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OUTSOURCING AND ORGANISATIONAL EFFICIENCY: A STUDY OF DUFIL PRIMA FOODS PLC AND TUMMY TUMMY FOOD INDUSTRY NIGERIA LTD

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ABSTRACT

The study focused on outsourcing and organisational efficiency, with reference to Dufil Prima Food Nigeria Plc and Tummy Tummy Food Industry Nigeria Ltd in the periods under review (2005-2016). The specific objectives were to; ascertain the impact of outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) on the profitability of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd; find out the impact of outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) on the production output of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd and ascertain whether factors such as; high product competition in the marketinadequate supervision of contract’ activitiespoor social infrastructures, information leakage, poor remuneration of contract staff, etc. affect outsourcing as a strategy for organisational efficiency.The study adopted the expost facto and survey research design, the population of the study consist of all the employees of Dufil Prima Food Plc located at Port Harcourt and Tummy Tummy Food Industry Ltd located at Nnewi. The researcher adopted both primary and secondary data. The data collated for the study were presented and analyzed with descriptive statistics such as frequency table, percentages and mean while the three hypotheses formulated for the study were tested with multiple regression analysis and Chi-square test at 5% significance level. The major findings revealed that; outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) has a positive and non-significant impact on the profitability of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd. Also, Outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) has a positive and significant impact on the production output of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd. It was equally revealed that factors such as high product competition in the marketinadequate supervision of contract’ activitiespoor social infrastructures, information leakage, poor remuneration of contract staff, etc. affect outsourcing as a strategy for organizational efficiency in Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd. The study concluded that outsourcing as an organisational strategy have a positive impact on organisational efficiency and recommends that organisations should always maximise their productivity by outsourcing their sub-functions to outsourcing providers with the required expertise and technology needed to deliver best in class services, and the need for organisations management to regularly examine and ensure that their outsourcing providers always complied with specified standard to enhance product pleasantness and aesthetics was accentuated.






TABLE OF CONTENTS

 

Title Page                                                                                                                    i                                                                                  

Declaration                                                                                                                 ii                                                                                                                    

Certification                                                                                                                iii                                                                                                                 

Dedication                                                                                                                   iv                                                                                                                     Acknowledgements                                                                                                    v                                                                                       Table of Contents                                                                                                      vi                                                                                                   List of Tables                                                                                                         ix

Abstract                                                                                                                       x                                                                                                                  

 

CHAPTER 1: INTRODUCTION

1.1           Background to the Study                                                                                                    1

1.2           Statement of the Problem                                                                                                3

1.3           Objectives of the Study                                                                                        4

1.4           Research Questions                                                                                                             5

1.5           Research Hypotheses                                                                                                         5

1.6           Significance of the Study                                                                                                    6

1.7           Scope of the Study                                                                                                               7

1.8           Limitations of the Study                                                                                      8

1.9           Definition of Terms                                                                                        9

 

CHAPTER 2: REVIEW OF RELATED LITERATURE

2.1           Conceptual Framework                                                                                       11

2.1.1         Concept of organisational outsourcing                                                             11

2.1.2         Concept of organizational efficiency                                                                                14

2.1.3         The beginning of outsourcing                                                                                            15

2.1.4         Types of outsourcing                                                                                                           16

2.1.5         Organisational outsourcing drivers                                                                                  22

2.1.6         Outsourcing decision criteria                                                                                             26

2.1.7         The outsourcing process                                                                                                     30

2.1.8         Factors and risk to consider before outsourcing                                             31

2.1.9         Focus on core competencies                                                                                             33

2.1.10      Flexibility and competitive advantage                                                              37

2.1.11   The Relationship between outsourcing and organisational productivity     39

2.1.12      Outsourcing and organisational efficiency                                                                      42

2.1.13   Outsourcing and cost efficiency                                                                     44

2.1.14      Outsourcing and organisational performance                                                 45

2.1.15   Outsourcing and quality of products                                                              48

2.1.16      Outsourcing and profitability                                                                                             49

2.1.17   Outsourcing and organisational competitive advantage                                 51

2.1.18      Benefits of organisational outsourcing                                                             52

2.1.19      Achieving success or failure of outsourcing strategy                                                     54

2.2               Theoretical Framework                                                                                       57

2.2.1         Core competency theory                                                                                                    57

2.3               Empirical Framework                                                                                           59

2.4               Summary of Review of Related Literature                                                                       68

2.5               Gap in Review of Related Literature                                                                                 70

 

CHAPTER 3: RESEARCH METHODOLOGY                                                  

3.1           Research Design                                                                                                                  72

3.2               Population of the Study                                                                                       72

3.3               Sources of Data Collection                                                                                                 73

3.3.1         Primary data                                                                                                                         73

3.3.2         Secondary data                                                                                                     73

3.4           Sample and Sampling Procedure                                                                                      73

3.4.1      Sample size determination                                                                                                74

3.5           Validity of the Instrument                                                                                                  75

3.6           Reliability of the Instrument                                                                                              76

3.7           Model Specification                                                                                                             77

3.8           Methods of Data Analysis                                                                                                  78

CHAPTER 4: DATA PRESENTATION AND ANALYSIS                                

4.1           Data Presentation                                                                                                                82

4.2               Results and Discussions                                                                                                          84

4.2.1     Descriptive statistics                                                                                                            84

4.2.2    Normality test of variables                                                                             85

4.2.3    Unit root test of stationarity                                                                           85

4.2.4    Regression analysis                                                                                        87

4.2.5    Challenges facing outsourcing as a strategy for organizational efficiency

in Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd                        91

4.3       Hypotheses Testing                                                                                        92

4.4       Discussion of Findings                                                                                   95

CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS    

5.1           Summary of Findings                                                                                                           98

5.2               Conclusion                                                                                                                             98

5.3           Recommendations                                                                                          99

5.4       Suggestion for Further Study                                                                         100

References                                                                                                      101

Appendices

 

 

 

 

 

 

LIST OF TABLES

Table                                                                           Page

 

3.1       Population and distribution of sample size in both organisations                        75

3.2       Coefficient of correlation of the reliability of the

research instrument                                                                                        77

 

4.1       Data for the variables of the study                                                                  83

4.2       Total number of questionnaire sampled at both

organizations and the number that was return                                                83

 

4.3       Descriptive statistics                                                                                       84

4.4       Tests of normality                                                                                          85

4.5       Unit root test for explained and explanatory variables                                  86

4.6       Multiple regression analysis result on the relationship

between outsourcing strategy and profitability of firms under study                        87

 

4.7         Multiple regression analysis result on the relationship

between outsourcing strategy and output of firms under study                                89 

4.8        The challenges facing outsourcing as a strategy for

organizational efficiency in Dufil Prima Foods Plc and

Tummy Tummy Food Industry Ltd.                                                         91 

4.9       Chi-square result for hypothesis 3                                                                  94

 

 

 


 

 

CHAPTER 1

INTRODUCTION

 

1.10        BACKGROUND TO THE STUDY

Organisations globally have never been in the milieu of competition as it is the case in our day, the progressive globalisation of economy caused by the lowering of trade barriers, and the emergence of new market players that benefit from significant labour cost advantages has amplify the situation, and in order to survive, organisations must always remain ahead of their competitors. Therefore, organisations must keep pace with the dynamic conditions and rapid changes, be innovative, and adapt to new systems, techniques and technologies, they have to look at efficiency and cost containment rather than relying strictly on revenue increase. In achieving these goals, organisations have discovered that they can cut costs and maintain quality by relying more on outside service providers for activities viewed as supplementary to their core businesses (Li and Barnes, 2008). In the words of Casale (2000), outsourcing has become a standard practice across all industries, it has evolved from being a controversial practice to a mandatory business strategy for organisations to compete successfully in today’s fast paced e-commerce enabled market environment. 

Espousing this idea, Frayer et al., (2000) opine that organisations are increasingly viewing outsourcing strategies as a means of reducing service costs, improving operating efficiency, increasing quality, and enhancing a firms overall competitive position. Thus, organisations are focusing on their core competencies and capabilities, while outsourcing their non-core functions to outsourcing providers. This has led to structural changes in the management and production processes of organisations, were outsourcing providers are taking increasing responsibility in realms that have traditionally remained as in-house, such as corporate strategy, information management, business investment among others. Hence, organisational efficiency trends such as outsourcing are rationalisation efforts to create leaner work processes or avoid business closure. 

Be it as it may, during the last two decades, Nigerian business enterprises came under intense pressure to restructure and improve their efficiency and competitiveness in the domestic and international marketplace. This quest for efficiency and improved productivity led to a more strategic approach of outsourcing business operations, processes, and management practices. In view of these developments, Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd without reservation throw in the towel by outsourcing their non-core functions, such as human resource functions (contract staff and training), production functions (packaging materials) and security functions (contract security personnel), to outsourcing providers with the ambition to improve efficiency, reduce cost and maximise profit. With the outsourcing of their non-core functions, these organisations under study were designed to upsurge efficiency in their production processes, quality of their products and logistics in order to serve their teeming consumers in the best possible way and to increase their market share across the border. As the drive for efficiency continue in these organisations, the need to evaluate if the desire gains proposed to accrue from outsourcing are obtained were deemed very imperative by the management of both organisations, in order to ensure that the organisation continue to operate progressively in all ramification. Therefore, against this backdrop, the study, outsourcing and organisational efficiency, with reference to Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd Nigeria between the periods of 2005 -2016, was initiated.

 

1.11        STATEMENT OF THE PROBLEM  

 

As organisations face increasingly complex, dynamic, turbulent, and threatening business environments, many managers consider outsourcing as the only way to keep a business efficient and competitive. Nevertheless, to assume that outsourcing leads to long-term benefits with respect to increasing efficiency, competitiveness and capabilities of subcontracting companies is probably valid for certain business organisations, but others may experience the opposite, especially in Nigeria where outsourcing have different connotations, rather than the conventional meaning where an organisation focus on their core competency and lease out their sub-functions to other organisations that perform those functions as their core competency, cases abounds where organisations’ managers takeover organisational activities which they claim to be among the sub-functions of their organisation and hire unskilled labourers to perform them with peanut as salary while they siphon the money mapped out for the contract for their own selfish gain at the detriment of their oganisation’s efficiency, (Sampson 2017). With this approach of organisational outsourcing, products or service quality suffers, and efficiency depletes during outsourcing and this affects customer satisfaction, as products or service quality is directly linked to business processes ranging from the operations, production, and support services to mention but few, which certainly affects the organisation’s profitability and production output.

 

Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd, outsource some of their non-core functions, such as human resource functions (contract staff and training), production functions (packaging materials) and security functions (contract security personnel), to outsourcing providers in order to minimize cost and optimize organisational efficiency (profitability and production output). However, outsourcing has its own challenges such as; high product competition in the market, inadequate supervision of contract’ activities, poor social infrastructures, information leakage, poor remuneration of contract staff, among others. These challenges facing outsourcing strategy, if not adequately checked, could affect the organisational efficiency (profitability and production output) of Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd. To that end, the study, outsourcing and organisational efficiency, with reference to Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd Nigeria between the periods of 2005-2016, was initiated.

 

 

1.12        OBJECTIVES OF THE STUDY

The broad objective of this study is to evaluate the impact of outsourcing on organisational efficiency, with reference to Dufil Prima Foods PLC and Tummy Tummy Food Industry Nigeria Ltd. The specific objectives were to;

i.               ascertain the impact of outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) on the profitability of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd

ii.              find out the impact of outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) on the production output of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd

iii.                 ascertain whether factors such as; high product competition in the market, inadequate supervision of contract’ activities, poor social infrastructures, information leakage, poor remuneration of contract staff, etc. affect outsourcing as a strategy for organisational efficiency.

1.13        RESEARCH QUESTIONS

The following research questions were answered by this research:

i.               Does outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) have significant impact on the profitability of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd?

 

ii.              Does outsourcing (hiring of temprory staff, timeliness of deliverable and quality of services/products) have significant impact on the production output of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd?

 

iii.            Do factors such as; high product competition in the market, inadequate supervision of contract’ activities, poor social infrastructures, information leakage, poor remuneration of contract staff, etc., affect outsourcing as a strategy for organisational efficiency?

 

1.14        RESEARCH HYPOTHESES

The following hypotheses were tested in null form at 5% significance level:

 

H01: outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) have no significant impact on the profitability of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd

 

H02: outsourcing (hiring of temporary staff, timeliness of deliverable and quality of services/products) have no significant impact on the production output of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd.

 

H03: factors such as; high product competition in the market, inadequate supervision of contract’ activities, poor social infrastructures, information leakage, poor remuneration of contract staff, etc. do not affect outsourcing as a strategy for organisational efficiency.

 

1.15        SIGNIFICANCE OF THE STUDY

This study would contribute to theory in the aspect of outsourcing and organisational efficiency as it will strengthen the theory of core competency as proposed by Prahalad and Hamel (1990). It would reveal the importance of outsourcing as a panacea to the highly competitive business environment and the prospect to increase organisational efficiency in terms of productivity and profitability. The theory suggests that firm activities should either be performed in house or by external service providers. It is centered on make or buy decision. Non-core activities should be considered for outsourcing to the best suited service providers who are experts in that field, while few non-core activities which have a big impact on competitive advantage should be retained in house.  Thus, the findings of this study will be of immense benefit to Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd.

 

Empirically, this study would revealed whether outsourcing, such as hiring of temporary staff, timeliness of deliverable and quality of services/products, have significant impact on the profitability and production output of Dufil Prima Foods Plc and Tummy Tummy Food Industry Ltd. It would also reveal the effects of factors such as; high product competition in the market, inadequate supervision of contract’ activities, poor social infrastructures, information leakage, poor remuneration of contract staff, etc., on outsourcing and organisational efficiency. This would help the organisations under study to evaluate their journey so far with their outsourcing strategy and outsourcing providers to determine if the core objectives of outsourcing their sub-functions are achieved. Hence, help them to re-strategise and outline ways to ameliorate the negative impact of their outsourcing strategy to ensure that their organisational goals and objectives are attained. The findings of this study would also serve as an assessment tool to decision makers and organisations in the manufacturing and service industry and public sectors, to evaluate the economic, and human benefits of leasing their sub-function to outsourcing providers, and the ways to harness the services of outsourcing providers to increase efficiency, productivity and profitability without jeopardising quality. Furthermore, the study will add to the scholarly materials available on the research topic that will serve as a useful aid to potential researchers and students embarking in similar research.

 

1.16        SCOPE OF THE STUDY

This centered on the evaluation of outsourcing and organisational efficiency, with reference to Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd Nigeria between the periods of 12 years (2005-2016). The stated 12 years period of the study would enhance a more robust assessment, at least within the last decade, of outsourcing activities in the organisations under study. The study unit scope involved all the employees of Dufil Prima Foods PLC and Tummy Tummy Food Industry Ltd and the employees of their outsourcing providers.

 

Dufil Prima Foods PLC is located at #68B UNIPORT Road choba Port Harcourt, Rivers State, while Tummy Tummy Food Industry Ltd is located at Nnewi, Anambra State. So Port Harcourt and Nnewi is the geographical scope of the study. Port Harcourt (Ikwerre: Ígúọ́cha; Pidgin: Po-ta-kot) is the capital and largest city of Rivers State, Nigeria. It lies along the Bonny River and is located in the Niger Delta. Port Harcourt was founded in 1912 by Frederick Lugard, governor of both the Northern Nigeria Protectorate and the Southern Nigeria Protectorate. Its purpose was to export the coal that geologist Albert Ernest Kitson had discovered in Enugu in 1909. The colonial government caused the people of Diobu to cede their land, and in 1912 the building of a port-town was started. Other villages that were later absorbed into the city included Oroworukwo, Mkpogua, and Rumuomasi. In the creeks to the south of the original port were the fishing camps and grounds of the Okrika-Ijaw group.


1.17        LIMITATIONS OF THE STUDY

The study was completed with noteworthy challenges. Being a nursing mother, traveling to Rivers State where Dufil Pima Food Ltd is located and Anambra State where Tummy Tummy Food Industry Ltd is located to distribute and retrieve completed questionnaire was not a child’s play, coupled with poor road networks that characterised the roads of South Eastern States of Nigeria. Also, employees of both organisations keeping to the appointment of filling the questionnaire within the agreed time frame was very difficult, leading to the researcher visiting both organisations more than twice to share and retrieve completed questionnaires, the researcher was also not permitted to see the managing director of both organisations in order to sample their opinion. The risk of traveling to both organisations and the distance involve from where the researcher is residing in Abia State added to the challenges encountered in the course of completing the research. In addition to this, the cost of transportation, typing and printing was very high especially with the economic situation of the country. All these added to the challenges encountered by the researcher in the course of completing the study. Despite these limitations, the researcher was be able to overcome them and projected an accurate work that can be relied upon.


1.18        DEFINITION OF TERMS

The following are the operational definition of terms as used in the study:

Organisational Efficiency: Organisational efficiency is the ability of organisational management to implement organisational plans using limited resources while maintaining quality. Organisation efficiency can be seen as the ability of an organisation to maximise output using minimum input while maintaining quality.

Outsourcing: Outsourcing is a management strategy through which an organisation delegates non-core business functions to outsourcing providers who specialised and are efficient in providing those services. Outsourcing is the process of replacement of in-house provided activities by subcontracting it out to external agents who have those functions as their core functions.

Outsourcing Providers: Outsourcing Providers are organisations in the outsourcing industry that perform most of the manufacturing organisations’ sub-functions as their core function. They accept contracts from organisations to perform their non-core functions like; information technology, logistics, maintenance, security, catering services etc.

 

 

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