EFFECT OF OUTSOURCING ON ORGANIZATIONAL PERFORMANCE OF SELECTED QUOTED DEPOSIT MONEY BANKS IN ENUGU STATE NIGERIA

ABSTRACT

This study focuses on the effect of Outsourcing human resources on organizational performance  in selected quoted deposit money banks in Enugu  state, Nigeria. The objectives which guided the study were to determine the  nature of the relationship between man-power development and organizational productivity in selected deposit money banks in Enugu state Nigeria, to access the effect of innovation on customers’ satisfaction in selected  deposit money banks in Enugu state, Nigeria, to examine the effect of cost reduction  on organizational  market share in selected deposit money banks in Enugu state, Nigeria, and to investigate the relationship between employees’ focus on core-activities and organizational competitive advantage in selected deposit money  banks  in  Enugu   state,  Nigeria.  The  descriptive  survey  design  research methodology was adopted for the study. A five point Likert scale-type questionnaire was  constructed, and administered among staff of selected money deposit banks in Enugu state, Nigeria, manually. The research hypotheses were tested using Pearson production moment correlation coefficient and linear regression with the aid of SPSS (statistical package for social science). The results of the analyses showed that there is    positive    significant    relationship    between    man-power    development    and organizational  productivity  (r = 0.712, p<0.05),product  innovation  has significant effect on customers’ satisfaction (r = 0.823, p< 0.05), cost reduction has positively affected organizational  market share (r = 0811, p  <0.05); and there is significant relationship   between   employees’   focus   on   core-activities   and   organizational competitive  advantage  ( r = 0.611,  p  <0.05)  in selected  deposit  money banks in Enugu state, Nigeria. The study  therefore, concluded that the effect of outsourcing human resources on organizational performance in selected deposit money banks in Enugu  state,  Nigeria  has  repositioned  organization  for:  diversification  of  their resources into others profit making ventures, specialization, cost cutting, employees’ focus on what their core-competencies are, operational control, flexibility, access to superior expertise, efficiency and effectiveness. Some of the recommendations made in this study are: Banks should outsource only their activities on the periphery to enable employees’  focus  on  what  their  core-competencies   are,   The  employees  of  an organization should not see outsourcing as a threat to their job; but as a catalyst for change,  Companies  that  outsource  should  continue  to  monitor  the  contractor’s activities in other to establish constant communication.

1.1  Background to the Study

CHAPTER ONE INTRODUCTION

Outsourcing  as  a  concept  is  not  a  new  phenomenon,  as  many  would  believe. Thousands of years ago, our ancestors had understood the need for outsourcing. They realized that it would be impossible for them to be an island –to fulfill all their needs by themselves, but they would have to depend on someone else to serve them. The service provider possessed specialized skills, which enables him or her to do the work faster, cheaper and more efficiently. So,  we observed that in early societies, every man had a part to play- he could be a farmer, a merchant, a soldier or a barber. He was,   in  modern  parlance,   a   client,   service   provider   or  freelancer   (European Commission, 2003).

The great industrial revolution between  1750 and 1900 that took place in  Europe provided   much  impetus  to  the  development   of  outsourcing.   This   period  saw manifold  increase  in the  production  of goods  and  services;  the  market  for  them increased and profit were like never before. Many companies began to outsource such activities  like  accounting,  insurance,  engineering,  legal  needs,  etc.  to  specialized firms. These firms were within the country and not offshore (Gilley, 2000).

Middle of the 20th century saw many political and economic changes combined with the development  of faster means of transportation.  Distance began to  matters less. Manufacturing   of  low  costing   toys  and  electronic   goods,   apparels,   etc  were outsourced   to  lesser   developing   countries.   The  political   set  up  had  changed considerably. Many countries in Asia had become free. Outsourcing was a welcome development as it benefited the developing economies by increasing employment and income  levels  of  the  workers.   Hamel   and  Prahala,  (1990)  assert  that  a  core competence is a bundle of skill and technologies that enables a company to provide a particular  benefit to its  customers.  Gilley, (2000) opines that industrial technology revolution and  improvement in computer technology had a great part to play in the next stage of outsourcing history. In the 1990s, many companies began to outsource activities   that were essential for them, but these did not include their core activities. Outsourcing   activities   included   data   processing,   human   resources   (HR)   and accounting. All these enhanced profit for their clients. They clung on to ownership and management of core activities.

Organizations around the world have been considering human resources outsourcing currently, because of globalization, the trend is towards forming strategic partnership as part of their strategy to cut corporate cost and enable internal employees to focus on the organizational goals (Stroh, 2003).

The concept of outsourcing has spawned a rich body of scholarly work in the last two decades.  Yet,  the  answer  to  one  important  question  has  remained  elusive:  Does outsourcing really improve firm performance? Addressing this question is important as firms across nations continue to embark on the  practice of outsourcing  to save operating costs and remain competitive without knowing the negative effect.

Therefore, most of the deposit money banks in Enugu state outsource human resource functions  to  improve  organizational  performance  without  looking  beyond  their horizon. The initial cost-saving benefits of outsourcing can be misleading, as it often takes some time for the negative effect to be known. When an organization outsources HR,  payroll  and  recruitment  services,  it  involves  a  risk,  if exposing  confidential company’s information to third party. In case you do not choose a right partner for outsourcing,  some  of the  common  problem  areas  include  stretched  delivery  time frames,    substandard     quality    output     and    inappropriate     categorization     of responsibilities.  At times it is easier to  regulate these factors inside an organization rather than with outsourced partner. Although outsourcing, most of the times is cost effective but the hidden cost involved in the signing a contract may pose a serious threat.  By the  time  management  realizes  that  outsourcing  is  not always  the  ideal situation they thought it was, bank’s reputation may be drag to mud.

There is no agreement whether Human Resources Outsourcing (HRO) as a  market trend is appropriate or not. There are pros and cons. The main arguments supporting outsourcing underscore the variety of benefits it can offer companies utilizing it such as cost savings, gaining access to further expertise or freeing up capabilities internally to focus on core competencies (Marchington and Wilkinson, 2008). There are several warnings about the potential drawbacks of outsourcing because the benefits may not be so obvious and there are substantial  financial  consequences;  these regard both

explicit and implicit costs such as money, time, effort and lost know-how that could counterbalance gains.

These  outsourcing  companies  used  by the  deposit  money  banks  in  Enugu  state, Nigeria  are: Philip  consulting,  MacKay consulting,  KPMG,  corporate  institutional Training consulting (CITC), H. Pierson consulting and outsourcing limited. Strategic activities rendered by the outsourcing companies are hiring and recruitment, training and   manpower   development,   personnel   appraisal   and   management,   workforce consulting  management  and  payroll.  However,  the  practice  of outsourcing  human resources  in  deposit  money  bank  is  becoming  more  competitive  in  Enugu  state, Nigeria. Some deposit money banks find it difficult to meet up with the requirements between their organization and the outsourcing agency.

1.2  Statement of the Problem

The financial crisis that started off in few banks in United State of America  under Clinton’s  administration  was  later  transmitted  to  the  entire  world  as  a  result  of globalization.  The  effect  snowballed  into  a global  economic  slump.  Nigeria  as a nation is not exempted  from this effect. The banking sector which  is the pillar of every  economy  is  struggling  to  ameliorate  the  threatening  situation.  In  Nigerian financial sector, the Central Bank of Nigeria (CBN),  which is the apex bank, has adopted  the strategy of closing  some banks,  encourage  merger  and acquisition  of some banks, banking recapitalization and tight policy stance on loans. Consequently, the members of the Nigerian banking  industries have been faced with numbers of similar challenges, ranging from downsizing, reduction in staff financial benefit, Bank Verification Number (BVN) to cashless policy.

Due  to  these  challenges,  many  banks  have  strategized  cost  reduction  to  have competitive edge among others. So, quoted deposit money banks in Enugu State took to outsourcing  human resources as one of their competitive  strategies. Outsourcing firms  like  Philips  consulting,  KPMG,  Corporate  institutional  training  consulting (CITC),  H.  Piercing  consulting  and   outsourcing  limited  have  emerged  to  take advantage of this opportunity. However, after many years of outsourcing activities to these organizations,  there  is need to ascertain  the effect of outsourcing  on quoted deposit money banks in Enugu state, Nigeria. This therefore forms the reason for this study, effect of outsourcing human resource on organizational performance.

1.3 Objectives of the Study

The  main  purpose  of  this  study  is  to  ascertain  the  effect  of  outsourcing  on  the performance of selected quoted deposit money banks in Enugu state.

1.        To ascertain the nature of relationship between flexibility of outsourced staff and organizational  profitability  of selected  quoted  deposit  money  banks in Enugu state, Nigeria.

2.        To  determine  the  extent  to  which  dual  loyalty  of  outsourced  staff  affect

organizational productivity of selected quoted deposit money banks in Enugu state, Nigeria.

3.        To ascertain the effect of hidden cost associated with outsourcing process on operational  cost  of  selected  quoted  deposit  money  banks  in  Enugu  state, Nigeria.

4.        To ascertain whether job insecurity affects organizational growth of selected quoted deposit money banks in Enugu state, Nigeria.

1.4       Research Questions

1.        What is the nature of the relationship between flexibility of outsourced staff on organizational profitability of selected quoted deposit money banks in Enugu state, Nigeria?

2.        To what extent does dual loyalty of outsourced staff affect organizational productivity of selected quoted deposit money banks in Enugu state, Nigeria?

3.        What is the effect of hidden cost associated with outsourcing process on operational cost of selected quoted deposit money banks in Enugu state, Nigeria?

4.        What is the effect of job insecurity on organizational growth of selected quoted deposit money banks in Enugu state, Nigeria?

1.5       Research Hypotheses

The following alternate hypotheses will be tested in this study.

1.   There is significant  relationship  between flexibility of outsourced  staff  and organizational profitability of selected quoted deposit money banks in Enugu state, Nigeria.

2.   Dual   loyalty   of   outsourced    staff   significantly   affects    organizational

productivity of selected quoted deposit money banks in Enugu state, Nigeria.

3.   Hidden  cost  associated   with  outsourcing   processes   significantly   affects operational  cost  of  selected  quoted  deposit  money  banks  in  Enugu  state, Nigeria.

4.   Job insecurity significantly affects organizational  growth of selected  quoted deposit money banks in Enugu State, Nigeria.

1.6   Significance of the Study

This research study, outsourcing human resources comes-up when banking industries are at the brim of collapse. Due to globalization, outsourcing human resources is of great   importance   to   all   aspect   of   economy,   government,   bank,   employees, management  practitioners,   entrepreneurs  and  academics.   Outsourcing  of  human

resources  is one  of the  strategic  fits  needed  for 21st   century competitiveness.  To

government at all level, the findings will encourage them to outsource experts who are specialist in all areas of their profession to boast better economy. Not only that, the government  cost  of  governance  will  be  minimized  to  encourage  adequate  work performance/productivity,  precisely, in banking industries. To  the banking industry, the   study   will   assist   in   comparing   cost/benefit   relationship   associated   with outsourcing human resources. Through this  findings will also be an eye opener for banks  to  focus  on  their  core   competences  while  their  non-core  activities  are outsourced.

The study will enable deposit money banks: Access bank Plc, First bank of Nigeria Plc, UBA bank Plc. and Eco bank plc and Union bank Plc to minimize  wastes or errors in outsourcing human resources, so that human resources management of the above mentioned banks’ goal could be maximized. To management practitioners, the study will help them to acquire knowledge and information necessary in serving their clients  better.  They are better  positioned  through this study to assess  outsourcing human resources as required in the banking industry. More-so, management can enjoy the services  of experts  through  outsourcing  in order  to improve  their  employees’ performance as well as higher productivity. Academic will benefit mostly from this research because it contributes to knowledge. Lastly, this study will be an eye-opener to  the  above   mentioned  organizations  to  understand  that  there  is  hidden  cost associated  with outsourcing  which may be higher than the cost they thought  was saving if not properly checked. It also will position the organization to be conscious

of outsourced staff, so that their intellectual property and confidential information will not be tampered with.

1.7 Scope of the Study

The scope of this study is divided into: subject matter, industry, geography. On the basis of subject  matter,  the study seeks to ascertain  the effect  of  Outsourcing  on performance  of some selected  deposit money banks. On the  basis of industry,  the study is concerned  with the deposit money banks, taking  into consideration:  First bank plc, Access bank, Union bank plc, UBA bank plc and Eco bank plc. On the basis of geography, this is delimited to the Enugu state, Nigeria.

1.8    Limitations of the Study

The  attitude  of  the  respondents:  the  behavior  of  the  respondents  affected  the research  in  so  many  ways.  Most  of  the  respondents  delayed  in  filling  of  the questionnaire  because  they  have  no  benefit  either  in  cash  or  in  kind.  So  they hampered  the  progress  of  the  research  work.  Sometimes,  most  of  the  available respondents were un-experienced employees who supplied the researcher with wrong data which threatened the success of the work.

Shortage of literature: Shortage of literature for the objectives of this study, effect of

outsourcing on organizational performance of selected quoted deposit money banks in

Enugu state, Nigeria, lingered the success of this work because of its limited access.

1.9 Operational Definition of Terms

The following concept or terms are defined for the purpose of this study: Competitive  advantage: It is a superiority gained by an organization when it  can provide the value as its competitors but at a lower price, or can charge higher price by providing greater value through differentiation.  Competitive advantage  results from matching core competencies to the opportunities.

Core–competence: it is a bundle of skill and technologies that enables a company to provide a particular benefit to its customers

Customers’  satisfaction:  Customer  level of approval when comparing a  product’s perceived  performance  with his or her expectations.  Also could refer  to discharge, extinguishment,  or retirement of an obligation to the acceptance  of  the obligor, or fulfillment of a claim. While satisfaction is sometimes equated with performance, it

implies compensation or substitution whereas performance denotes doing what was actually promised.

Dual loyalty:  dual loyalty is loyalty to two separate interests that potentially conflict with each other. While nearly all examples of alleged “dual loyalty” are  considered highly controversial, these examples point to the inherent difficulty in distinguishing between what constitutes a “danger” of dual loyalty i.e., that  there  exists a pair of misaligned interests – versus what might be more simply a pair of partially aligned or even, according to the party being accused, a pair of fully aligned interests.

Freelancer: This is a term commonly used for a person who is self-employed and not necessarily committed to a particular employer for a long term.

Impetrates: This is an individual from a host country or third country national who is assigned to work in the home country.

Job insecurity: It is a condition wherein employees lack the assurance that their jobs will remain stable from day to day, week to week, or year to year.  Depending on the discipline  and  political  leanings  of authors,  job insecurity  can  be referenced  in a variety of ways. For instance, “boundary less careers,” “flexibility,” “new employer- employee contracts,” and “organizational restructuring” can sometimes be used as euphemisms for the dismantling of workplace protections for secure employment. Offshoring: The process by which companies undertake some activities at offshore location   instead of their country of origin.

Organizational Growth: Organizational growth, however, means different things to

different organizations. There are many parameters a company may use to measure its  growth.  Since  the  ultimate  goal  of  most  companies   is   profitability,   most companies  will measure  their  growth  in  terms  of net  profit,  revenue,  and  other financial  data.  Other  business  owners  may  use  one  of the  following  criteria  for assessing their growth: sales, number of employees, physical expansion, success of a product  line,  or  increased  market  share.  Ultimately,  success  and  growth  will  be gauged by how well a firm does relative to the goals it has set for itself. Organizational performance: it is when all parts of an organization work together to achieve great results with results being  measured  in terms of the value delivers to customers.

Outsourcing:  This is the delegation  of non-core  operations  or jobs from  internal production  to  external  entity  (such  as  subcontractors)   that   specializes   in  that operation. Outsourcing can also be defined as the subcontracting or contracting out of activities to external organizations that had previously been performed by the firms. Productivity:  productivity  is a about  effective  and  efficient  use of all resources. Resources include time, people, knowledge, information, finance, equipment, space, energy, materials.

Profitability is defined as output volume times output unit price, over volume times input unit costs or profitability =productivity + price recovery (Miller, 1984).

1.10     The Profile of Selected Banks

Union bank of Nigeria Plc.

Union Bank of Nigeria’s rich history can be traced back to 1917 when it was  first established  as Colonial Bank. In 1925, the bank became known as  Barclays Bank DCO (Dominion, Colonial and Overseas) resulting from its acquisition by Barclays Bank. Following Nigeria’s independence and the enactment of the Companies Act of

1968, the bank was incorporated as Barclays Bank of Nigeria Limited (BBNL, 1969). Between 1971 and 1979, the bank went through a series of changes  including  its listing on the Nigerian Stock Exchange (NSE) and share acquisitions/transfers driven by the Nigerian  Enterprises  Promotion  Acts (1972  and 1977);  this resulted  in its evolution into a new wholly Nigerian-owned  entity. To reflect the new ownership structure, and in compliance with the Companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc. (UBN “the Bank” or “Union Bank”).

In   1993,   in   line   with   its   privatization/commercialization    drive,   the   Federal Government divested by selling its controlling shares (51.67%) to private investors, thus, Union  Bank became  fully owned  by Nigerian  citizens  and organizations  all within  the  private  sector.  During  the  Central  Bank  of  Nigeria’s  banking  sector consolidation policy, Union Bank of Nigeria Plc. acquired the former Universal Trust Bank Plc. and Broad Bank Ltd. and absorbed its one-time subsidiary, Union Merchant Bank Ltd.

On the 14th of August, 2009, the Central Bank of Nigeria (CBN) intervened in the management of the Bank by replacing the Executive Management Team with a five- man  Interim   Management   Team   to  stabilize   and  recapitalize   the   Bank.   Full

recapitalization  of the Bank was achieved  in December 2011 with the injection  of

$500million  into Union Bank by Union Global Partners Limited (UGPL) after  the Asset Management Company of Nigeria (AMCON) had provided capital in the sum of N46.93bn to bring the Bank’s Net Assets Value to zero.

First bank of Nigeria Plc.

First Bank of Nigeria Plc. (First Bank), established in 1894, is a premier bank in West Africa and the leading financial services solutions provider in Nigeria. The Bank has international  presence through  its subsidiary,  FBN Bank (UK)  Limited in London with a branch in Paris, and Representative Offices in Johannesburg and Beijing. With

1.3  million  shareholders  globally,  First  Bank  is  quoted  on  The  Nigerian  Stock

Exchange (NSE), where issued and paid up share capital as at March 31, 2009 was

24.86 billion units. As the global operating environment  evolve over the  decades, First  Bank  has  kept  pace,  responding  satisfactorily  to  the  dynamic  needs  of  its customers, investors, regulatory authorities, host communities,  employees and other stakeholders. First Bank has continued to build relationships and alliances with key sectors  of  the  economy  that  have  been  strategic  to  the  wellbeing,  growth  and development  of the country.  Today,  the Bank remains one of the most profitable financial  groups  in  Nigeria.  The  Bank’s  epoch-making  achievement  was  again reinforced when it became the first quoted company in Nigeria to achieve the feat of hitting the trillion naira  mark in market capitalization,  the clearest evidence of the market’s  estimation  of its worth. Till date, and despite the downturn  in the stock market, the Bank  remains the most capitalized  stock on the floor of The Nigerian Stock Exchange (NSE).

United Bank for Africa

UBA  is a large  financial  service  provider  in Nigeria  with subsidiaries  in 20  sub- Saharan countries, with representative offices in France, the United Kingdom and the United States. It offers universal banking services to more than 7 million customers across 626 branches. Formed by the merger of the commercial UBA and the retail focused Standard Trust Bank in 2005, the Bank purports to have a clear ambition to be  the dominant  and  leading  financial  services  provider  in  Africa.  Listed  on the Nigerian Stock Exchange  in 1970, UBA claims to be  rapidly evolving into a pan- African full service financial institution.

Access Bank

Access  Bank Plc  is a full service  selected  quoted  deposit  money bank  operating through a network of about 366 branches and service outlets located in major canters across Nigeria, Sub Saharan Africa and the United Kingdom. Listed on the Nigerian Stock Exchange  in 1998,  the Bank  serves  its various  markets through 4 business segments: Personal, Business, Commercial and  Corporate Investment banking. The Bank  has  over  830,000  shareholders  including  several  Nigerian  and  International Institutional  Investors  and  has  enjoyed  what  is arguably  Africa’s  most  successful banking growth trajectory in the last ten years ranking amongst Africa’s top 20 banks by total assets and  capital in 2011. As part of its continued growth strategy, Access Bank is focused on mainstreaming sustainable business practices into its operations. The   Bank   strives   to   deliver   sustainable   economic   growth   that   is  profitable, environmentally  responsible  and socially relevant. Over the past 26  years,  Access Bank Plc has transformed from an obscure Nigerian Bank into a world class African financial institution. Today, Access Bank is one of the five largest banks in Nigeria in terms of assets, loans, deposits and branch network; a feat which has been achieved through  strong  long-term  approach  to  client  solutions    providing  committed  and innovative advice.

Access Bank has built its strength and success in corporate banking and is now taking that  expertise  and  applying  it  to  the  personal  and  business  banking  platform  it acquired from Nigeria’s International Commercial bank in 2012. The last two years have   been  spent   integrating  the  business,   investing   in  the   infrastructure   and strengthening the product offer.

As part of its continued growth strategy, Access Bank is focused on mainstreaming sustainable  business  practices  into  its  operations.  The  Bank  strives  to  deliver sustainable  economic  growth  that  is  profitable,  environmentally  responsible  and socially relevant.   In March 2002, the Board  of Directors appointed  Aigboje Aig- Imoukhuede as Managing Director/Chief  Executive Officer and Herbert Wigwe as Deputy Managing Director. The mandate was clear: “Reposition the bank as one of Nigeria’s leading financial institutions within a five year period (March 2002 – March

2007).” This task was perceived by many as impossible given the realities of the Bank at the time. Simultaneously,  Mr. Gbenga Oyebode, who brought commendable and

useful  board  experience  gathered   from  some  of  Nigeria’s  leading   companies, including MTN Nigeria, Okomu Oil Palm Plc, was also appointed to the Board. The new management  team subsequently  created  a transformational  agenda for Access Bank which represented a departure from all that characterized the Bank in the past and became the road map for the conversion of the bank into a world class financial institution.  Access  Bank  is  consistently  seeking  for  ways  to  expand  its  service platform across the African continent. The bank currently operates through a network of about 366 branches across major cities and commercial centers in Nigeria, Gambia, Sierra Leone, Zambia, Rwanda and Democratic Republic of Congo.

Eco Bank Nigeria

Eco bank Nigeria Plc, commonly referred as Eco bank Nigeria, is a commercial bank in Nigeria. It is one of the commercial banks licensed by the Central Bank of Nigeria, the national banking regulator. The bank began operations in 1986. It operates as a universal  bank,  providing  wholesale,  retail,  corporate,  investment  and  transaction banking  services  to  its  customers  in  the  Nigerian  market.  The  bank  divides  its operations into three major divisions:

(a) Retail Banking

(b) Wholesale Banking and

(c) Treasury and Financial Institutions.

The  bank  also  offers  capital  markets  and  investment  banking  services.  Ecobank Nigeria  is  a  member  of  Ecobank,  the  leading  independent   pan-African  bank, headquartered in Lomé, Togo, with affiliates in West, Central and East Africa. Eco bank, which was established in 1985, has grown to a network of over 1,000 branches, employing over 10,000 people, with offices in 32  countries. As of December 2011, the expanded Ecobank Nigeria Plc is projected to have in excess of 600 branches, in all parts of the Federal Republic of Nigeria following the merger of Oceanic Bank.

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