. (2004). Outsourcing strategies: Op-
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Maranjian, S. (2004, March 11). Thoughts on off-
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McCarthy, J. C. (2002, November 11). 3.3 million
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Miller, H. (2003, November). The new competi-
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January 11, 2005 from
Odindo, C. et al. (2004). Outsourcing in the UK
¿QDQFLDOVHUYLFHVLQGXVWU\7KH$VLDQRIIVKRUH

market. U n i v e r s i t y of N o t t i n g h a m S c h o o l o f B u s i -
ness, CRIS Discussion Paper Series—2004.I. Re-
trieved January 11, 2005 from www.nottingham.
ac.uk/business/cris/discussionpapers.html
Ohlin, B. (1928, April). The reparations problem.
Svenska Handelsbanken, 28, 2-23.
Phillips, M. M. (2004, March 15). More work is
outsourced to U.S. than away from it, data show.
Wall Street Journal. Retrieved January 11, 2005
from
Twing, D. (2005, September). Reviewing the
security aspect of outsourcing. Network World,
22-31. Retrieved September 30, 2005 from http://
www.networkworld.com/newsletters/asp/2005/
0905out1.html
Wilson, D., & Purushothaman, R. (2003, October).
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port6.html
This work was previously published in E-Business Process Management: Technologies and Solutions, edited by J. Sounder-
pandan and T. Sinha, pp. 186-203, copyright 2007 by IGI Publishing (an imprint of IGI Global).
Section VI
Managerial Impact
This section presents contemporary coverage of the managerial implications of e-business implementa-
WLRQ3DUWLFXODUFRQWULEXWLRQVDGGUHVVWKHOLQNEHWZHHQHEXVLQHVVOHDGHUVKLSDQG¿UPSHUIRUPDQFHDQG
HEXVLQHVVULVNPDQDJHPHQWLQ¿UPV7KHPDQDJHULDOUHVHDUFKSURYLGHGLQWKLVVHFWLRQDOORZVH[HFX-
tives, practitioners, and researchers to gain a better sense of how e-business research and processes
can inform their practices and behavior.

1740
Copyright © 2009, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.
Chapter 6.1
Virtual Communities and
E-Business Management
Carlos Flavián
University of Zaragoza, Spain
Miguel Guinalíu
University of Zaragoza, Spain
INTRODUCTION
As a result of the new possibilities offered by
Internet managers are increasing options provided
by the new technologies in strategic planning. The
virtual community has become one of the more
interesting options.
The general aim of this article is to explain
the concept of virtual community, paying special
attention to the most important strategies and
m a n a g e m e n t s u g g e s t i o n s . F i r s t l y, we w i l l a n a l y z e
the concept of community from a sociological
YLHZSRLQW:HWKHQGH¿QHDYLUWXDOFRPPXQLW\
and what causes an individual to belong to one.
Secondly, we will show the main strategic implica-
tions of the development of virtual communities.
Next we will detail a series of recommendations
for the proper management of virtual communi-
WLHV 7KH WZR ¿QDO VHFWLRQV SUHVHQW WKH IXWXUH
trends of research and the main conclusions of
the article.
BACKGROUND

From a sociological perspective, Muñiz and
O’Guinn (2001) consider that a community may
EHGH¿QHGDVKDYLQJWKUHHSULQFLSDOHOHPHQWV
•
Consciousness of Kind: This refers to the
feeling that binds every individual to the
other community members and the com-
munity brand (e.g., admiration for Elvis Pre-
sley, or the passion for owning and driving
a Volkswagen Beetle). It is determined by
two factors: (1) legitimization, the process
of establishing a difference between true
and false members, that is, those who have
opportunist behaviors and those who do
not; and (2) opposition to other brands. In
IDFWLGHQWL¿FDWLRQZLWKWKHUHVWRIWKHJURXS
is mainly based on opposition; in other
ZRUGVEUDQGFRPPXQLW\LVXVXDOO\GH¿QHG
in comparison with another brand (e.g., the
1741
Virtual Communities and E-Business Management
rivalry between fans of The Beatles and The
Rolling Stones).
• Rituals and Traditions: These are processes
carried out by community members which
help to reproduce and transmit the com-
munity meaning in and out of the commu-
nity. Members relate to each other with the
memory of major events in the history of
the brand and certain behaviors. All these

processes help to reinforce brand conscious-
ness and improve instruction on communal
values.
•
Sense of Moral Responsibility: 7KLVUHÀHFWV
the feelings which create moral commitment
among community members. A sense of
moral responsibility encourages conjoint
behaviors and enables stronger group co-
hesion. As a result of moral responsibility,
there are two types of fundamental actions:
(1) integration and retention of members,
which guarantees the community survival
(e.g., by spreading bad experiences suffered
by those individuals who chose a different
brand); and (2) support in the correct use
of the brand (e.g., by sharing resources and
information about product properties).
Thanks to the Internet, social relationships can
be developed in a new environment. Thus appears
WKHLGHDRIYLUWXDOFRPPXQLW\7KH¿UVWYLUWXDO
FRPPXQLW\ZDVFUHDWHGLQWKHVHYHQWLHVVSHFL¿-
cally with the Talkomatic software, designed by
Doug Brown of the University of Illinois in the
autumn of 1973. However, it was not until the
nineties that there was an exponential growth of
this type of organization.
6HYHUDO DXWKRUV RIIHU GH¿QLWLRQV RI YLUWXDO
FRPPXQLW\&RWKUHOGH¿QHVLWDVDJURXS
of individuals which uses computer networks as

a form of primary interaction. Kardaras, Kara-
kostas, and Papathanassiou (2003) consider it to
be a group of individuals who communicate by
electronic means such as the Internet, who share
interests, without needing to be in the same
place, or having physical contact, or belonging
WRDSDUWLFXODUHWKQLFJURXS0RUHVSHFL¿FDOO\
WKHFRQFHSWRIYLUWXDOFRPPXQLW\LVGH¿QHGE\
5KHLQJROGDVD³VRFLDODJJUHJDWLRQRULJL-
nated in the Internet when people discuss in this
communication channel.” Similarly, Yap (2002)
explains that a virtual community is a social
group originated in the Internet with certain be-
liefs, social forms (language, etc.), and traits that
creates an emergent culture among its members.
With a greater degree of complexity, Muñiz and
Schau (2005) point out that a common aspect of
virtual communities might be the potential for
transcendent and magic-religious experiences.
Finally, Preece (2000) states that a virtual com-
munity is formed by people:
• with a wish for interaction among them in
order to satisfy their needs,
• that share a particular interest which is the
reason for the community,
• with certain norms that guide the relation
-
ships, and
• with computer systems that favor interaction
and cohesion among the members.

THE MANAGEMENT OF VIRTUAL
COMMUNITIES
Strategic Issues Related to Virtual
Communities
The exploitation of virtual communities may be
implemented by means of two different market-
ing strategies: offering support or becoming a
member of the group.
Strategy 1:
Offering Support to the Community
This strategy supposes that a company manages
the platform on which the community exchanges
1742
Virtual Communities and E-Business Management
take place. This company is not a member of the
community, but simply facilitates its existence by
offering a Web site for communication purposes.
For the development of this strategy, the main
step should be an analysis of the real possibilities
of creating a community via the Internet. These
possibilities derive either from the particular
characteristics of a product or brand, or else the
S UH  H [ L VW HQ FH R I W K HF RP PX Q LW \RI À L Q H, Q W K H ¿ UV W
FDVHWKHFRPSDQ\VKRXOGGH¿QHWKHDVSHFWVZKLFK
characterize the product or brand to ascertain to
what extent these are likely to create an attendant
community (e.g., the company Apple, http://www.
apple.com/usergroups/, exploits the characteristics
of Apple computers). In the second case, a new,
better quality method of communication is of-

fered to a group of individuals who are already
linked outside the Internet (e.g., MarketingProfs.
com, , facilitates
communication between marketing consultants
and educators).
Strategy 2:
Become a Member of a Community
In this case, the company attempts to be perceived
as a virtual community member. In this respect,
obtaining the level of membership of a community
will depend on the trustworthiness perceived in
the company. According to established literature
on trust (e.g., Roy, Dewit, & Aubert, 2001; Sako
& Helper, 1997; Morgan & Hunt, 1994; Ander-
son & Narus, 1990; Dwyer, Schurr, & Oh, 1987;
Anderson & Weitz, 1989; Bhattacherjee, 2002;
Cheung & Lee, 2001; Gefen, 2000; Kolsaker &
Payne, 2002; Luo, 2002; Walczuch, Seelen, &
Lundgren, 2001; Geyskens, Steenkamp, & Ku-
mar, 1998; Sabel, 1993), the organization needs
to demonstrate its honesty (i.e., that it is sincere
and delivers its promises); benevolence (being
concerned for the welfare of the other members
of the community, not acting in an opportunistic
manner, and attempting to have compatible objec-
tives); and competenceWKDWLVLWKDVVXI¿FLHQW
capability for its contributions to the community
WREHVLJQL¿FDQWDQGWRJHQHUDWHYDOXH
Hagel and Armstrong (1997) and Flavián and
Guinalíu (2005a) show the virtual community as

a tool that can increase the chances of success in
the marketing and distribution of products over
the Internet. The virtual community can boost a
company’s product differentiation by increasing
commitment and emotional ties with the brand.
Furthermore, brand awareness is increased, since
the community acts as a catalyst in the transmis-
sion of word-of-mouth messages. Thirdly, the
virtual community brings about a more effective
market segmentation, increases consumer trust
and security, acts as an information source, and
can even become a major source of direct income.
In a more detailed way, we can distinguish these
managerial implications:
•
New Forms of Communication: Hoffman
and Novak (1996) notice the replacement of
traditional communication models (one-to-
many) with others in which the interactions
between all the participants in the market are
constant (many-to-many). The virtual com-
munity represents these changes. Thanks to
social network and the use of the Internet,
messages are transmitted to the community
within a short period of time, obviating the
need for costly investments in the mass
media and thus reducing promotional costs
(Barnatt, 2001; Guthrie, 2000; Kardaras et
al., 2003; Wang, Yu, & Fesenmaier, 2002).
• Information Source: The virtual commu-

nity becomes a relevant information source
for the decision-making process (Hagel &
Singer, 1999; Holmström, 2000; Barnatt,
2001; Kardaras et al., 2003).
•
The Creation of Barriers Preventing the
Entry of New Competitors: The virtual
community creates barriers against new
competitors (Barnatt, 2001; Hagel & Arm-
strong, 1997; Kardaras et al., 2003).
• Increased Security and Trust: The commu-
1743
Virtual Communities and E-Business Management
nity creates a climate of security based on
reputation and mutual trust. This phenom-
enon may be clearly seen in online auction
communities (e.g., eBay), and in communi-
ties with risk-management systems based
on reputation (Dellarocas, 2001; Kollock,
1999).
•
Facilitating the Development of Relation-
ship Marketing Strategies: According to
certain authors (e.g., Guthrie, 2000; Wang et
al., 2002), virtual communities are an ideal
environment for implementing relationship
marketing strategies.
•
Becoming a Source of Indirect Income
(Wang et al., 2002): In the case of vir-

tual communities, it is customary to offer,
through mailing lists, forums, or Web sites
supported by the community, third-party
products which might be of interest to the
group. In this way, the business supporting
the communication infrastructure of the
FRPPXQLW\LV¿QDQFHGHJWKHFRPSDQ\
which supports the CRM professional com-
munity, Like-
wise, some communities charge a fee in order
to participate in debates (e.g., http://www.
well.com).
• A Source of New Clients (Kardaras et
al., 2003): Membership to a community
creates a favorable predisposition towards
the company supporting the platform for
community interchange. For this reason, the
community encourages members to recruit
new members who ultimately will become
new consumers.
E-Business Management Recom-
mendations
Flavián and Guinalíu (2005a) identify the ex-
istence of some key aspects to guarantee the
VXFFHVV RI YLUWXDO FRPPXQLWLHV 6SHFL¿FDOO\
these actions might be determined in light of the
following issues:
• Analyzing the Members’ Needs: The
community should be created and managed
according to the needs of its members, not

the needs of the company which promotes
it, the advertisers, or any other group not
involved in the community.
•
Fostering Self-Management: If self-man-
agement is technically impossible, they
should try to create a situation in which the
contents of the community are generated
and published directly by its members.
•
Minimizing Control: It is not advisable
to establish control mechanisms on how
the community members should mix with
each other or the topics they should discuss
in their conversations.
1
• Using the Most Suitable Technological
Structure: The type of technology used to
manage a virtual community has a lot of
implications. Flavián and Guinalíu (2005b)
recommend using technological systems that
DUHÀH[LEOHHDV\WRPDQDJHDQGYLVXDOO\
attractive.
•
Specializing Roles: Several sociological
research studies have shown that inside a
community it is common for individuals to
adopt different roles which give the com-
munity a greater dynamism. Taking these
¿QGLQJVDVDUHIHUHQFH)ODYLiQDQG*XLQDOtX

(2005a) suggest the advisability of having
this role assignment inside virtual communi-
ties.
2
FUTURE TRENDS
For the immediate future, research into the concept
of virtual communities is faced with some interest-
ing challenges. Firstly, there is a need to analyze
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(e.g., Wi-Fi, Bluetooth, UMTS, or i-Mode), as well
as the recent spread of other devices (e.g., Tablet
PC, PDA, or Smartphones). Wireless technology
will afford community members new means of