Effect of outsourcing decision on organizational performance in the manufacturing industry: a case of Unga group limited, Kenya

Abstract

Firms have always sought ways to gain a competitive advantage over their competitors; one avenue that firms have pursued to improve their competitive position in this new business environment has been to increase the role of outsourcing in their operations, which has been found to provide a competitive advantage and heightened performance to these firms. However, Firms and Industries under the context of increasing use of outsourcing arrangements, as well as the unfamiliar complexity, are unaware of how to effectively utilize this strategy to improve their performance. The study therefore purposed to establish the effect of outsourcing decision on organizational performance of Unga Group Limited. It specifically sought to establish the effect of outsourcing for employee competence on organizational performance; find out the effect of outsourcing for cost reduction on organizational performance; examine the effect of outsourcing for innovativeness on organizational performance; and determine the effect of outsourcing to focus on core competencies on organizational performance of Unga Group Limited. This study employed the Resource-Based View theory and employed explanatory survey research design to target the 60 management staff of the four departments of HR, finance, procurement/purchase and marketing. Census method was used to get all the respondents. Questionnaires were used to collect data. To test the reliability of the instruments Cronbach coefficient Alpha formula was used and the score stood at 0.716 while validity of the instruments was measured by two experts at Nairobi University reviewing the instruments. Data was analyzed using descriptive, correlation and regression analysis then presented in tables. The findings of the study were: employee competence (β=.393, t=5.968, p<0.000), cost reduction (β=.193, t=2.593, p<0.004), innovativeness, (β=.324, t=4.383, p<0.000), and focus on core competencies, (β=.352, t=5.129, p<0.000), had a significant influence on organizational performance at Unga Group Limited, Kenya. The study therefore recommends: Unga Group Limited should offer better terms of service and proper training to help improve employee competence and reduce costs of outsourcing its HR functions for better performance; they should employ strategic and well thought out outsourcing to further reduce operating and overhead costs for further firm growth; Unga Group Limited should carefully consider the issue of outsourcing to ensure that while outsourcing helps in new innovations, no product quality is compromised and no money is lost; and should clearly ascertain the non-core functions to outsource and further review the potential cost and benefit to be garnered if the non-core functions are outsourced. This study proposes that further research be done in human resource factors influencing outsourcing decision in the textile industry in Kenya.