THE ADOPTION OF OUTSOURCING STRATEGY BY COMMERCIAL BANKS. A CASE STUDY OF COMMERCIAL BANKS IN NAIROBI - KENYA CHAPTER ONE: INTRODUCTION
1.1 Background to the study.
For many years, strategic management literature and practice have demonstrated the need for organizations to operate outside their boundaries and to establish strategic relationships with external stakeholders such as suppliers and distributors. Attention has been given to the growth of strategic alliances and joint ventures. The trend has been the downsizing of organizations and outsourcing of a range of functions, which were previously considered to be an integral part of in-house operations (Walton, 1998).
There has been a move towards subcontracting and franchising arrangement of some in-house operations. Not only are organizations operating outside their boundaries, but also individuals who are not in a conventional employer-employee relationship are increasingly conducting more and more organization’s functions. Emerging economic trends such as globalization, rapid proliferation of economic technology, declining growth rates, competition from external enterprises and the need to lower costs of operation have forced many enterprises to adapt their activities to the changing environment in order to survive (Jarillo, 1998). To cope with these pressures, enterprises are repositioning themselves in the market place so as to gain competitive advantage (Sweezy, 1997)
Outsourcing of jobs and functions has become a global business necessity in the majority of companies (Pearce & Robinson, 2007). It has moved from simply seeking low cost manufacturing options to having product development, product design and indeed core innovations sought by some of the world’s best known companies. Different authors have defined outsourcing thus;
Outsourcing refers to obtaining work previously done by employees inside the company from sources outside the company (Pearce and Robinson, 2007). It can also be referred to as the act of contracting work outside the company that was originally done inside the firm or any new work that could be done inside the company (Yabs, 2007). Peter Drucker has called it ‘going back to the basics’- to what the firm was originally established to do as quoted by Yabs (2007).
As a result of the continuous change in Information Technology taking place in the world today, more advanced and cost effective ways of doing business are being identified. Coupled with the ever rising costs of resources, organizations have to carry out an analysis of the Strengths, Weaknesses, Opportunities and Threats facing their operations, both internal and external in an effort to identify the source of its competitive advantage. Such an analysis enables the company to identify its core competencies. It is after this analysis that a company is in a better position to identify and contract out some of the non-critical work to outsiders so that they can concentrate their efforts in the core business (Yabs, 2007). This is in line with the desire to increase efficiency through specialization and focusing on the core competencies of the company.
In the early 1970’s and 80’s, the fashion in most firms in Kenya was to be self-sufficient in all the services (Yabs, 2007). This has since changed and today most firms have outsourced their non-core work and have therefore released much needed resources for other purposes. Business Process Outsourcing is actually the most rapidly growing segment of the outsourcing services segment worldwide and is expected to sustain the growth to the foreseeable future (Pearce & Robinson, 2007).
1.2 Statement of the Problem
An increasing number of organizations are adopting outsourcing strategy as a way for minimizing costs, facilitation of efficiency and for competitive advantage. While outsourcing has been found to have such tremendous benefits to an organization, if not done appropriately, it could lead to detrimental...
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