THE EFFECTS OF OUTSOURCING STRATEGIES ON ORGANIZATION PERFORMANCE (A CASE STUDY OF NIGERIAN BREWERIES PLC)
This project focused on the effects of outsourcing strategies on organization performance with special reference to Nigeria Breweries Plc. The importance of outsourcing strategies in organizations cannot be overemphasized, hence the need for this research work. The objective of this study were to examine the relationship between outsourcing and organizaiton performance and to asses uses of outsourcing by organizaiton to gain competitive advantage over its competitors. Based on these objectives, data were sourced through the use of survey research method and data was collected from a sample size of 99 respondents which was arrived at through the use of quantitative method. The study found out that outsourcing strategy help organizations to cut cost, increase profitability and productivity which in turn leads to higher organizaitonal performance. Therefore, it was recommended that organizations should embrace the outsourcing strategies and improve service delivery to their customers. Also, organizations should continue to monitor the contractor’s activities and establish constant communication.
TABLE OF CONTENT
Table of content vi
1.1 Background to the study 1
1.1.1 Initial stages in teh evolution of outsourcing 2
1.2 Statement of research problem 4
1.3 Objectives of the study 5
1.4 Research questions 6
1.5 Research hypothesis 6
1.6 Significance of the study 7
1.7 Limitation of the study 8
1.8 Definition of terms 9
2.0 Introduction 10
2.1 The concept of outsourcing 11
2.2 Why do companies outsource? 15
2.3 Main factors influencing successful outsourcing 15
2.3.1 Open communication 16
2.3.2 Executive support 17
2.4 Contracts and service level agreements 18
2.5 Types of outsourcing 19
2.5.1 Local outsourcing 19
2.5.2 Offshore outsourcing 20
2.5.3 Technological service outsourcing 23
2.5.4 Business process outsourcing 24
2.5.5 Knowledge process outsourcing 25
2.6 Outsourcing process 26
2.7 Theory of outsourcing process 30
2.7.1 Transaction cost economics 35
2.7.2 Relational view 36
2.7.3 Core competences 37
2.7.4 Resources – based view 37
2.7.5 Evolutionary economics 38
2.7.6 Agency theory 40
2.7.7 Knowlegde – based view 41
2.7.8 Neoclassical economics theory 41
2.7.9 Social exchange theory 42
2.7.10 Economy of information 43
3.0 Introduction 44
3.1 Research design 45
3.2 Re-statement of research questions 46
3.3 Re-statement of research hypothesis 46
3.4 Sample and sampling techniques 47
3.5 Characteristics of population of the study 48
3.6 Instrumentation 49
3.7 Validity and reliability 49
3.8 Procedure for data collection 50
3.9 Procedure for data analysis 50
ANALYSIS OF DATA
4.0 Introduction 51
4.1 Data presentation 51
4.2 Presentation and analysis of data according
to research questionnaire 54
4.3 Testing of hypothesis 62
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 67
5.2 Recommendations 68
5.3 Conclusion 69
1.1 BACKGROUND TO THE STUDY
Since the industrial revolution, companies have grappled with how they can exploit their competitive advantages to increase their markets and their profit. The model for most of the 20th century was a large integrated company that can “own, manage and can directly control” its assets. In the 1950’s and 1960’s the rallying cry was diversification to broaden corporate bases and take advantages of economies of scale. By diversifying companies expect to protect profit, even though expansion required multiple layers of management.
Subsequently, organizations attempting to compete globally in the 1970’s and 1980’s were handicapped by a lack of agility that resulted from bloated management structures. To increase their flexibility and creativity, many large companies developed a new strategy of focusing on their core business, which required identifying critical processes and deciding which could be out sourced.
1.1.1 Initial Stages In The Evolution Of Outsourcing
Outsourcing was not formally identified as business strategy until 1989 (Mullins, 1996). However, most organizations were not totally self-sufficient; they outsourced those functions for which they had no competency internally. Publishers, for example have often phased composition, printing and fulfillment services. The use of these essential but ancillary services might be termed the baseline stage in the evolution of outsourcing. Outsourcing support services is the next stage. In the 1990’s as organizations began to focus more on cost-saving measures, they started to outsource those functions necessary to run a company but not related specifically to the core business. Managers contracted with emerging services companies to deliver accounting, human resources, data processing, internal mail distribution, security, plant maintenance and the likes as a matter of “good housekeeping”. Outsourcing components to affect cost saving in key functions is yet another stage managers set to improve their finances.
The current stages in the evolution of outsourcing is the development of strategic partnership. Until recently it had been axiomatic that no organization would outsource core competencies, those functions that give the company a strategic advantage or make it unique. Often a core competency is also defined as any function that gets close to customers. In 1990’s outsourcing some core functions may be good strategy not anathema. For example some organizations outsource customers services, precisely because it is so important.
Eastman Kodak’s decision to outsource the information technology system that undergrid its business was considered revolutionary in 1989, but it was actually the result of rethinking what their business was about. They were quickly followed by dozens of major corporations whose technology to get access to information they needed. The focus today is less on ownership and more on developing strategic partnership to bring about enhanced result.
Consequently organizations are likely to select outsourcing on the basis of who can deliver more effective results for a specific function than on whether the function is core or commodity.
1.3 STATEMENT OF RESEARCH PROBLEM
Outsourcing refers to the delegation of one or more business process to an external provider who then owns, manages and administers selected processes based on defined measurable performance matrices. As much as outsourcing has been accepted and employed by organizations, it has been observed that some organization still perform poorly.
The reasons for organization failure are not far fetched, problems ranging from the inability of the service provider to solve a problem to fit into client organization’s corporate structure and strategy due to inadequate knowledge and inputs concerning corporate aims and objective.
Outsourced arrangements are often long term (projects) requiring services provider to understand organization’s current and future business strategy and potential changing business profile. Cases abound when the reverse is the case and as such it becomes rather difficult (to avoid unprofitable and unfavourable contractual arrangement).
1.3 OBJECTIVES OF THE STUDY
The aim of this study is to examine outsourcing as a strategy for organization performance.
Its objectives include; To
1. Determine how firms can minimize the cost of outsourcing and at the same time maximize their company’s objectives.
2. Examine outsourcing problems and profer solution as to improve organization performance
3. Asses uses of outsourcing by organization to gain competitive advantage over its competitors
4. Examine the relationship between outsourcing and organization performance.
5. Indentify/ examine key factors for consideration when organization decide to outsource
1.4 RESEARCH QUESTIONS
1. Does outsourcing strategies improve organization performance?
2. What is the relationship between outsourcing and sales turnover?
3. To what extent does outsourcing strategies reduce cost of production of an organization?
4. What is the effect of outsourcing on job quality?
5. What is the relationship between outsourcing and employment generation in Nigeria?
1.5 RESEARCH HYPOTHESIS
The null (Ho) and alternative (HI) hypothesis are formulated below to aid hypothesis testing.
Ho: There is no significant relationship between outsourcing strategies and sales turnover
HI: There is significant relationship between outsourcing strategies and sales turnover
Ho: There is no significant relationship between outsourcing and organizations competitive advantage
HI: There is significant relationship between outsourcing and organizations competitive advantage
1.6 SIGNIFICANCE OF THE STUDY
The significance of the study exposes the researcher to the importance of outsourcing strategy that include:
1. It aids and enhance productivity among organizations
2. The study will enable organization to cut their overhead cost.
3. The study will enable organizations to increase their efficiency.
4. The study will enable organizations to improve quality of their product and services
5. The study will enable organizations to gain competitive edge over its competitors
6. The study will aid the release of organization resources for other core activities
7. To improve customer/ client/ consumer satisfaction
1.7 LIMITATION OF THE STUDY
The research work demanded that the project should be completed within a specific period of time which limits further investigation into the study.
Uncooperative attitude of some respondents may pose a great threat to researchers conclusions.
Inadequate textbooks prevent more comprehensive current literature review in the study..