AN APPRAISAL OF OUTSOURCING ON ORGANIZATIONAL EFFECTIVENESS

CHAPTER ONE

INTRODUCTION

• Background of the study

To survive in this era of stiff competition, banks need to adopt the strategy of outsourcing in order to focus and develop their core competencies. The needs and demands of customers and other stakeholders in the industry are forcing these firms to reform and restructure the mode and method of operation to ensure that they keep up with market demands. Outsourcing as a human resource (HR) function is one of many ways to improve an organization’s efficiency. With the increasing stiff competition in the financial industry which sprung up as a result of similar services being provided by these institutions, HR outsourcing activities tend to be an important business approach and a workable strategy through which competitive advantage will be attained as products and services are offered more efficiently by outside suppliers (Yang, et al, 2007; McIvor, 2008).

Today’s HR managers are expected to shed some of their conventional roles associated with policies and procedures and the hiring, selecting, training and compensating of workforce, for more strategic roles that include customers’ perception of quality, reducing overall costs of HR administration and management of scarce resources. It is in response to this shift in paradigm that many Human Resource Managers are now outsourcing some of their functions (Cook, 1999).

The Banking Industry in Nigeria has witnessed a remarkable growth in terms of deposit base, number of branches, total asset and volume of loans and advances, especially since the deregulation of the sector in the recent past years. However, given the nature of demand in the market, they are required to do more, particularly in providing services as needed by their customers and other stakeholders in the industry. Therefore, the ability to respond to this urgent need in the market by these organizations ultimately depends on the effectiveness of the strategies they wish to put in place to enable them achieve their aim. Consequently, financial service businesses all over the world are increasingly engaging third parties to perform those activities that would have been performed within the organization.

Among the reasons for engaging in the HR outsourcing is the desire to get access to expert services as well as to capitalize on the excellent quality that external vendors provide in performing the HR functions. Also the decision to outsource payroll along other HR functions is reinforced by the fact that vendors are often in a better position to provide improved profitability, efficiency and service delivery at relatively lower cost than can be achieved by in-house operations thereby increasing the competitive advantage of firms. There is, therefore, a desire to minimize the amount of management time and effort which is spent on managerial activities. On this background the researcher wants to investigate an appraisal of outsourcing on organizational effectiveness (a case study of First bank)

• STATEMENT OF THE PROBBLEM

Business is highly dependent upon the work force. An organization can have all the capital and resources in the world but without a workforce to have the ideas organized, produce and market a product, nothing would ever reach consumers (Turner and Turner 1995). Substantial uncertainty remains, as to how outsourcing practices affect organizational outcomes, whether some practices have stronger effect than others, and whether complementary or synergies among such practices can further enhance organizational performance. Baid and Meshoulam, (1988); Jackson and Schuler, (1995); Lado and Wilson, 1994; Milgrom and Roberts, (1995); Wright and McMahan (1992). Similarly, many HR functions these days’ struggle to get beyond the role of administration and employee champion, and are seen as more reactive than as strategically proactive partners for the top management and that HR organizations also have the difficulty in providing how their activities and processes add value to the company (Smit, 2006). However, extensive research reveals outsourcing has become the preferred approach for improving quality and productivity in organizations. Outsourcing practices, which have been adopted by leading financial institutions and have impacted on the growing financial sector in Nigeria, has not been well documented. This study therefore seeks to bridge the gap by assessing an appraisal of outsourcing on organizational effectiveness.