Outsourcing Practices and Operational Performance of Commercial Banks in Kenya

Abstract

The study sought to investigate the effect of outsourcing practices on performance of commercial banks in Kenya. The study was guided by three theories; the resource based theory, transaction cost theory and the core competencies theory. The study adopted a descriptive research methodology and conducted a census on 44 commercial banks that are licensed to operate in Kenya. Data was collected with the aid of questionnaires presented to the respondents who were employees of the commercial banks. Data was analyzed using software, a regression model fitted and the relationship between the independent and dependent variables shown by the coefficient of correlation. The mean and standard deviation were used to measure the central tendency and dispersion. The findings revealed that outsourcing has a positive and significant effect on the operational performance of banks. Information technology if outsourced, is capable of handling the most demanding customer requirements. When desired, order information can be exchanged between trading partners. The benefit of fast Information flow is directly related to work balancing. It makes little sense for a bank to accumulate orders at a local branch for a week, mail them to head office, process the orders in a batch, and return them to branch to achieve fast delivery. From the study, a conclusion was arrived at, that outsourcing is a critical element of organizational strategy, as a powerful vehicle to reduce costs and improve performance. There is no doubt that the rapid change will affect today’s business world, in other words it will revolutionize the traditional business and job paradigms. This volatile and changing atmosphere compels commercial banks to adapt their structures and strategies to a greater degree than they used to do. Nowadays, organizations trend to become small core big network forms. Thus, companies choose a limited number of tasks to do and entrust the rest of their tasks to an outside supplier. Therefore, the significance of outsourcing and its key role in illustrating network center organizations is clear.