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.
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