Effect of Outsourcing on Organisation Performance among Commercial Banks in Mombasa County, Kenya

By: Rehema B. Kigwe, Rugami Maina


Outsourcing can be of benefit to a company provided it enters the right relationship with the right vendor, evaluated and managed appropriately. Improvements such as high productivity, efficiency and cost reduction and control may be achieved through outsourcing. However, it is possible that there will be the problem of lack of loyalty from the employees of the outsourced companies. Mistakes in identifying core and non-core activities can lead organisations to outsource their competitive advantages. However, what is core one day may not be so the next. Moreover, once organisational competence is lost, it is difficult to rebuild. This study sought to investigate the effects of outsourcing on organization performance among commercial banks in Mombasa County. The specific objectives of this study were; to determine the influence of outsourcing risks, outsourcing costs, quality of service and functional department on the performance of commercial banks in Mombasa County, Transaction cost theory and resource-based view theory will be used in this study. This study used descriptive research design. The target population for this study was strategy managers in all commercial banks in Mombasa County. The study sample was 90 strategy managers who were selected through census survey. The study made use of questionnaires to collect data. Descriptive statistics such as (mean and standard deviation) were used to analyse quantitative data.  The study established that outsourcing risks, outsourcing costs, quality of service and functional departments had a positive and significant effect on the performance of Commercial Banks in Mombasa County, Kenya. The study concludes that Risks in outsourcing may arise due to possibility of weak management, inexperienced staff, business uncertainty, outdated technology skills, environmental uncertainty, hidden costs, lack of organizational learning and loss of innovative capacity. Costs associated outsourcing may be due to cost of unplanned and unforeseen risks. Service quality shows partially positive effects on operating performance in the performance of commercial banks. Functional departmentalization enable commercial banks to better manage change in the marketplace, including consumer needs, government regulation and new technology. The study recommends that commercial banks when drafting a contract should make sure to include all the expected services, and read carefully for any surcharges or extra charges. Before negotiations even begin, they should have providers sign a confidentiality agreement promising to safeguard the banks’ secret. Commercial banks should minimize cost of outsourcing and also to allow staff to concentrate on the core activities of the institutions that are profitable. Commercial banks should choose the best source sourcing, cost benchmark to the current market and be careful on hidden costs that might arise. Commercial banks should make service offerings better with high quality deliverables and decrease the lead time it takes for the product to reach the marketplace. Thus you would be faster in getting organizational ideas converted into products and better at delivering the value-added proposition.

Key Words: Outsourcing, Organisation Performance, Commercial Banks, Mombasa County

URL: https://www.ijcab.org/201800568/                                                                                      View Full Article

This is an open-access article published and distributed under the terms and conditions of the  Creative Commons Attribution 4.0 International License, United States unless otherwise stated.

About the Authors:

  • Rehema B. Kigwe: Correspondent Author, School of Business, Kenyatta University
  • Rugami Maina: Lecturer, Business Administration Department, Kenyatta University