THE EFFECTS OF OUTSOURCING STRATEGIES ON ORGANIZATION PERFORMANCE

Abstract

This project focused on the effects of outsourcing strategies on organization performance with special reference to Dangote group of company. The importance of outsourcing strategies in organizations cannot be overemphasized, hence the need for this research work. The objective of this study was to examine the relationship between outsourcing and organization performance and to asses’ uses of outsourcing by organization 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 200 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 organizational 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.

 CHAPTER ONE

INTRODUCTION

• Background of the study

Outsourcing is defined as the procurement of products or services from sources that are external to the organization (Rundquist, 2006). Very simply outsourcing can be defined as phenomena in which a company delegates part of its in-house operations to a third party with the third party gaining full control over that operation/process (Ono & Stango,2005). The clients inform their provider what they want, how they want the work performed and the control of the process is with the third party instead of the parentcompany. From the above, outsourcing in this study will essentially refer to a process in which an organization delegates in-house operations/processes/services to a third party. Outsourcing is the process of replacement of in-house provided activities by subcontracting it out to external agents. Consequently, the management and development of innovations in outsourced activities become the responsibility of an agent external to the firm. Outsourcing avails organizations the opportunity to concentrate her core competencies on definable preeminence business area and provide a unique value for customers (Behara, Gundersen, & Capozzoli, 1995). The goals of outsourcing are strategic: improved efficiencies, lower costs, improved flexibility, higher quality, and a greater ability to achieve a competitive advantage. The ultimate strategic goal is to develop core competencies that will strengthen barriers of entry for new firms to survive. By focusing on core competencies and utilizing qualified vendors to provide process that are not one of the organization’s core competencies, such that the organization’s risk can be minimized and shared with its suppliers. Core competencies are the collective institutional learning capabilities of the company that allow it to supply products and services that uniquely add absolute preeminence in those competencies (Hilmer & Quinn, 1994). “Core competencies are the innovative combinations of knowledge, special skills, proprietary technologies, information, and unique operating methods that provide the product or the service that the customer value and want to buy” (Greaver, 1999) When outsourcing decisions are made on the basis of an in-depth understanding of the organization’s core competencies, and are intended to build or enhance the organization’s competitive advantages, outsourcing becomes strategic (Bettis, Bradley, & Hamel, 1992). Firms’ decision on outsourcing is usually analyzed as a “make or buy” dilemma. On one hand, market imperfections, such as measurement problems, difficulties to control the collaboration between the customers and the provider, reduction in control over how certain services are delivered and increased complexity in arms-length contracts may in turn raise the company’s liability exposure. The “make” option is favoured, in the case of services that hinder the comparability of output and prices and reduces market transparency. Further, asymmetric information generates adverse selection and moral hazard problems, emphasizing the role played by reputation (De Bandt, 1996). On the other hand, there are other arguments that favour the “buy” option. Among them are cost cut, increased capacity, improve quality, increase profitability and productivity, improve financial performance, lower innovation costs, risks, and improved organizational competitiveness, are very commonly considered as the main reasons to justify outsourcing strategies.

1.2 STATEMENT OF THE PROBLEM

Firms’ decision on outsourcing is usually analyzed as a “make or buy” dilemma. On one hand, market imperfections, such as measurement problems, difficulties to control the collaboration between the customers and the provider, reduction in control over how certain services are delivered and increased complexity in arms-length contracts may in turn raise the company’s liability exposure. The “make” option is favoured, in the case of services that hinder the comparability of output and prices and reduces market transparency. Further, asymmetric information generates adverse selection and moral hazard problems, emphasizing the role played by reputation (De Bandt, 1996). On the other hand, there are other arguments that favour the “buy” option. Among them are cost cut, increased capacity, improve quality, increase profitability and productivity, improve financial performance, lower innovation costs, risks, and improved organizational competitiveness, are very commonly considered as the main reasons to justify outsourcing strategies. In this view make researcher to wants to investigate the effects of outsourcing strategies on organization performance

1.3 OBJECTIVE OF THE STUDY

The objectives of the study are;

1. To ascertain the effect of outsourcing on organization performance
2. To determine whether cost affects organizational performance
3. To ascertain the relationship between outsourcing strategies and organization performance
4. To ascertain the effect of outsourcing on organization profitability

1.4 RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀: there is no effect of outsourcing on organization performance

H₁: there is effect of outsourcing on organization performance

H₀²: there is no relationship between outsourcing strategies and organization performance

H₂: there is relationship between outsourcing strategies and organization performance

1.5 SIGNIFICANCE OF THE STUDY

This study will be of significance to students of different higher of learning as it would enlighten them and the entire nation. Finally, this study will also help to serve as literature (reference source) to the public, individuals and corporate bodies into what to carry out on further research on the effects of outsourcing strategies on organization performance

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the effects of outsourcing strategies on organization performance. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 DEFINITION OF TERMS

OUTSOURCING: In business, outsourcing is “an agreement in which one company contracts-out a part of their existing internal activity to another company

STRATEGY: Strategy is a high level plan to achieve one or more goals under conditions of uncertainty. In the sense of the “art of the general”, which included several subsets of skills including tactic?

ORGANIZATION PERFORMANCE: Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives).

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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