Business process outsourcing strategy and performance of commercial banks in Kenya

Abstract

This study sought to determine the extent of application of BPO strategy among commercial banks in Kenya and to establish the challenges/risks facing Banks in Kenya in implementing the adopted BPO strategies. The study was a descriptive cross sectional survey and a census of commercial banks in Kenya was done. The researcher used primary data sources. A questionnaire was sent to all forty three commercial banks operating in Kenya.Descriptive statistical tools were used to analyze the data.From the study findings, results indicate that Automated Teller Machine (ATM) services are the most outsourced function in the sector, while customer account processing is the least outsourced function. Banks associate outsourcing activities with high reputational, operational, strategic and contractual risks. Outsourcing benefits highlighted are: freeing of resources, cost reduction, access to specialised vendors, focus on core competence, flexibility and improved services. Results indicate that bank size measured by the number of permanent employees and branch network is significantly associated with outsourcing decisions. The findings imply commercial banks in Kenya can improve their business performance through implementation of outsourcing on its non-core activities.The findings have regulatory policy implications, and in particular the urgent need for formulating a guideline to regulate the apparent proliferation of outsourcing practices in the Kenyan banking sector. The study recommends that for commercial banks to succeed in their outsourcing strategy clear communication is a must to all stake holders, job quality should be a priority, there should be realistic achievable service level agreements so that the work is done professionally and in good time.