Outsourcing as a Strategic Tool for Organizational Sustainability

OUTSOURCING AS A STRATEGIC TOOL FOR ORGANIZATIONAL SUSTAINABILITY

Abstract

The purpose of the study was to look into outsourcing as a strategic instrument for organisational sustainability. Three theories led the research: the resource-based theory, the transaction cost theory, and the core competencies theory. The study used a descriptive research design. Data was gathered through questionnaires distributed to respondents who worked for commercial banks. The data was analysed using software, a regression model was created, and the coefficient of correlation demonstrated the link between the independent and dependent variables. To assess central tendency and dispersion, the mean and standard deviation were utilised. According to the data, outsourcing has a good and considerable impact on bank operational performance. Outsourced information technology is capable of meeting the most stringent customer needs. Order information can be transmitted between trade parties if desired. The advantage of quick Work-life balance is intimately tied to information flow. To ensure speedy delivery, it makes little sense for a bank to amass orders at a local branch for a week, ship them to head office, process the orders in a batch, and return them to the branch. The study concluded that outsourcing is a vital component of organisational strategy as a potent tool for cost reduction and performance improvement. There is little question that the fast transformation will have an impact on today’s corporate environment, revolutionising existing company and work paradigms. This turbulent and changing environment forces commercial banks to modify their structures and tactics to a greater extent than they previously did. Organisations are increasingly becoming tiny core large network types. As a result, businesses pick a small number of jobs to perform and outsource the remainder to a third party. As a result, the relevance of outsourcing and its critical role in showcasing network centre organisations is obvious.

 

CHAPTER ONE

INTRODUCTION

1.1  Background Of The Study

Outsourcing is a management technique that involves delegating key or non-core corporate operations to specialist and efficient service providers. (2013) (Rajee & Hammed).

Over the last few decades, Nigerian businesses have been under pressure to reorganise and enhance their sustainability as they face a more complex, dynamic, and risky business environment as a result of globalisation. This pursuit of increased efficiency and productivity resulted in a more deliberate approach to outsourcing corporate operations, processes, and management practises. Outsourcing employment in Nigeria has been a major source of concern as more people continue to suffer as a result of the ‘pay reduction policy’ used by labour employers without compromising the quality of services offered. Outsourcing of personnel has become the norm in practically all areas of the Nigerian economy, since employers regard the system as “the best” for their firms and are no longer recruiting for permanent employees. (2014) (Adeleke, Olajide, Shiyanbade).

Outsourcing workers into the organisation violates Section 7(1) of the Labour Act, which states that an employer must provide the employee with a written contract of employment specifying the specifics of employment no later than three months after the employee’s period of employment with the employer begins.

Furthermore, Owoseye and Onwe (2009) observed that, despite the provision in Section 17 Subsection 3(e) of the Constitution, which guarantees “equal pay for equal work without discrimination on account of sex, or any other ground whatsoever,” pay discrimination between permanent and casual employees persists. They believed that the Act recognised this type of work in the same way that it did conventional employment. To avoid the law, many outsourced employees do not have letters of employment, and many corporations do not keep records of their outsourced personnel (Alozie, 2009).

Most criticism of outsourcing has focused on changing employment patterns, internationalisation of the labour market, and the impact on individual individuals and organisations (Klass, McCleandon, & Gainy, 2001; & Dobbs, 2004).

The extent to which an individual carries out an assignment or task is referred to as performance. It refers to the level of completion of the tasks that comprise an employee’s employment (Cascio, 2006). Jones (2003) defines job performance as “the net effect of an employee’s effort as modified abilities and roles or task perceptions.” Organisations outsource with the intention of reducing costs, increasing productivity, increasing capacity, and occasionally shrinking.

Employee performance determines an organization’s success or failure. The negative impact of outsourcing on employee job performance has resulted in increased levels of unhappiness and has also altered workers’ employment status, resulting in a poor job security in which outsourced employees are refused certain benefits. Because of increased unplanned turnover that revolves around outsourcing, firms do not invest in employee training and development, which is part of the requirement for improved productivity; this is critical in an organisation. Employee morale and career development improve organisational flexibility, sustainability, and stability. As a consequence of this backdrop, the researcher wishes to investigate outsourcing as a strategic instrument for organisational sustainability, employing banks in Ijebu-ode, Ogun-state, Nigeria as case study..

1.2 Statement Of The Problem

Over the last few decades, there has been an increasing recognition of the significant contribution of outsourcing strategy to organisational success (Cousins, Lawson, & Squire, 2006). As a result of the rapid advancement of technologies, science, globalisation, and the constantly increasing competitiveness, companies have established policies of flexibility and adaptation to economic changes in order to keep profits as high as possible. Many organisations consider it more profitable to produce their products and services in-house, while others consider it more profitable to source from others. Outsourcing is used by businesses for a variety of reasons. It is not unexpected that various organisations employ outsourcing for diverse goals; each organization’s situation is unique and differs from other organisations (Hillary, 2011).

The global economic catastrophe has created a perilous work climate in which many desperate job searchers are prepared to take any employment for the sake of survival rather than dignity. Labour exploitation is widespread in many Nigerian organisations (Kazeem, 2004).  It presents itself in several ways, such as low pay, wage and salary arrears, training, advancement, motivation, a feeling of belonging, job satisfaction, and the dehumanisation of work and workers. Today, Nigeria’s experience with post-adjustment economic measures has been nothing short of the same macroeconomic policies, namely trade liberalisation, floating exchange value (market driven), privatisation and commercialization, government withdrawal from social provisioning, decreased public sector spending and investment (retrenchments and rationalisation of the civil service) (Anugwom, 2001).  As a result, in order to maximise profit and compete, some work organisations have resorted to unethical business practises such as worker outsourcing, consequently harming workers’ interests and breaking several fundamental labour regulations (Okafor, 2007).

Globalisation and trade liberalisation, along with increased competition from imported goods, have led businesses to downsize their workforce and replace it with outsourced labour in order to lower production costs and remain competitive. Workers having a relational psychological contract (permanent workers) are more likely to be committed than those with a transactional psychological contract (temporary employees) (Fapohunda, 2012).

Outsourcing is therefore part of a new era of labour management. It is an age in which many employees are crammed into the necessities of production and service supply by providing them with relatively few options.  Shorter work hours are typically connected with poorer compensation and lower skill levels. It is generally conducted by persons who have other obligations (for example, careers for children, the elderly, and students) or who have no other option (for example, blue collar employees seeking any type of alternative to unemployment) (Buchanan, 2004). Outsourcing is a current and contentious subject in Nigeria’s industrial relations system.  In certain aspects, outsourcing as a phenomena in Nigeria has not been widely accepted; this is not unrelated to how it is practised in the nation.

As a result, the huge proportion of Nigeria’s work force that falls into this group may face labour realities influenced by globalisation (Rasak, 2009).

Looking at the various aspects that are subject to change in an outsourcing movement on organisations and employees, outsourced workers are subject to lower pay, poor work conditions, such as poor and unstable wages as well as a lack of fringe benefits, no job insecurity, non-title to leave, no gratuity, no accident and death insurance, and a lack of power to organise collective bargaining, but this is not the case with permanent staff. Permanent employees are entitled to all perks offered by the firm, including job security, leave, promotion, gratuity, bonuses, pension scheme, social security, allowance, and all other fringe benefits. The only way for outsourced workers to achieve their goals and enjoy the same benefits as their colleagues (permanent workers) is to join a union, but because they are not subject to collective bargaining, they cannot create a union. Outsourced employees make up the vast majority of workers in the telecommunications, finance, and other sectors of the economy. As compared to advanced countries, an increasing number of workers have found themselves outside the standard purview of collective relations, necessitating a readjustment of collective labour relations rules and practises so that the workers concerned can enjoy the fundamental collective labour relations rights of collective bargaining and union representation, as well as protection against exploitation (Fapohunda, 2012).

As previously noted, much has been examined in regard to outsourcing in many sectors of the economy, but there is a clear vacuum in the literature, particularly in the banking industry, concerning the impact of outsourcing on employee job performance, employment status, and welfare. As a result, this study is an attempt to bridge the gap.

1.3  Objectives Of The Study

The general objective of this study is to examine the Outsourcing as a strategic tool for organizational sustainability. The specific objectives of the study are to:

(i) Examine the relationship between outsourcing strategy and job performance.

(ii) Determine the influence of workers welfare, employment status and benefits on job performance.

(iii) Explore the implications of outsourcing strategy and job performance in the banking industry.

1.4  Research Questions

This research study was designed towards providing answers to the following questions:

1)      What is the relationship between outsourcing strategy and job performance?

2)      What are the influences of workers welfare, employment status and benefit on job performance?

3) What are the implications of outsourcing strategy and job performance in the banking industry?

1.5 Significance Of The Study

Employee performance determines an organization’s capacity to fulfil stated goals. As a result, it is vital to investigate the impact of an organization’s outsourcing strategy on job performance. Many organisations in this country will benefit greatly from the findings of this study. The findings will raise their awareness of the impact of outsourcing. Organisations and governments, in particular, can utilise the research findings to develop strategies for resisting the influences.

1.6   Scope Of The Study

The scope of the study was limited to all the financial institutions at Ijebu-ode, Ogun-state, Nigeria.

1.7 Limitations of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

1.8 Definition Of Terms

Outsourcing: is a management strategy by which an organisation delegates major or non-core business functions to specialised and efficient service providers. (Rajee & Hammed, 2013)

Job performance:  Job performance is the net effect of an employee’s effort as modified abilities and roles or task perceptions (Jones, 2003). An employee’s performance is determined during job performance reviews, with an employer taking into account factors such as leadership skill, time management, productivity and organisational skills to analyse each employee on an individual basis.

Productivity: is the average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process.

Efficiency: is the ability to avoid wasting materials, energy, efforts, money and time in doing something or in producing a desired result.

Morale: is the mental and emotional issue, when employees are negative about their environment and believe that they cannot meet their most important career and vocational needs at work, employee morale will low.

Profit maximisation: is the ability of organisation to achieve a maximum profit with low operating expenses.

Liberalisation: is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities.

Privatisation: is the process transferring an enterprise or industry from the public sector to private sector.

Globalisation: is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange.

Contravention: an act of contravening; action counter to something; violation or opposition.

Jurisdiction: power or right of a legal agency to exercise its authority over a person or subject matter.

Structural adjustment programme: are economic policies for developing countries. This policy came to being in order to right and wrong the weakness and ineffectiveness of earlier industrial policies. Its aims and objectives include;

1. To promote investment
2. To stimulate non-oil exports and providing a base for private sector led development
3. To promote efficiency in Nigeria’s industrial sector
4. Privatization and commercialisation of the economy towards the promotion of industrial efficiency
5. To develop and utilize local technology by encouraging accelerated development and use local raw materials and intermediate input rather than depend on imported ones.

Motivation: is defined as the arousal, direction, and persistence of behaviour. It actually describes the level of desire employees feel to perform will be more, regardless of the level of happiness. Employees who are adequately motivated to perform will be more productive, more engaged and feel more invested in their work.(Essien, 2012)

1.9 Organization of the Studies

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the  review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study,  sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter (chapter five) contains the summary, conclusion and recommendation.

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