Operational Risk Perspective: Governance Across the Widening Disintermediation Gap
In the previous chapters, we discussed the dynamics of the mutual fund markets and elaborated on potential break lines In the Industrial architecture. In this context Industrial dynamics have a two-fold Implication: First, they pinpoint the fundamental building blocks and emphasize dependencies of processes from capabilities In times of change, which can define the boundaries of a firm under changing environments. Second, by the very action of redefining these firm boundaries, dynamics at Industry level starts to re-balance established value distributions and aligned organizational set ups. This leads sometimes to value migration across the value chain, but almost In every case to new intermediary markets that emerge at the former process interfaces. Such new markets urge for a change in the process-flow: Whilst previously the processes were monitored by hierarchies and shaped by transaction cost perspective, markets force entities to move towards the use of price as the main factor, not only for allocation, but also for governance. As control shifts, the nature and perception of operational risk changes along. By moving towards markets, firms forego some of their ability to get actively Involved In the traded services. Cost and time of intervention increases as information is not following the intra-firm interfaces anymore, but is spreading beyond efficient hierarchical structures towards Inter-firm markets. This generally leads to the notion (and perception) of Intermediary markets such as processes outsourcing, as being more risky. Explicitly, the shift In management approach Increases operational risk and the move to markets adds – to some extent – market risk as a new issue to be managed. On the other hand, however, increasing depths of markets over time are one factor that can clearly reduce operational risk per firm, as the real-options to change (not only when prices are too high, but also where quality does not live up to expectations) are becoming more valuable to the firm’s risk management.
KeywordsBusiness Process Service Level Agreement Business Process Management Equity Ownership Governance Mode
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