THE EFFECTS OF OUTSOURCING STRATEGIES ON ORGANIZATION PERFORMANCE (A CASE STUDY OF NIGERIAN BREWERIES PLC)

ABSTRACT

This project focused on the effects of outsourcing strategies on organization performance with special reference to Nigeria Breweries Plc. The importance of outsourcing strategies in organizations cannot be overemphasized, hence the need for this research work. The objective of this study were to examine the relationship between outsourcing and organizaiton performance and to asses uses of outsourcing by organizaiton to gain competitive advantage  over its competitors. Based on these objectives, data were sourced through the use of survey research method and data was collected from a sample size of 99 respondents which was arrived at through the use of quantitative method. The study found out that outsourcing strategy help organizations to cut cost, increase profitability and productivity which in turn leads to higher organizaitonal performance. Therefore, it was recommended that organizations should embrace the outsourcing strategies and improve service delivery to their customers. Also, organizations should continue to monitor the contractor’s activities and establish constant communication.

TABLE OF CONTENT

                                                                Pages

Title                                                                                                   i        

Certification                                                                                     ii

Dedication                                                                                        iii

Acknowledgement                                                                           iv

Abstract                                                                                           v

Table of content                                                                               vi

CHAPTER ONE

INTRODUCTION

1.1 Background to the study                                           1  

1.1.1 Initial stages in teh evolution of outsourcing          2

1.2      Statement of research problem                                        4

1.3 Objectives of the study                                               5

1.4 Research questions                                                            6

1.5 Research hypothesis                                                  6

1.6   Significance of the study                                          7  

1.7 Limitation of the study                                               8

1.8 Definition of terms                                                     9

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction                                                               10  

2.1 The concept of outsourcing                                        11  

2.2 Why do companies outsource?                                  15

2.3 Main factors influencing successful outsourcing               15

2.3.1 Open communication                                             16

2.3.2 Executive support                                                   17

2.4 Contracts and service level agreements                     18

2.5 Types of outsourcing                                                  19  

2.5.1 Local outsourcing                                                   19  

2.5.2 Offshore outsourcing                                              20

2.5.3 Technological service outsourcing                          23

2.5.4 Business process outsourcing                                        24

2.5.5 Knowledge process outsourcing                              25

2.6 Outsourcing process                                                  26  

2.7 Theory of outsourcing process                                   30  

2.7.1 Transaction cost economics                                    35  

2.7.2 Relational view                                                       36

2.7.3 Core competences                                                   37

2.7.4 Resources – based view                                          37  

2.7.5 Evolutionary economics                                          38  

2.7.6 Agency theory                                                         40

2.7.7 Knowlegde – based view                                          41

2.7.8 Neoclassical economics theory                                        41  

2.7.9 Social exchange theory                                           42

2.7.10 Economy of information                                       43

CHAPTER THREE

RESEARCH METHOD

3.0 Introduction                                                               44

3.1 Research design                                                         45

3.2 Re-statement of research questions                                   46

3.3 Re-statement of research hypothesis                                 46

3.4 Sample and sampling techniques                              47   

3.5 Characteristics of population of the study                 48

3.6 Instrumentation                                                         49

3.7 Validity and reliability                                                        49  

3.8 Procedure for data collection                                     50

3.9 Procedure for data analysis                                        50

CHAPTER FOUR

ANALYSIS OF DATA

4.0 Introduction                                                               51

4.1 Data presentation                                                      51

4.2   Presentation and analysis of data according

to research questionnaire                                        54  

4.3 Testing of hypothesis                                                 62  

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary                                                                   67

5.2 Recommendations                                                     68

5.3 Conclusion                                                                        69

Bibliography                                                            72  

Questionnaire                                                          75                                                                                                                                                                               

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Since the industrial revolution, companies have grappled with how they can exploit their competitive advantages to increase their markets and their profit. The model for most of the 20^th century was a large integrated company that can “own, manage and can directly control” its assets. In the 1950’s and 1960’s the rallying cry was diversification to broaden corporate bases and take advantages of economies of scale. By diversifying companies expect to protect profit, even though expansion required multiple layers of management.

Subsequently, organizations attempting to compete globally in the 1970’s and 1980’s were handicapped by a lack of agility that resulted from bloated management structures. To increase their flexibility and creativity, many large companies developed a new strategy of focusing on their core business, which required identifying  critical processes and deciding which could be out sourced.

1.1.1 Initial Stages In The Evolution Of Outsourcing           

Outsourcing was not formally identified as business strategy until 1989 (Mullins, 1996). However, most organizations were not totally self-sufficient; they outsourced those functions for which they had no competency internally. Publishers, for example have often phased composition, printing and fulfillment services.  The use of these essential but ancillary services might be termed the baseline stage in the evolution of outsourcing. Outsourcing support services is the next stage. In the 1990’s as organizations began to focus more on cost-saving measures, they started to outsource those functions necessary to run a company but not related specifically  to the core business. Managers contracted with emerging services companies to deliver accounting, human resources, data processing, internal mail distribution, security, plant maintenance and the likes as a matter of “good housekeeping”. Outsourcing components to affect cost saving in key functions is yet another stage managers set to improve their finances.

The current stages in the evolution of outsourcing is the development of strategic partnership. Until recently it had been axiomatic that no organization would outsource core competencies, those functions that give the company a strategic advantage or make it unique. Often a core competency is also defined as any function that gets close to customers. In 1990’s outsourcing some core functions may be good strategy not anathema. For example some organizations outsource customers services, precisely because it is so important.

Eastman  Kodak’s decision to outsource the information technology system that undergrid its business was considered revolutionary in 1989, but it was actually the result of  rethinking what their business was about. They were quickly followed by dozens  of major corporations whose technology to get access to information they needed. The focus today is less on ownership and more on developing strategic partnership to bring about enhanced result.

Consequently organizations are likely to select outsourcing on the basis of who can deliver more effective results for a specific function than on whether the function is core or commodity.

1.3      STATEMENT OF RESEARCH PROBLEM

Outsourcing refers to the delegation of one or more business process to an external provider who then owns, manages and administers selected processes based on defined measurable performance matrices. As much as outsourcing has been accepted and employed by organizations, it has been observed that some organization still perform poorly.

The reasons for organization failure are not far fetched, problems ranging from the inability of the service provider  to solve a problem to fit into client organization’s corporate structure and strategy due to inadequate knowledge and inputs concerning corporate aims and objective.

Outsourced arrangements are often long term (projects) requiring services provider to understand organization’s current and future business strategy and potential changing  business profile. Cases abound when the reverse is the case and as such it becomes rather difficult (to avoid unprofitable and unfavourable contractual arrangement).

1.3 OBJECTIVES OF THE STUDY  

The aim of this study is to examine outsourcing as a strategy for organization performance.

Its objectives include; To 

1.  Determine how firms can minimize the cost of outsourcing and at the same time maximize their company’s  objectives.

2.  Examine outsourcing problems and profer solution as  to improve  organization performance    

3.  Asses uses of outsourcing by organization to gain competitive advantage over its competitors

4.  Examine the relationship between outsourcing and organization performance.   

5.  Indentify/ examine key factors for consideration when organization decide to outsource

1.4 RESEARCH QUESTIONS   

1.  Does outsourcing strategies improve organization performance?

2.  What is the relationship between outsourcing and sales turnover?

3.  To what extent does outsourcing strategies reduce cost of production of an organization? 

4.  What is the effect of outsourcing on job quality?

5.  What is the relationship between outsourcing and employment generation in Nigeria?

1.5 RESEARCH HYPOTHESIS     

The null (H_o) and alternative (H_I) hypothesis are formulated below to aid hypothesis testing.  

Hypothesis 1

H_o:   There is no significant relationship between outsourcing strategies and sales turnover

H_I:    There is significant relationship between outsourcing strategies and sales turnover

Hypothesis 2

H_o:   There is no significant relationship between outsourcing and organizations competitive advantage

H_I:    There is significant relationship between outsourcing and organizations competitive advantage

1.6   SIGNIFICANCE OF THE STUDY     

The significance of the study exposes the researcher to the importance of outsourcing strategy that include:

1.  It aids and enhance productivity among organizations

2.  The study will enable organization to cut their overhead cost.

3.  The study will enable organizations to increase their efficiency.

4.  The study will enable organizations to improve quality of their product and services

5.  The study will enable organizations to gain competitive edge over its competitors

6.  The study will aid the release of organization resources for other core activities

7.  To improve customer/ client/ consumer satisfaction      

1.7 LIMITATION OF THE STUDY

The research work demanded that the  project should be completed within a specific period of time which limits further investigation into the study.

Uncooperative attitude of some respondents may pose  a great threat to researchers conclusions.

Inadequate textbooks prevent more comprehensive current literature review in the study. 

1.8 DEFINITION OF TERMS

For the purpose of this study, the following word shall be
defined.

Out-Sourcing: is a strategy that concentrates an organization’s resources on its core competencies allowing the organization to achieve a definable preeminence and provide a unique value for customers

Market: The state of trade in particular types of goods as shown by prices or the rate of which things are bought and sold.

Target Market: Target market for this purpose shall mean a well define set of customers who need the company's plan to satisfy

Strategy: Skill in planning or managing an affair well
Strategy Management: This is defined as the set of decision and actions resulting in formulation and implementation of strategies designed to achieve the objective of an organization.

Competitive: Able to do as well or better than others or having a strong urge to win.

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