Outsourcing and performance at Chemelil sugar company limited, Kenya

Abstract

Agricultural organizations are constantly in search of new solutions and strategies to develop and improve their operational performance. Outsourcing is one of these strategies that can lead to enhanced operational performance. Although a number of studies have been done on outsourcing, none has focused on the Kenyan sugar industry. For this reason, the present study sought to fill the gap by establishing the relationship between outsourcing various activities and the operational performance of Chemelil sugar company limited, Kenya. This was a longitudinal case study research design. Primary data was collected through an interview of departmental heads at Chemelil sugar company, Kenya. The interview guide that was used was constructed in order to establish the extent of outsourcing as well as services outsourced by each of six departments of Chemelil Sugar Company. The secondary data was collected in order to help in the operational performance aspect of the study. As such, data was collected from the sun systems database of Chemelil Sugar Company. ANOVA analysis was carried out on the collected data. The study found out the most important reasons for outsourcing was concentration on core activities, reduction of cost of operation in terms of labor and overtime payments, efficiency and quality improvements, timely service delivery and improved overall performance. From Pearson correlation coefficient, there was a low correlation between outsourcing and operational performance. The R2 revealed that outsourcing influenced only up to 37.1% of the variance in operational performance. The study revealed that five of the six departments of Chemelil sugar outsource some of their core functions and process is overseen by the departmental heads. The mean and standard of the costs before and after outsourcing were significantly different; costs after outsourcing were higher. F calculated was smaller than F critical at a 5% level of significance; 2.659< 4.26 leading to the rejection of the null hypothesis hence the conclusion that there was variance in the relationship between outsourcing and operational performance in Chemelil sugar company. In conclusion, the management intentions and expectations of reducing the cost of operation and improving the operational performance has largely not been achieved since mean costs have risen throughout the study period (2002-2013). Its therefore advisable that before any company gets involved in outsourcing, a comprehensive cost and benefit analysis should be conducted and a decision on the reasons for doing so known in advance.