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.
This material content is developed to serve as a GUIDE for students to conduct academic research
EFFECT OF OUTSOURCING ON ORGANIZATIONAL PERFORMANCE OF SELECTED QUOTED DEPOSIT MONEY BANKS IN ENUGU STATE NIGERIA
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