The Impact of Outsourcing in Hospitals
IMPACT OF OUTSOURCING ON ORGANIZATIONAL PERFORMANCE
A CASE STUDY OF MATER HOSPITAL, NAIROBI.
BY
KIPTOO MARITIM BERNARD
REG. NO: BBM/2609/11
RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF BUSINESS MANAGEMENT OF THE SCHOOL OF BUSINESS MANAGEMENT AND ECONOMICS
MOI UNIVERSITY
DECEMBER, 2011
DECLARATION
I declare that this is my original work and to the best of my knowledge, has not been submitted to any other institution or University for the purpose of examination.
Signature ………………………………….. Date……………………………_
KIPTOO MARITIM BERNARD (BBM/2609/11)
The project proposal has been submitted for examination with approval as University supervisor.
Signature ………………………………….. Date……………………………_
WELDON NGENO
LECTURER
MOI UNIVERSITY
DEDICATION
This work is dedicated to all organizations which perceive outsourcing as one of their strategies that will lead to improvement in the organizational performance. I hope this research will inspire the Government, planners, Outsourcers and implementers of outsourcing to facilitate the dream of Kenya becoming an outsourcing hub by the year 2030
ABSTRACT
The aim of this paper is to assess the effects of outsourcing on performance of organizations. Outsourcing is a strategic use of outside resources to perform activities that are usually handled by internal staff and resources. By using a well – managed outsourcing agreement, can gain in markets that would otherwise have been uneconomical. This study was designed to explore the impact outsourcing has on organizational performance. The results show that organizations benefits from outsourcing strategies if they identify their outsourcers wisely.
The target population for the study was 60 employees. The questions tried to find out the extent to which outsourcing led to financial performance improvement, the impact did outsourcing revenue cycle functions have on the hospital employees, extent has outsourcing improved patient service and satisfaction and extent has outsourcing benefited the wider community.
The instruments for data collection were questionnaires and interview schedule. The questionnaire was administered to the employees. This was a useful tool that enabled the researcher to receive responses on same questions from many respondents. Descriptive statistics was used to summarize data into frequencies and percentages. The data findings revealed that outsourcing has an impact on the performance of organizations.
Table of Contents
1.1 Back ground to the problem 1
1.2 Mater hospital 2
1.3 Statement of the problem 3
1.4 Research Questions 4
1.5 Significance of the Study 5
1.6 Scope 6
2.1 Introduction 2
2.2 Determinants of outsourcing 3
2.3 Types of outsourcing 4
2.3.1 Total Outsourcing 5
2.3.2 Multiple suppliers outsourcing 6
2.3.3 Joint venture/strategic alliance outsourcing 2
2.3.4 In sourcing 3
2.3 Theories of outsourcing 4
2.3.1 Transaction cost theory 5
2.3.2 The Agency Theory 6
2.3.3 Resource-based theory 1
2.3.4 Resource-dependent theory 2
2.3.5 Game theory 3
3.1 Introduction 4
3.1 Research Design 5
3.2 Target Population 6
3.3 Description of the Sample and Sampling Procedures 1
3.4 Description of Data Collection Procedures 2
3.4.1 Questionnaire 3
3.5 Description of Data Analysis Procedures 4
4.1. Introduction 5
4.2 Presentation of finding 6
4.2.1 Respondents’ Background Information 1
4.2.2. Opinion of employees on the decision to outsource 2
4.2.3 The extent to which outsourcing has lead to improved financial performance 3
4.2.4 The impact outsourcing revenue cycle functions had on the hospital employees 4
4.2.5 Employees comment on the reaction of the staff union on the outsourcing decision 5
4.2.6 The extent to which outsourcing has improved patient service and satisfaction 6
4.2.7 Comments on the overall perception of the patients towards the service delivery
of the hospital 1
4.3 The extent to which outsourcing has benefited the wider community 4
4.3.1 How does the community in general perceive the Hospitals decision to outsource? 5
5.0 Summary, conclusions and recommendation 6
5.1 Summary 6
5.2 Conclusions 6
5.3 Recommendations 6
5.4 Suggestions for Further Studies 6
Table of Figures and tables
Figure 1: Diagrammatic representation of value from outsourcing 6
Table 1: Distribution of the target population 6
Table 2: The sampling matrix 6
Table 3: Employees Gender 6
Table 4: Service in years 6
Table 5: Management level 6
Table 6: Department of the respondent 6
Table 7: presents a summary of what employees’ felt were the reason towards outsourcing 6
Table 8: Effects of outsourcing on performance 6
Table 9: Impact of Outsourcing to employees 6
Table 10: Impact of Outsourcing to patients 6
References 6
Appendices 6
CHAPTER ONE
INTRODUCTION
1.1 Back ground to the problem
In today’s world of ever increasing competition, organizations are forced to look for new ways to generate value. The world has embraced the phenomenon of outsourcing and companies have adopted its principles to help them expand into other markets (Bender, 1999). Strategic management of outsourcing is perhaps the most powerful tool in management, and outsourcing of innovation is its frontier (Quinn, 2000)
Outsourcing is getting into an agreement with other Companies or persons to do a specific job or function (Ella Venus, 2009). It is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house. Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business.
Outsourcing decisions involve decision making on the boundary of a firm (Barney, 1999). According to the Transaction Cost Theory, the boundary of a firm is decided by the cost effectiveness of the activity (Coase, 1937; Williamson, 1981).
Africa’s outsourcing industry is very young but continues to grow slowly and gradually begins to attract global attention and consideration in key research papers, publications and business meetings. In Kenya, Business Process Outsourcing is one of the six pillars of economic growth in the 2030 vision. In 2007, the ICT Board was established with the mandate of making Kenya the preferred destination for outsourcing in Africa, and a top-10 global ICT hub.
2. Mater hospital
The Mater Hospital Nairobi first opened its doors in 1962 as a 60 bed unit. Gradually over the years the Hospital grew – significant additions being a maternity extension in 1970, the paramedical building in 1987, a consultants clinic and family life centre in 1988, additional operating theatres, Accident and Emergency and ICU block in1994, a separate chapel in 1997, and a School of Nursing in 2004.
Today the Hospital has 137 beds, a 9 bedded ICU/HDU, a Renal Dialysis Unit, four operating theatres, a Cardiac Unit, a 24-hour A & E service, a School of Nursing and numerous outpatient services including a very busy Comprehensive Care Clinic (CCC) for HIV/ AIDS clients.
3. Statement of the problem
The recent reports in the media of Moi referral hospital’s (second largest referral hospital in Kenya) ICU and theatre have been closed due to cash crisis (Daily nation of October 18th 2011) and KNH operations at the largest referral in east and central Africa (standard News paper of 30th October 2011) were paralyzed by strike of its 4,000 staff demanding commuter allowance. Perhaps the solutions to this problems experienced by the two largest referrals hospital in Kenya is outsourcing. This has prompted me access the impact outsourcing decisions has on the performance of the hospital.
The practice of charging external service providers with the task of performing in-house activities, has attracted growing interest in recent years as managers consider whether it is in their best interest to perform activities in-house or externally (Maltz and Ellram 2000)
Research on outsourcing has concentrated on particular support services, notably facilities management, logistics and IT provision. Some conclude that true costs and benefits are difficult to assess. Some evaluations of outsourcing, favorable (Sharpe, 1997) and unfavorable (Stein, 1997), are founded on “ideology” and management “fashion” (Hendry, 1995; Alexander and Young, 1996).
4. Objectives of the study
1.4.1 General objectives
Successful implementation of an outsourcing strategy has been credited with helping to cut costs (Bowersox 1990; Greer, Youngblood and Gray 1999), increase capacity, improve capacity, improve quality (Lau and Hurley 1997, Kotabe, Murray and Javulagi 1998), increase profitability and productivity (Casale 1996; Sinderman 1995), improve financial performance (Crane, 1999), lower innovation costs and risks (Quinn, 2000) and improve organizational competitiveness (Lever 1997; Steensma and Corley 2000; Sharpe 1997).
1.4.2 Specific objectives
Specifically the study sought to;
1. To establish the extent to which outsourcing affects costs in mater hospital
2. To determine the relationship between quality and outsourcing in mater hospital.
1.5 Research Questions
The following research questions guided this study:-
1. To what extent has outsourcing led to financial performance improvement on the Hospital?
2. To what extent has outsourcing improved patient service and satisfaction?
3. To what extent has outsourcing benefited the wider community?
6. Significance/ Important of the study of the Study
The study would have different implications to different stakeholders. The main stakeholders to benefit from the study include: Hospital Management, Patients, government and Academicians
The study would enable the Hospital Management by providing an insight on the effects of Business process outsourcing and its significance to the hospital; it will also be useful to the patients in that the outcome will provide the way forward on the provision of medical facilities which could not be currently available in the hospital.
The government will be able to spearhead the government in policymaking regarding regulatory requirements of the Kenyan outsourcing firms and the study will form a basis upon which further studies on business process of outsourcing strategies and its effects in an organization can be carried out.
7. Scope
The scope of this study was limited to the assessment of the effects of outsourcing to the Mater hospital. The study covered the organization entirely for effective results.
1.8 Limitation of the study
The numerous security guards in the hospital made collection of the data to be a major hindrance. Access to the hospital was very difficult and even after accessing , most managers tried to shift the responsibility of completing questionnaires to other employees.
To overcome the problem I established link with some employees of the hospital which I used to contact management.
CHAPTER TWO
0. LITERATURE REVIEW
1. Introduction
Outsourcing has increasingly become a vital tool for the implementation of business strategy in many organizations. Competition continues to increase and organizations are being continuously forced to find ways to improve business performance and to obtain competitive advantage.
Increasingly, organizations are looking beyond the traditional boundaries of the firm to obtain performance improvement. The growing prevalence of outsourcing service providers is shaping the development of competitive strategies as well. The Business Process Outsourcing (BPO) phenomenon has grown as organizations have been transferring responsibility for entire functions such as human resource management, finance and information services to service providers – sometimes referred to as ‘unbundling’ (Hagel and Singer, 1999).
Most firms often operate with limited resources and capabilities. The firms must learn to make the most with the limited resources and capabilities (Hamel and Prahalad, 1989). Outsourcing provides a way for the managers to grow their firms by obtaining the needed resources from external suppliers and/or partners (Quinn, 2000; McIvor, 2005). Instead of doing everything internally, firms may opt to source the needed goods and/or services from outside.
The aims are usually concerned with better cost control, which assumes that in-house costs are known precisely beforehand, although that is not always the case. In some cases the outsourcing is concerned more with gaining access to technical expertise which may not be available in the outsourcing organization. There may be an emphasis on time saving for some organizations (cost control in terms of staff time costs). Increasingly, perhaps, many outsourcing relationships are becoming partnerships as outsourcing becomes an accepted way of conducting business, and relationships between those involved develop over time (Grover, Teng, & Cheon, 1998). 2. Determinants of outsourcing
Outsourcing and its productivity effects may be obtained by looking directly at the determinants of outsourcing.
i. Wages
(Girma and Görg, 2004), who estimated the productivity effect of outsourcing in the chemical, engineering, and electronic manufacturing industries in the United Kingdom, estimated the determinants of outsourcing. Focusing on plant characteristics, they found that high wages were positively related to outsourcing. As they argue, this could suggest that cost-savings are important in the firm’s decision to outsource. It could also indicate, however, a specialization process by skill intensive plants in which they are outsourcing their relatively low-skill intensive processes.
ii. Asset Specificity
In transaction cost theory, assets are durable resources that include sites, physical assets, and human assets (Williamson, 1985). Asset specificity refers to the degree to which such resources are specialized to an exchange. In this way, asset specificity can be viewed as an exchange attribute as well as a resource property, one that explains the resource’s potential for affecting transaction costs.
Transaction cost theory asserts that asset specificity is important in conjunction with bounded rationality, opportunism, and uncertainty. When asset specificity increases, under these conditions the redeploy ability of the assets decreases, and the contracting hazards (notably, the hazard of opportunism) as well as the bilateral dependency (notably, the risk of hold-up) between the parties involved in an exchange, increase (Williamson, 1985). Consequently, the likelihood of hierarchical forms of transaction governance increases (Williamson, 1991).
Asset specificity can not only cause hold-ups, with their associated monitoring and contract enforcement costs, but it also affects the transaction costs engendered by other exchange attributes, such as uncertainty and frequency (Williamson 1975, 1985; David and Han 2004).
Indeed, Williamson asserts (Williamson, 1999) that “much of the explanatory power of the transaction cost perspective turns on transaction-specific assets.” A precise understanding of the concept of asset specificity is important in order to assess its role in a firm’s decision on how to govern an activity (Carter and Hodgson, 2006).
iii. Firms specificity
Although firm specificity is often meant to denote resource among firms, so far researchers have not agreed on a formal definition of the term. Different researchers emphasize different aspects, such as the specificity of resources with respect to fields of application (Collis and Montgomery, 1997), specificity with respect to a firm’s needs (Chi, 1994)
A firm’s resources could still be firm-specific, even if the firm was not endowed with them, in the sense that their potential to generate value would be greater for that firm than for another. Firm specificity of activity-enabling resources is also often associated with the difficulties involved in imitating and substituting this resource bundle (Rumelt, 1984), as well as with the value-enhancing linkages (complementarities) among these resources and the firm’s overall resource position (Conner, 1991).
Firm-specificity is one of the resource properties that define strategic assets (Amit and Schoemaker, 1993).The greater a resource’s specificity to a firm, the greater its rent potential to that firm, given favorable conditions of demand, public policy and competitor action. Firm-specific resources are often associated with increased efficiency (Jacobides, 2004) 3. Types of outsourcing
Outsourcing is an important decision that has implications far beyond the improved financial results most organizations hope to gain. Only hospitals that understand the real financial and human costs and benefits can determine when it adds value. This can help a Hospital in determine the levels of outsourcing it can accommodate in its services. There are basically four types of outsourcing (Currie & Willcocks, 1998)
2.3.1 Total Outsourcing
Total outsourcing involves developing a partnership with a single supplier, with IT perceived as a service or support function. The aim is usually to reduce IT costs, or eliminate a problem IT function, but the outsourcing organization retains strategic control.
2.3.2 Multiple suppliers outsourcing
Multiple suppliers out sourcing is less concerned with partnerships as the aim is to foster innovation and create competition between suppliers, although it is recognized that suppliers will form alliances among themselves for bidding purposes.
2.3.3 Joint venture/strategic alliance outsourcing
Joint venture/strategic alliance outsourcing is more concerned with development of new knowledge for the client, and there is more emphasis on shared risks and rewards. Sometimes various organizations will foster the creation of a supplier company to which they will outsource work, but still have more control than they would do in a multiple supplier or total outsourcing arrangement.
2.3.4 In sourcing
In sourcing, or keeping the IT department and services in-house, occurs when organizations view IT as core to their business, or when they mistrust possible suppliers. A more recent type of outsourcing is the ASP (application service provider) model, where organizations purchase software use on an ‘as and when’ basis (Kern, Kreijger, & Willcocks, 2002). 5. Theories of outsourcing
The increasing use of outsourcing arrangements, as well as the unfamiliar complexity of outsourcing suggests the need to know more of how to effectively utilize this strategy. Consequently, more information is needed to understand successful outsourcing and the problems encountered in outsourcing activities and its impact on the overall organizational performance.
The capabilities of a firm must include control over or access to complementary assets and activities that would enable them to innovate, and to profit from the innovations (Nelson, 1991). The ability to control and make the most of critical capabilities whether or not they reside within the firm is more important than the ownership of the capabilities (Gottfredson, Puryear and Phillips, 2005). Outsourcing provides strategic options for the firms to address the challenges of operating and growing given the limitations of their resources and capabilities (Gottfredson 2005).
1. The Agency Theory
Agency cost theory expands on one aspect of TCT, as it deals with the different perspectives of risk that client and supplier have, and differentiates between outcome-based contracts, and behavior-based contracts. If the client distrusts the supplier then the extent of monitoring required will be greater for the client, than it would be if the client could wholly trust the supplier to deliver.
The client has two main choices: a contract which stipulates payment by results (an outcome-based contract), or a contract that states the supplier should do certain things at stipulated times, or spend a certain amount of time on certain functions. If one cannot trust a supplier to deliver a product some months down the line, then it might pay to ensure that it looks as if they are doing something. On the supplier side, a behavior-based contract at least allows them to claim that they did spend x hours on this task, even if the outcome could not be achieved as originally intended.
Agency cost theory helps to distinguish the most productive and fairest method of minimizing risks for both client and supplier. Agency theory addresses relationships in which one party (the principal) delegates work to another (the agent) who performs the work according to a mutually agreed contract. Both parties are self-interested with incongruent goals. This leads to two problems: 1) ex-ante, before signing the contract: the problem of adverse selection and 2) ex-post, after signing the contract: the problem of moral hazard.
Adverse selection arises pre-contractually because the agent possesses private or hidden information about the real quality of his service and the principal is unable to find out that information. This leads to information asymmetry and puts the principal in a disadvantaged position since the principal is faced with a pool of bidders with often insufficient qualifications. The principal cannot easily distinguish the ‘bad cars or lemons’ from the good ones (Akerlof, 1970).
2.4 Conceptual frame work
Although outsourcing may prove beneficial in specific situations, hospitals need to consider the true costs of outsourcing, which include the opportunity cost of outside contractors continually tapping into the hospital’s revenue stream rather than having the additional revenue flow back to the hospital.
Before outsourcing revenue cycle functions, hospitals need to determine why they have not yet accomplished their performance improvement objectives. • Does the organization lack access to qualified personnel? • Are internal processes, tools, and technology insufficient to handle revenue cycle activities efficiently and effectively? • Is there insufficient capital to invest in needed resources? • What attempts have been made to address these issues? • What were the outcomes of these efforts?
Once the answers to these questions are clear, the unique capabilities, skills, and resources an outsourcer must be able to provide to overcome existing barriers to success can be identified.
Hospitals should work closely with potential outside contractors to document and verify their skills and capabilities and ensure they can demonstrate a consistent, long-term track record of success.
Hospitals may hope to achieve several objectives through outsourcing; financial performance improvement is usually the chief among them. Increased employee performance, greater job satisfaction, and improved workforce morale resulting from better training, more efficient work processes, or enhanced technology that an outsourcer may provide are other common objectives.
Some hospitals hope that outsourcing revenue cycle activities will improve patient service or satisfaction by reducing waiting times to receive care or expediting claims processing and payment. Still others anticipate benefits to the broader community by boosting the margin available to help fulfill the hospital’s mission. Accomplishing all of these objectives, rather than just one or two, should be the goal of any revenue cycle improvement effort.
To truly understand the real financial benefits and costs of outsourcing, hospitals need to carefully evaluate the ways they expect outsourcing to drive financial performance improvement. Because the revenue cycle affects so many stakeholders (patients, employees, and the community), it is important not only to consider the objectives but also to evaluate the impact that outsourcing will have on all of these constituencies.
Figure 1: Diagrammatic representation of value from outsourcing
CHAPTER THREE
3. RESEARCH DESIGN AND METHODOLOGY
1. Introduction
This chapter has research approach, designs, sample and sampling procedures, research instruments, administration of research instruments/data collection and analysis procedures.
3.1 Research Design
In assessing the effects of outsourcing to the organizational performance of the Mater Hospital, the researcher used descriptive research. This approach is appropriate to this study because the study involves fact finding and enquiries of different kind to describe the state of the affairs (effects of outsourcing) as they exist at the time of this study.
3.2 Target Population
In assessing the effects of outsourcing to the organizational performance of the Mater Hospital, the researcher targeted a population size of 602 people who included senior Management, paramedic staff, contracted staff, low come staff and senior management staff. The population of 602 consisted of the total number of employees from the five departments of The Mater Hospital and will be being distributed as follows:
Table 1: Distribution of the target population
|DEPARTMENT |POPULATION SIZE |
|Subordinate |253 |
|Paramedic |211 |
|Contracted |72 |
|Low come |48 |
|Senior Management |18 |
|Total |602 |
3.3 Description of the Sample and Sampling Procedures
The selection of the actual sample size was done using Stratified Sampling. Simple Random Sampling was then used to get the figures. Stratified random sampling which is one method of Probability Sampling (Kombo and Tromp, 2006) was used to divide the staff population into homogeneous subgroups and then took simple random sample in each subgroup.
Simple random sampling was then used taking 10% to ensure that the sample was representative in proportion to their number in population. This is because for descriptive studies 10% of the population is adequate for sampling (Gay, 1996). Simple random sampling ensured that each individual employee had an equal chance of being selected and therefore avoided biases.
Below is tabulation of how the sample was derived.
Table 2: The sampling matrix
|DEPARTMENT |POPULATION SIZE |SAMPLE SIZE |
|Subordinate |253 |25 |
|Paramedic |211 |21 |
|Contracted |72 |7 |
|Low come |48 |5 |
|Senior Management |18 |2 |
|Total |602 |60 |
Using the organizational chart and list of staff members, the population was first stratified according to departments and then determined the size of each department. Using proportionate method, the researcher established the size of the subject of each department and by use of purposive sampling method, picked subjects for each department. This sampling process enabled the researcher to deal with the subject critical to the study.
3.4 Description of Data Collection Procedures
The study used primary data and secondary data. Primary data refers to the information a researcher obtains from the field from the subjects in the sample while the secondary data refers to information a researcher obtains from books, reports and other publications which had been collected for other purposes (Kothari, 2003). These sources assisted the researcher in comparing the two types of data for reliability.
According to (Mugenda and Mugenda ,2003) qualitative methods provide in depth explanations while quantitative methods provide the hard data needed to meet required objectives.
3.4.1 Questionnaire
A questionnaire with structured and unstructured questions was used to collect data. According to (Kothari ,2003), structured questions (closed ended) refer to questions which are accompanied by a list of possible alternative answers from which respondents select the answer that best describes their situation. Closed ended questions are easier to analyze and administer because of specific alternative answers, however they are difficult to construct and responses are limited. Questions were therefore standardized to ensure all respondents reply to same questions in a defined manner.
Open ended questions refer to questions which give respondents complete freedom of response. They permit greater response though can encourage irrelevant response (Kothari, 2003). They were used in some specific areas that require explanations. The questionnaires were delivered by hand to each subject by the researcher who then instructed the subject on how to complete the questionnaire and also make clarifications on issues that required to be clarified.
3.5 Description of Data Analysis Procedures
(Kerlinger, 1973) describes data analysis as categorizing, ordering, manipulating and summarizing data to obtain answers to research questions. He stresses that the purpose of analysis is to reduce data to intelligible and interpretable form in order to study and test the relations of research problems. The data obtained will be analyzed using data management software, Statistical Package for Social Sciences (SPSS) for quantitative data and content analysis for qualitative data.
All questionnaires were adequately checked and verified for reliability. The information was codified, entered into a spreadsheet and analyzed using SPSS by the researcher. Exploratory analysis was first performed to ensure that the output were free from errors. The data was then analyzed using qualitative and quantitative techniques. This involves creating descriptive statistics namely percentages, and measures of central tendency. The data was then presented using tables and cross tabulations. Scalar types of questions were analyzed using descriptive statistics to establish the level of perception to various attributes provided.
CHAPTER FOUR
4.0 PRESENTATION, DISCUSSION AND INTERPRETATION OF THE FINDINGS
4.1. Introduction
This chapter presents the research findings from employees of The Mater Hospital. The study sought to find out the effects of outsourcing to organizational performance. Questionnaires were administered to 60 employees in different departments. Only 53 employees returned the questionnaires.
The findings are hereby presented in descriptive statistics. These findings are presented in five sections. The first section gives background information of the respondents and the rest four are in line with the four research questions. The main sections shall be as follows:
1) Respondents’ Background Information
2) The extent to which outsourcing has lead to improved financial performance
3) The extent to which outsourcing has improved patient service and satisfaction
4) The extent to which outsourcing has benefited the wider community
4.2 Presentation of finding
4.2.1 Respondents’ Background Information
Table 3: Employees Gender
|Gender |Frequency |% |
|Male |29 |54.7 |
|Female |24 |45.3 |
| |53 |100 |
Out of the 60 questioners which were administered, a total of 53 employees participated in the study among which 24 were female and 29 male. This was 88.3% of the sample size that had been selected.
Table 4: Service in years
|Service in Year |Frequency |% |
|0 - 5 |22 |41.5 |
|6 - 10 |17 |32.1 |
|11 -15 |9 |17 |
|Over 15 |5 |9.4 |
|Total |53 |100 |
Of the total employees who participated 41.5% has served the Hospital for less than five years, 32.1% for six to ten years, 11% for eleven to fifteen years and 9.45 has served the Hospital for over 15 years. These results indicate that very few employees stay in the Hospital for long.
Effective communication among the management and the employees could reduce the rate of staff turnover. The management needs to rebuild trust with the employees this can be achieved through support by the top management and providing incentives to employees who meet their expectations (Jones, 1997; foster, 1999)
Table 5: Management level
|Level in Management |Frequency |% |
|Management Level |2 |3.77 |
|Supervisory level |23 |43.4 |
|Subordinated staff |28 |52.83 |
|Total |53 |100 |
52.83% of the employees who participated were subordinate staff, 43.4% were supervisory staff and 3.77% were in the management level. The subordinate staffs being the main participants in the exercise were the most affected in the outsourcing decision of the hospital this was due to the fear that their jobs were at stake and risked losing them to the outsourced company.
The individuals in the subordinate level were expected to manage the outsourcing relationship and therefore required to have a complete understanding of the business goal, specific performance criteria and their individual roles. This can be achieved through training and communication and can help reduce resistance or resentment (Foster 1999)
Table 6: Department of the respondent
|Department |Frequency |% |
|Subordinate |23 |43.4 |
|Paramedic |18 |33.96 |
|Contracted |6 |11.32 |
|Low come |4 |7.55 |
|Senior Management |2 |3.77 |
|Total |53 |100 |
Part of the employees who returned their questionnaire 43.4%, 33.96 %, 11.32%, 7.55% and 3.77% were in the Subordinate, Paramedic, Contracted, Low come and Senior Management departments respectively.
The research was carried out in all departments of the Hospital to ensure that opinion was obtained from all levels because the decision of the Hospital to outsource affected all the employees irrespective of the department in which they were placed.
4.2.2. Opinion of employees on the decision to outsource
This section’s findings shall be responding to the employee’s opinion on the driving force to the decision to outsource. The first question in the questionnaire sought to find out employee’s overall opinion towards the reasons of outsourcing as concerned cost savings, employee morale and skills, insufficient capital resources, focus on core competences and improved delivery and reliability
Table 7: presents a summary of what employees’ felt were the reason towards outsourcing
|Selected possible areas that led to outsourcing decision | | |
| |Strongly |Agree |Neutral |Disagree |Strongly | |
| |agree | | | |disagree | |
| |% |% |% |% |% |% |
|Financial performance was the driving force that lead to Outsourcing |11.32 |73.58 |9.43 |3.77 |1.89 |100 |
|Hospital outsourced in order to increase employee performance |7.55 |58.49 |3.77 |18.87 |11.32 |100 |
|Improving patient service / satisfaction was a driving force to the outsourcing |32.08 |49.06 |7.55 |9.43 |1.89 |100 |
|decision | | | | | | |
|Lack of qualified personnel to handle the outsourced services led to the |15.09 |54.72 |0.00 |13.21 |16.98 |100 |
|outsourcing decision | | | | | | |
|Insufficient capital to invest in the needed resources was the cause of the |58.49 |35.85 |5.66 |0.00 |0.00 |100 |
|outsourcing decision | | | | | | |
|Insufficient internal processes, tools and technology led to the outsourcing of |67.92 |24.53 |1.89 |3.77 |1.89 |100 |
|revenue cycle activities | | | | | | |
|Hospital outsourced in order to focus on its core activities |73.58 |22.64 |3.77 |0.00 |0.00 |100 |
|Hospital outsourced in order to make capital funds available for more profitable|45.28 |39.62 |5.66 |1.89 |7.55 |100 |
|operations | | | | | | |
|Hospital outsourced in order to improve delivery and reliability of its services|7.55 |79.25 |3.77 |9.43 |0.00 |100 |
|N = 58 |
Opinion on Financial performance as the driving force
11.32% of those studied strongly agreed with the reasons behind the outsourcing decision, while as 73.58% agreed that indeed financial performance was the driving force towards the outsourcing decision. This resulted to 84.9% of the employees were positive that financial performance was the driving force towards outsourcing.
The finding complement previous studies (Bowersox ,1999 ; Crane, 1999; and Quinn, 2000) and proves that outsourcing is undertaken for purposes that have a large impact on the organizations bottom line.
Opinion on outsourcing in order to increase employee performance
7.55% of those studied strongly agreed with the reasons behind the outsourcing decision, while as 58.49% agreed that the hospital outsourced in order to improve employee performance. This resulted to 66.04% of the employees being positive though they felt they need to be more involved than the position stands currently.
The effects of outsourcing on the employee’s morale and performance though 66.04% agreed to the decision to outsource the Hospital need to inform the employees in every step of the outsourcing decision and make them feel they have participated in the decisions to ensure they perform well.
Other reasons that contributed to the outsourcing decision
From the employees studied it was clear that they felt that there existed other reasons which led to the hospitals decision to outsource. These reasons were stipulated in the questioner as what the participants felt were the other reason why the decision to outsource were undertaken.
1. Reduction of the number of staff in the payroll
2. Reduction in insurance costs
3. The possibility of obtaining cheaper labor from the market
4.2.3 The extent to which outsourcing has lead to improved financial performance
Table 8: Effects of outsourcing on performance
|Effects of outsourcing on performance | |
| |% |% |% |% |
|Outsourcing opportunity match the organizational business needs |66.04 |22.64 |11.32 |100 |
|Outsourcing led to the Hospital reducing costs |81.13 |15.10 |3.77 |100 |
|Out sourcing led to improved cash flow in the organization |77.36 |0.00 |22.64 |100 |
|N = 53 |
From the employees studied 66.04% felt that the outsourcing opportunity matched the organizational business needs, 22.64% felt otherwise while as 11.32% were not sure. The employees studied, 81.13% felt that the outsourcing has led to reduction of costs by the hospital, 15.1% felt that there was no saving in cost as a result of the outsourcing decision and 3.77% were not sure on whether there has been a cost reduction experienced by the hospital, and 22.64% were not sure of any increased cash flow from the organization. From those studied it was evidence that the Hospital conducts performance evaluation of the outsourced services on quarterly basis.
4.2.4 The impact outsourcing revenue cycle functions had on the hospital employees
Table 9: Impact of Outsourcing to employees
|Effects of outsourcing on Employees | |
| |Yes |No |Not sure | |
| |% |% |% |% |
|Did outsourcing result to additional new skills from employees of the outsourced Company |79.25 |20.75 |0 |100 |
|Did outsourcing bring about organizational change in practice and culture |88.68 |9.43 |1.89 |100 |
|Did outsourcing boost the employees morale |54.72 |16.98 |28.30 |100 |
|Outsourcing enhanced the relationship between employees and the management |37.74 |52.83 |9.43 |100 |
|Are employees more efficient as a result of outsourcing |71.70 |18.87 |9.43 |100 |
|Has out sourcing led to high staff turnover |24.53 |69.81 |22.64 |100 |
|N = 53 |
79.25% of the respondents agreed that the outsourcing by the Hospital has facilitate its employees in acquiring new skills, 88.68% felt that the organizational culture and practice has changed as a result of the outsourcing decision and 52.83% felt that the decision led to reduced relationship among the employees and the management.
The Hospital management needs to step in and re build trust among the workers, reevaluate those jobs and provide incentives to employees to make them understand that they are part of the process and make them know they have a share on the improved bottom line of the Hospital. This will enable them perform better.
4.2.5 Employees comment on the reaction of the staff union on the outsourcing decision
Employee’s studies concluded that the staff union participated in the decision to outsource thereby ensuring that they were not victimized and that no one was sent home so as to create room for employees of the outsourced company. They however felt that they need to be involved more in those decisions which affect them directly.
4.2.6 The extent to which outsourcing has improved patient service and satisfaction
Table 10: Impact of Outsourcing to patients
|Selected possible areas that led to outsourcing decision | |
| |Strongly |Agree |Neutral |Disagree |Strongly | |
| |agree | | | |Disagree | |
| |% |% |% |% |% |% |
|Patients are more satisfied by the services offered by the Hospital than |69.81 |9.43 |5.66 |3.77 |11.32 |100 |
|before | | | | | | |
|Are there fewer patients complain as a result of outsourcing |77.36 |13.21 |9.43 |0.00 |0.00 |100 |
|As a result of the satisfaction derived employees would prefer seeking |60.38 |28.30 |0.00 |9.43 |1.89 |100 |
|medical attention from the hospital | | | | | | |
|Patients always refer other patients to the Hospital since they get more |92.46 |3.77 |3.77 |0.00 |0.00 |100 |
|satisfied | | | | | | |
|N = 53 |
77.36% of the responded agreed that there were fewer patients complains, 92.46% said that patients are more satisfied and refer other patients to the Hospital to receive services and 11.32% disagreed that patients were more satisfied with the services that were offered by the hospital.
The results indicate that the decision to outsource has a greet impact in the way services are provided
4.2.7 Comments on the overall perception of the patients towards the service delivery of the hospital
In this question employees commented that they have been receiving commendation from patients they serve and also relatives of those patients on their service in this they felt that the patients were satisfied with the services delivered by the Hospital in general.
4.3 The extent to which outsourcing has benefited the wider community
4.3.1 How does the community in general perceive the Hospitals decision to outsource?
Employees studied commented that the community with the Hospital has fully benefited from the outsourcing decision this was clearly expressed in cases where the community is contacted for provision of care for the terminally ill patients especially those suffering from HIV & AIDS who needs assurance and love during their last days and with the use of services from the community it gives such patients comfort and the feeling of belongingness from the company they get from those taking care of the yet the people are hired from the community and as a result jobs are created.
CHAPTER FIVE
5. Summary, conclusions and recommendation
1. Summary
This research paper purposed to find out the effects of outsourcing to organizational performance in The Mater Hospital. From the study it was quite evidence that outsourcing led to improved performance to organizations depending on how the outsourcing is structured and the competencies of the firm from which outsourcing has been contracted from.
It was indeed evident that the decision to outsource can lead to competitive advantages for businesses and for outsourcing to be successful the decision needs to be an informed one. Good, hard, detailed information in the hands of strong management can help avoid a costly step, one that is not easily reversed. Ultimately, for outsourcing in any form to be successful, quick response times to strategic opportunities and threats are essential. Effective management of the outsourcing relationships is an organizational imperative.
The top reasons for undertaking outsourcing projects identified by the survey results were to reduce costs, improve quality, improve delivery and reliability, gain access to materials only available abroad, establish a presence in foreign market, use resources not available internally, reduce the overall amount of specialized skills and knowledge needed for operations, make capital funds available for more profitable operations, and focus on core competencies of the corporation.
These findings complement previous studies (Bowersox 1990; Crane 1999; and Quinn 2000) and suggest that outsourcing is undertaken for purposes that have a large impact on the organization’s bottom line, although more tangential purposes such as strategy, profitability, and competitive advantage may have been the rationale for the more direct reasons.
This study was guided by the following research questions:
1 To what extent has outsourcing led to financial performance improvement?
1. What impact did outsourcing revenue cycle functions have on the hospital employees?
2. To what extent has outsourcing improved patient service and satisfaction?
3. To what extent has outsourcing benefited the wider community?
The study employed descriptive research. It targeted all employees of the Mater Hospital. The researched used Stratified Sampling and Simple Random Sampling to select a sample of 60. Only 53 employees returned the filled in questionnaire. To obtain information from the respondents the researcher used questionnaires. Data were collected by the researcher and summarized into frequencies, percentages and narrative reports.
5.2 Conclusions
Based on the findings, the following are the conclusions:
1) Based on the researcher’s knowledge of outsourcing, the respondents showed that The Mater Hospital outsourcing decision was well informed, and has led to a significance change on how the Hospital operates.
2) The respondents possessed concepts; perspectives and conviction that they need to be more involved in the outsourcing decisions by the Hospital to ensure that they have all information to enable them monitor the operations of the outsourced company.
3) The researcher clearly deduced from the responses that respondents knew that outsourcing has a great impact to the Hospital performance and delivery of its services.
4) The Employees expressed their willingness to improve their relationship with the management if they were more involved in decision making in those areas which touched on them and were critical.
5.3 Recommendations
Based on the findings the researcher made the following recommendations:
1) The Mater Hospital should establish a department or centre to coordinate employees and to collect their views on the operations of the Hospital.
2) The Hospital needed to invite tenders for the services currently being outsourced to be assured that they are getting the best services at the lowest costs.
5.4 Suggestions for Further Studies
1) Similar research studies should be carried out in all organization to ensure that the true effects of outsourcing are experienced.
2) A study need conducted to establish whether the outsourced companies are equipped with the right skills and competencies to tackle the assigned activities
3) A study should be carried out to find out the extent to which the employees of the outsourced company are utilized to attain the desired objectives.
4) A study should be carried out to establish the challenges that are facing the decision to outsource some activities which are usually seen as key to the organization.
REFERENCES
1. Quinn, B.J. 2000. Outsourcing innovation: The new engine of growth. Sloan Management review 41 (14)
2. (Ella Venus 2009
3. Barney, J.B. 1999. How a firm’s capabilities affect boundery decisions. Sloan Management review, (40: 3)
4. Coase R. H (1937). The nature of the form. Cited in: J Barney, W Ouchi (Eds). Organizational economics san Francisco: Jossey – Bass, 1986
5. Williamson, 1981).
6. 2030 vision. In 2007
7. Medical Device Daily February 28 2008).
8. (Maltz and Ellram 2000;)
9. (Lewis and Talalayevsky 2000)
10. ( Mahnke, Overby, and Vang 2005).
11. (Murphy and Poist 2000)
12. ( Knemeyer, Corsi, and Murphy 2003).
13. Sharpe, M. 1997. Outsourcing gains speed in outsourcing world. Journal of labour research (Fall): 535 - 549
14. Bowers, D. J. 1990. The strategic benefits of logistics alliances. Harvard Business Review 68 (4): 6 – 45.
15. Greer, C. R., S. A. Youngblood and D. A. Gray. 1999. Human resource management outsourcing: The make or buy decision. Academy management Executive 13(3): 85 – 96. (Alexander and Young, 1996).
QUESTIONNAIRE
Dear Respondent: My name is Kiptoo Maritim Bernard, am a Bachelor of Business management Student at the Moi University, Nairobi Sattetlite Campus. Am conducting my Academic research, which is a partial fulfillment of the requirement of this course. The Mater Hospital has permitted me to conduct this research. I will treat your opinions confidentially. You honesty is both critical and paramount when you respond to the questionnaire.
Please tick (√) as appropriate.
Section A: Background Information
1. Gender of Respondent
2. Male Female
3. How long have your worked for this organization (in terms of years)
0-5 6-10 11-15 over 15
4. Management level of respondent
Management Level Supervisory Level Subordinate Staff
5. Your department: _______________________________________
6. Which services are currently being outsourced? _________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Section B: Effects of outsourcing
6. In this statement kindly indicate your level of agreement
1 – Strongly agree 2 – Agree 3 – Neutral 4 – Disagree 5 – Strongly disagree
|Factor |1 |2 |3 |4 |5 |
|Financial performance improvement in terms of cost reduction was the major reason why the outsourcing decision | | | | | |
|was taken | | | | | |
|The hospital outsourced in order to increase employee performance and ensure greater job satisfaction resulting | | | | | |
|from better training and more efficient work processes | | | | | |
|Improving patient service or satisfaction by reducing waiting times to receive care or expediting claims | | | | | |
|processing and payment was the driving force for outsourcing in the hospital | | | | | |
|The Hospital outsourced due to lack of access to qualified personnel to handle the outsourced services | | | | | |
|Insufficient capital in invest in the needed resources was a cause for outsourcing | | | | | |
|The hospital resulted into outsourcing since internal processes, tools and technology were insufficient to handle| | | | | |
|revenue cycles activities efficiently and effectively | | | | | |
|The Hospital outsourced in order to focus on it core competencies | | | | | |
|The Hospital outsourced in order to make capital funds available for more profitable operations | | | | | |
|The Hospital outsourced in order to improve delivery and reliability of its services | | | | | |
7. What are the other reasons that contributed to the decision of outsourcing by the management oftheHospital:_____________________________________________________________________________________________________________________________________________________________________________________________________________________
8. Does the outsourcing opportunity match the organizations business needs?
Yes No Not Sure
9. Has the outsourcing helped the Hospital to reduce and control costs?
Yes No Not Sure
10. Has the outsourcing led to improved cash flow of the organization?
Yes No Not Sure
11. How often do you carry out performance evaluation on the outsourced services?
Weekly Monthly Quarterly
Semi - Annually Annually Never
12. Did outsourcing provide Hospital employees with additional benefits such as new skills from employees of the outsourced Companies?
Yes No Not Sure
13. Did outsourcing bring change in organizational practices and culture?
Yes No Not Sure
14. Did outsourcing boost the morale of the employees?
Yes No Not Sure
15. Did outsourcing enhance the relationships between the employees and the management?
Yes No Not Sure
16. Are the employees more efficient as a result of outsourcing?
Yes No Not Sure
17. Has outsourcing led to higher staff turnover?
Yes No Not Sure
18. Comment of the reaction of the staff union (if any) on the outsourcing decision: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________
19. In the following statements, please indicate the level of agreement as follows:
1 – Strongly agree 2 – Agree 3 – Neutral 4 – Disagree 5 – Strongly disagree
|Factor |1 |2 |3 |4 |5 |
|Patients are now much more satisfied by the services offered by the Hospital the before | | | | | |
|There are fewer patient complaints as a result of outsourcing | | | | | |
|As a result of satisfaction derived from the outsourced services patients would always prefer seeking medical| | | | | |
|attention from the Hospital | | | | | |
|Patients always refer other patients to this Hospital since the get more satisfied | | | | | |
20. Comment on the overall perception of the patients towards the service delivery of the Hospital: ________________________________________________________________________________________________________________________________________________________________________________________________________________________________
21. How does the community in general perceive the Hospital’s decision to outsource? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________
-----------------------
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References: Outsourcing decisions involve decision making on the boundary of a firm (Barney, 1999). According to the Transaction Cost Theory, the boundary of a firm is decided by the cost effectiveness of the activity (Coase, 1937; Williamson, 1981).
A CASE STUDY OF MATER HOSPITAL, NAIROBI.
BY
KIPTOO MARITIM BERNARD
REG. NO: BBM/2609/11
RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF BUSINESS MANAGEMENT OF THE SCHOOL OF BUSINESS MANAGEMENT AND ECONOMICS
MOI UNIVERSITY
DECEMBER, 2011
DECLARATION
I declare that this is my original work and to the best of my knowledge, has not been submitted to any other institution or University for the purpose of examination.
Signature ………………………………….. Date……………………………_
KIPTOO MARITIM BERNARD (BBM/2609/11)
The project proposal has been submitted for examination with approval as University supervisor.
Signature ………………………………….. Date……………………………_
WELDON NGENO
LECTURER
MOI UNIVERSITY
DEDICATION
This work is dedicated to all organizations which perceive outsourcing as one of their strategies that will lead to improvement in the organizational performance. I hope this research will inspire the Government, planners, Outsourcers and implementers of outsourcing to facilitate the dream of Kenya becoming an outsourcing hub by the year 2030
ABSTRACT
The aim of this paper is to assess the effects of outsourcing on performance of organizations. Outsourcing is a strategic use of outside resources to perform activities that are usually handled by internal staff and resources. By using a well – managed outsourcing agreement, can gain in markets that would otherwise have been uneconomical. This study was designed to explore the impact outsourcing has on organizational performance. The results show that organizations benefits from outsourcing strategies if they identify their outsourcers wisely.
The target population for the study was 60 employees. The questions tried to find out the extent to which outsourcing led to financial performance improvement, the impact did outsourcing revenue cycle functions have on the hospital employees, extent has outsourcing improved patient service and satisfaction and extent has outsourcing benefited the wider community.
The instruments for data collection were questionnaires and interview schedule. The questionnaire was administered to the employees. This was a useful tool that enabled the researcher to receive responses on same questions from many respondents. Descriptive statistics was used to summarize data into frequencies and percentages. The data findings revealed that outsourcing has an impact on the performance of organizations.
Table of Contents
1.1 Back ground to the problem 1
1.2 Mater hospital 2
1.3 Statement of the problem 3
1.4 Research Questions 4
1.5 Significance of the Study 5
1.6 Scope 6
2.1 Introduction 2
2.2 Determinants of outsourcing 3
2.3 Types of outsourcing 4
2.3.1 Total Outsourcing 5
2.3.2 Multiple suppliers outsourcing 6
2.3.3 Joint venture/strategic alliance outsourcing 2
2.3.4 In sourcing 3
2.3 Theories of outsourcing 4
2.3.1 Transaction cost theory 5
2.3.2 The Agency Theory 6
2.3.3 Resource-based theory 1
2.3.4 Resource-dependent theory 2
2.3.5 Game theory 3
3.1 Introduction 4
3.1 Research Design 5
3.2 Target Population 6
3.3 Description of the Sample and Sampling Procedures 1
3.4 Description of Data Collection Procedures 2
3.4.1 Questionnaire 3
3.5 Description of Data Analysis Procedures 4
4.1. Introduction 5
4.2 Presentation of finding 6
4.2.1 Respondents’ Background Information 1
4.2.2. Opinion of employees on the decision to outsource 2
4.2.3 The extent to which outsourcing has lead to improved financial performance 3
4.2.4 The impact outsourcing revenue cycle functions had on the hospital employees 4
4.2.5 Employees comment on the reaction of the staff union on the outsourcing decision 5
4.2.6 The extent to which outsourcing has improved patient service and satisfaction 6
4.2.7 Comments on the overall perception of the patients towards the service delivery
of the hospital 1
4.3 The extent to which outsourcing has benefited the wider community 4
4.3.1 How does the community in general perceive the Hospitals decision to outsource? 5
5.0 Summary, conclusions and recommendation 6
5.1 Summary 6
5.2 Conclusions 6
5.3 Recommendations 6
5.4 Suggestions for Further Studies 6
Table of Figures and tables
Figure 1: Diagrammatic representation of value from outsourcing 6
Table 1: Distribution of the target population 6
Table 2: The sampling matrix 6
Table 3: Employees Gender 6
Table 4: Service in years 6
Table 5: Management level 6
Table 6: Department of the respondent 6
Table 7: presents a summary of what employees’ felt were the reason towards outsourcing 6
Table 8: Effects of outsourcing on performance 6
Table 9: Impact of Outsourcing to employees 6
Table 10: Impact of Outsourcing to patients 6
References 6
Appendices 6
CHAPTER ONE
INTRODUCTION
1.1 Back ground to the problem
In today’s world of ever increasing competition, organizations are forced to look for new ways to generate value. The world has embraced the phenomenon of outsourcing and companies have adopted its principles to help them expand into other markets (Bender, 1999). Strategic management of outsourcing is perhaps the most powerful tool in management, and outsourcing of innovation is its frontier (Quinn, 2000)
Outsourcing is getting into an agreement with other Companies or persons to do a specific job or function (Ella Venus, 2009). It is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house. Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business.
Outsourcing decisions involve decision making on the boundary of a firm (Barney, 1999). According to the Transaction Cost Theory, the boundary of a firm is decided by the cost effectiveness of the activity (Coase, 1937; Williamson, 1981).
Africa’s outsourcing industry is very young but continues to grow slowly and gradually begins to attract global attention and consideration in key research papers, publications and business meetings. In Kenya, Business Process Outsourcing is one of the six pillars of economic growth in the 2030 vision. In 2007, the ICT Board was established with the mandate of making Kenya the preferred destination for outsourcing in Africa, and a top-10 global ICT hub.
2. Mater hospital
The Mater Hospital Nairobi first opened its doors in 1962 as a 60 bed unit. Gradually over the years the Hospital grew – significant additions being a maternity extension in 1970, the paramedical building in 1987, a consultants clinic and family life centre in 1988, additional operating theatres, Accident and Emergency and ICU block in1994, a separate chapel in 1997, and a School of Nursing in 2004.
Today the Hospital has 137 beds, a 9 bedded ICU/HDU, a Renal Dialysis Unit, four operating theatres, a Cardiac Unit, a 24-hour A & E service, a School of Nursing and numerous outpatient services including a very busy Comprehensive Care Clinic (CCC) for HIV/ AIDS clients.
3. Statement of the problem
The recent reports in the media of Moi referral hospital’s (second largest referral hospital in Kenya) ICU and theatre have been closed due to cash crisis (Daily nation of October 18th 2011) and KNH operations at the largest referral in east and central Africa (standard News paper of 30th October 2011) were paralyzed by strike of its 4,000 staff demanding commuter allowance. Perhaps the solutions to this problems experienced by the two largest referrals hospital in Kenya is outsourcing. This has prompted me access the impact outsourcing decisions has on the performance of the hospital.
The practice of charging external service providers with the task of performing in-house activities, has attracted growing interest in recent years as managers consider whether it is in their best interest to perform activities in-house or externally (Maltz and Ellram 2000)
Research on outsourcing has concentrated on particular support services, notably facilities management, logistics and IT provision. Some conclude that true costs and benefits are difficult to assess. Some evaluations of outsourcing, favorable (Sharpe, 1997) and unfavorable (Stein, 1997), are founded on “ideology” and management “fashion” (Hendry, 1995; Alexander and Young, 1996).
4. Objectives of the study
1.4.1 General objectives
Successful implementation of an outsourcing strategy has been credited with helping to cut costs (Bowersox 1990; Greer, Youngblood and Gray 1999), increase capacity, improve capacity, improve quality (Lau and Hurley 1997, Kotabe, Murray and Javulagi 1998), increase profitability and productivity (Casale 1996; Sinderman 1995), improve financial performance (Crane, 1999), lower innovation costs and risks (Quinn, 2000) and improve organizational competitiveness (Lever 1997; Steensma and Corley 2000; Sharpe 1997).
1.4.2 Specific objectives
Specifically the study sought to;
1. To establish the extent to which outsourcing affects costs in mater hospital
2. To determine the relationship between quality and outsourcing in mater hospital.
1.5 Research Questions
The following research questions guided this study:-
1. To what extent has outsourcing led to financial performance improvement on the Hospital?
2. To what extent has outsourcing improved patient service and satisfaction?
3. To what extent has outsourcing benefited the wider community?
6. Significance/ Important of the study of the Study
The study would have different implications to different stakeholders. The main stakeholders to benefit from the study include: Hospital Management, Patients, government and Academicians
The study would enable the Hospital Management by providing an insight on the effects of Business process outsourcing and its significance to the hospital; it will also be useful to the patients in that the outcome will provide the way forward on the provision of medical facilities which could not be currently available in the hospital.
The government will be able to spearhead the government in policymaking regarding regulatory requirements of the Kenyan outsourcing firms and the study will form a basis upon which further studies on business process of outsourcing strategies and its effects in an organization can be carried out.
7. Scope
The scope of this study was limited to the assessment of the effects of outsourcing to the Mater hospital. The study covered the organization entirely for effective results.
1.8 Limitation of the study
The numerous security guards in the hospital made collection of the data to be a major hindrance. Access to the hospital was very difficult and even after accessing , most managers tried to shift the responsibility of completing questionnaires to other employees.
To overcome the problem I established link with some employees of the hospital which I used to contact management.
CHAPTER TWO
0. LITERATURE REVIEW
1. Introduction
Outsourcing has increasingly become a vital tool for the implementation of business strategy in many organizations. Competition continues to increase and organizations are being continuously forced to find ways to improve business performance and to obtain competitive advantage.
Increasingly, organizations are looking beyond the traditional boundaries of the firm to obtain performance improvement. The growing prevalence of outsourcing service providers is shaping the development of competitive strategies as well. The Business Process Outsourcing (BPO) phenomenon has grown as organizations have been transferring responsibility for entire functions such as human resource management, finance and information services to service providers – sometimes referred to as ‘unbundling’ (Hagel and Singer, 1999).
Most firms often operate with limited resources and capabilities. The firms must learn to make the most with the limited resources and capabilities (Hamel and Prahalad, 1989). Outsourcing provides a way for the managers to grow their firms by obtaining the needed resources from external suppliers and/or partners (Quinn, 2000; McIvor, 2005). Instead of doing everything internally, firms may opt to source the needed goods and/or services from outside.
The aims are usually concerned with better cost control, which assumes that in-house costs are known precisely beforehand, although that is not always the case. In some cases the outsourcing is concerned more with gaining access to technical expertise which may not be available in the outsourcing organization. There may be an emphasis on time saving for some organizations (cost control in terms of staff time costs). Increasingly, perhaps, many outsourcing relationships are becoming partnerships as outsourcing becomes an accepted way of conducting business, and relationships between those involved develop over time (Grover, Teng, & Cheon, 1998). 2. Determinants of outsourcing
Outsourcing and its productivity effects may be obtained by looking directly at the determinants of outsourcing.
i. Wages
(Girma and Görg, 2004), who estimated the productivity effect of outsourcing in the chemical, engineering, and electronic manufacturing industries in the United Kingdom, estimated the determinants of outsourcing. Focusing on plant characteristics, they found that high wages were positively related to outsourcing. As they argue, this could suggest that cost-savings are important in the firm’s decision to outsource. It could also indicate, however, a specialization process by skill intensive plants in which they are outsourcing their relatively low-skill intensive processes.
ii. Asset Specificity
In transaction cost theory, assets are durable resources that include sites, physical assets, and human assets (Williamson, 1985). Asset specificity refers to the degree to which such resources are specialized to an exchange. In this way, asset specificity can be viewed as an exchange attribute as well as a resource property, one that explains the resource’s potential for affecting transaction costs.
Transaction cost theory asserts that asset specificity is important in conjunction with bounded rationality, opportunism, and uncertainty. When asset specificity increases, under these conditions the redeploy ability of the assets decreases, and the contracting hazards (notably, the hazard of opportunism) as well as the bilateral dependency (notably, the risk of hold-up) between the parties involved in an exchange, increase (Williamson, 1985). Consequently, the likelihood of hierarchical forms of transaction governance increases (Williamson, 1991).
Asset specificity can not only cause hold-ups, with their associated monitoring and contract enforcement costs, but it also affects the transaction costs engendered by other exchange attributes, such as uncertainty and frequency (Williamson 1975, 1985; David and Han 2004).
Indeed, Williamson asserts (Williamson, 1999) that “much of the explanatory power of the transaction cost perspective turns on transaction-specific assets.” A precise understanding of the concept of asset specificity is important in order to assess its role in a firm’s decision on how to govern an activity (Carter and Hodgson, 2006).
iii. Firms specificity
Although firm specificity is often meant to denote resource among firms, so far researchers have not agreed on a formal definition of the term. Different researchers emphasize different aspects, such as the specificity of resources with respect to fields of application (Collis and Montgomery, 1997), specificity with respect to a firm’s needs (Chi, 1994)
A firm’s resources could still be firm-specific, even if the firm was not endowed with them, in the sense that their potential to generate value would be greater for that firm than for another. Firm specificity of activity-enabling resources is also often associated with the difficulties involved in imitating and substituting this resource bundle (Rumelt, 1984), as well as with the value-enhancing linkages (complementarities) among these resources and the firm’s overall resource position (Conner, 1991).
Firm-specificity is one of the resource properties that define strategic assets (Amit and Schoemaker, 1993).The greater a resource’s specificity to a firm, the greater its rent potential to that firm, given favorable conditions of demand, public policy and competitor action. Firm-specific resources are often associated with increased efficiency (Jacobides, 2004) 3. Types of outsourcing
Outsourcing is an important decision that has implications far beyond the improved financial results most organizations hope to gain. Only hospitals that understand the real financial and human costs and benefits can determine when it adds value. This can help a Hospital in determine the levels of outsourcing it can accommodate in its services. There are basically four types of outsourcing (Currie & Willcocks, 1998)
2.3.1 Total Outsourcing
Total outsourcing involves developing a partnership with a single supplier, with IT perceived as a service or support function. The aim is usually to reduce IT costs, or eliminate a problem IT function, but the outsourcing organization retains strategic control.
2.3.2 Multiple suppliers outsourcing
Multiple suppliers out sourcing is less concerned with partnerships as the aim is to foster innovation and create competition between suppliers, although it is recognized that suppliers will form alliances among themselves for bidding purposes.
2.3.3 Joint venture/strategic alliance outsourcing
Joint venture/strategic alliance outsourcing is more concerned with development of new knowledge for the client, and there is more emphasis on shared risks and rewards. Sometimes various organizations will foster the creation of a supplier company to which they will outsource work, but still have more control than they would do in a multiple supplier or total outsourcing arrangement.
2.3.4 In sourcing
In sourcing, or keeping the IT department and services in-house, occurs when organizations view IT as core to their business, or when they mistrust possible suppliers. A more recent type of outsourcing is the ASP (application service provider) model, where organizations purchase software use on an ‘as and when’ basis (Kern, Kreijger, & Willcocks, 2002). 5. Theories of outsourcing
The increasing use of outsourcing arrangements, as well as the unfamiliar complexity of outsourcing suggests the need to know more of how to effectively utilize this strategy. Consequently, more information is needed to understand successful outsourcing and the problems encountered in outsourcing activities and its impact on the overall organizational performance.
The capabilities of a firm must include control over or access to complementary assets and activities that would enable them to innovate, and to profit from the innovations (Nelson, 1991). The ability to control and make the most of critical capabilities whether or not they reside within the firm is more important than the ownership of the capabilities (Gottfredson, Puryear and Phillips, 2005). Outsourcing provides strategic options for the firms to address the challenges of operating and growing given the limitations of their resources and capabilities (Gottfredson 2005).
1. The Agency Theory
Agency cost theory expands on one aspect of TCT, as it deals with the different perspectives of risk that client and supplier have, and differentiates between outcome-based contracts, and behavior-based contracts. If the client distrusts the supplier then the extent of monitoring required will be greater for the client, than it would be if the client could wholly trust the supplier to deliver.
The client has two main choices: a contract which stipulates payment by results (an outcome-based contract), or a contract that states the supplier should do certain things at stipulated times, or spend a certain amount of time on certain functions. If one cannot trust a supplier to deliver a product some months down the line, then it might pay to ensure that it looks as if they are doing something. On the supplier side, a behavior-based contract at least allows them to claim that they did spend x hours on this task, even if the outcome could not be achieved as originally intended.
Agency cost theory helps to distinguish the most productive and fairest method of minimizing risks for both client and supplier. Agency theory addresses relationships in which one party (the principal) delegates work to another (the agent) who performs the work according to a mutually agreed contract. Both parties are self-interested with incongruent goals. This leads to two problems: 1) ex-ante, before signing the contract: the problem of adverse selection and 2) ex-post, after signing the contract: the problem of moral hazard.
Adverse selection arises pre-contractually because the agent possesses private or hidden information about the real quality of his service and the principal is unable to find out that information. This leads to information asymmetry and puts the principal in a disadvantaged position since the principal is faced with a pool of bidders with often insufficient qualifications. The principal cannot easily distinguish the ‘bad cars or lemons’ from the good ones (Akerlof, 1970).
2.4 Conceptual frame work
Although outsourcing may prove beneficial in specific situations, hospitals need to consider the true costs of outsourcing, which include the opportunity cost of outside contractors continually tapping into the hospital’s revenue stream rather than having the additional revenue flow back to the hospital.
Before outsourcing revenue cycle functions, hospitals need to determine why they have not yet accomplished their performance improvement objectives. • Does the organization lack access to qualified personnel? • Are internal processes, tools, and technology insufficient to handle revenue cycle activities efficiently and effectively? • Is there insufficient capital to invest in needed resources? • What attempts have been made to address these issues? • What were the outcomes of these efforts?
Once the answers to these questions are clear, the unique capabilities, skills, and resources an outsourcer must be able to provide to overcome existing barriers to success can be identified.
Hospitals should work closely with potential outside contractors to document and verify their skills and capabilities and ensure they can demonstrate a consistent, long-term track record of success.
Hospitals may hope to achieve several objectives through outsourcing; financial performance improvement is usually the chief among them. Increased employee performance, greater job satisfaction, and improved workforce morale resulting from better training, more efficient work processes, or enhanced technology that an outsourcer may provide are other common objectives.
Some hospitals hope that outsourcing revenue cycle activities will improve patient service or satisfaction by reducing waiting times to receive care or expediting claims processing and payment. Still others anticipate benefits to the broader community by boosting the margin available to help fulfill the hospital’s mission. Accomplishing all of these objectives, rather than just one or two, should be the goal of any revenue cycle improvement effort.
To truly understand the real financial benefits and costs of outsourcing, hospitals need to carefully evaluate the ways they expect outsourcing to drive financial performance improvement. Because the revenue cycle affects so many stakeholders (patients, employees, and the community), it is important not only to consider the objectives but also to evaluate the impact that outsourcing will have on all of these constituencies.
Figure 1: Diagrammatic representation of value from outsourcing
CHAPTER THREE
3. RESEARCH DESIGN AND METHODOLOGY
1. Introduction
This chapter has research approach, designs, sample and sampling procedures, research instruments, administration of research instruments/data collection and analysis procedures.
3.1 Research Design
In assessing the effects of outsourcing to the organizational performance of the Mater Hospital, the researcher used descriptive research. This approach is appropriate to this study because the study involves fact finding and enquiries of different kind to describe the state of the affairs (effects of outsourcing) as they exist at the time of this study.
3.2 Target Population
In assessing the effects of outsourcing to the organizational performance of the Mater Hospital, the researcher targeted a population size of 602 people who included senior Management, paramedic staff, contracted staff, low come staff and senior management staff. The population of 602 consisted of the total number of employees from the five departments of The Mater Hospital and will be being distributed as follows:
Table 1: Distribution of the target population
|DEPARTMENT |POPULATION SIZE |
|Subordinate |253 |
|Paramedic |211 |
|Contracted |72 |
|Low come |48 |
|Senior Management |18 |
|Total |602 |
3.3 Description of the Sample and Sampling Procedures
The selection of the actual sample size was done using Stratified Sampling. Simple Random Sampling was then used to get the figures. Stratified random sampling which is one method of Probability Sampling (Kombo and Tromp, 2006) was used to divide the staff population into homogeneous subgroups and then took simple random sample in each subgroup.
Simple random sampling was then used taking 10% to ensure that the sample was representative in proportion to their number in population. This is because for descriptive studies 10% of the population is adequate for sampling (Gay, 1996). Simple random sampling ensured that each individual employee had an equal chance of being selected and therefore avoided biases.
Below is tabulation of how the sample was derived.
Table 2: The sampling matrix
|DEPARTMENT |POPULATION SIZE |SAMPLE SIZE |
|Subordinate |253 |25 |
|Paramedic |211 |21 |
|Contracted |72 |7 |
|Low come |48 |5 |
|Senior Management |18 |2 |
|Total |602 |60 |
Using the organizational chart and list of staff members, the population was first stratified according to departments and then determined the size of each department. Using proportionate method, the researcher established the size of the subject of each department and by use of purposive sampling method, picked subjects for each department. This sampling process enabled the researcher to deal with the subject critical to the study.
3.4 Description of Data Collection Procedures
The study used primary data and secondary data. Primary data refers to the information a researcher obtains from the field from the subjects in the sample while the secondary data refers to information a researcher obtains from books, reports and other publications which had been collected for other purposes (Kothari, 2003). These sources assisted the researcher in comparing the two types of data for reliability.
According to (Mugenda and Mugenda ,2003) qualitative methods provide in depth explanations while quantitative methods provide the hard data needed to meet required objectives.
3.4.1 Questionnaire
A questionnaire with structured and unstructured questions was used to collect data. According to (Kothari ,2003), structured questions (closed ended) refer to questions which are accompanied by a list of possible alternative answers from which respondents select the answer that best describes their situation. Closed ended questions are easier to analyze and administer because of specific alternative answers, however they are difficult to construct and responses are limited. Questions were therefore standardized to ensure all respondents reply to same questions in a defined manner.
Open ended questions refer to questions which give respondents complete freedom of response. They permit greater response though can encourage irrelevant response (Kothari, 2003). They were used in some specific areas that require explanations. The questionnaires were delivered by hand to each subject by the researcher who then instructed the subject on how to complete the questionnaire and also make clarifications on issues that required to be clarified.
3.5 Description of Data Analysis Procedures
(Kerlinger, 1973) describes data analysis as categorizing, ordering, manipulating and summarizing data to obtain answers to research questions. He stresses that the purpose of analysis is to reduce data to intelligible and interpretable form in order to study and test the relations of research problems. The data obtained will be analyzed using data management software, Statistical Package for Social Sciences (SPSS) for quantitative data and content analysis for qualitative data.
All questionnaires were adequately checked and verified for reliability. The information was codified, entered into a spreadsheet and analyzed using SPSS by the researcher. Exploratory analysis was first performed to ensure that the output were free from errors. The data was then analyzed using qualitative and quantitative techniques. This involves creating descriptive statistics namely percentages, and measures of central tendency. The data was then presented using tables and cross tabulations. Scalar types of questions were analyzed using descriptive statistics to establish the level of perception to various attributes provided.
CHAPTER FOUR
4.0 PRESENTATION, DISCUSSION AND INTERPRETATION OF THE FINDINGS
4.1. Introduction
This chapter presents the research findings from employees of The Mater Hospital. The study sought to find out the effects of outsourcing to organizational performance. Questionnaires were administered to 60 employees in different departments. Only 53 employees returned the questionnaires.
The findings are hereby presented in descriptive statistics. These findings are presented in five sections. The first section gives background information of the respondents and the rest four are in line with the four research questions. The main sections shall be as follows:
1) Respondents’ Background Information
2) The extent to which outsourcing has lead to improved financial performance
3) The extent to which outsourcing has improved patient service and satisfaction
4) The extent to which outsourcing has benefited the wider community
4.2 Presentation of finding
4.2.1 Respondents’ Background Information
Table 3: Employees Gender
|Gender |Frequency |% |
|Male |29 |54.7 |
|Female |24 |45.3 |
| |53 |100 |
Out of the 60 questioners which were administered, a total of 53 employees participated in the study among which 24 were female and 29 male. This was 88.3% of the sample size that had been selected.
Table 4: Service in years
|Service in Year |Frequency |% |
|0 - 5 |22 |41.5 |
|6 - 10 |17 |32.1 |
|11 -15 |9 |17 |
|Over 15 |5 |9.4 |
|Total |53 |100 |
Of the total employees who participated 41.5% has served the Hospital for less than five years, 32.1% for six to ten years, 11% for eleven to fifteen years and 9.45 has served the Hospital for over 15 years. These results indicate that very few employees stay in the Hospital for long.
Effective communication among the management and the employees could reduce the rate of staff turnover. The management needs to rebuild trust with the employees this can be achieved through support by the top management and providing incentives to employees who meet their expectations (Jones, 1997; foster, 1999)
Table 5: Management level
|Level in Management |Frequency |% |
|Management Level |2 |3.77 |
|Supervisory level |23 |43.4 |
|Subordinated staff |28 |52.83 |
|Total |53 |100 |
52.83% of the employees who participated were subordinate staff, 43.4% were supervisory staff and 3.77% were in the management level. The subordinate staffs being the main participants in the exercise were the most affected in the outsourcing decision of the hospital this was due to the fear that their jobs were at stake and risked losing them to the outsourced company.
The individuals in the subordinate level were expected to manage the outsourcing relationship and therefore required to have a complete understanding of the business goal, specific performance criteria and their individual roles. This can be achieved through training and communication and can help reduce resistance or resentment (Foster 1999)
Table 6: Department of the respondent
|Department |Frequency |% |
|Subordinate |23 |43.4 |
|Paramedic |18 |33.96 |
|Contracted |6 |11.32 |
|Low come |4 |7.55 |
|Senior Management |2 |3.77 |
|Total |53 |100 |
Part of the employees who returned their questionnaire 43.4%, 33.96 %, 11.32%, 7.55% and 3.77% were in the Subordinate, Paramedic, Contracted, Low come and Senior Management departments respectively.
The research was carried out in all departments of the Hospital to ensure that opinion was obtained from all levels because the decision of the Hospital to outsource affected all the employees irrespective of the department in which they were placed.
4.2.2. Opinion of employees on the decision to outsource
This section’s findings shall be responding to the employee’s opinion on the driving force to the decision to outsource. The first question in the questionnaire sought to find out employee’s overall opinion towards the reasons of outsourcing as concerned cost savings, employee morale and skills, insufficient capital resources, focus on core competences and improved delivery and reliability
Table 7: presents a summary of what employees’ felt were the reason towards outsourcing
|Selected possible areas that led to outsourcing decision | | |
| |Strongly |Agree |Neutral |Disagree |Strongly | |
| |agree | | | |disagree | |
| |% |% |% |% |% |% |
|Financial performance was the driving force that lead to Outsourcing |11.32 |73.58 |9.43 |3.77 |1.89 |100 |
|Hospital outsourced in order to increase employee performance |7.55 |58.49 |3.77 |18.87 |11.32 |100 |
|Improving patient service / satisfaction was a driving force to the outsourcing |32.08 |49.06 |7.55 |9.43 |1.89 |100 |
|decision | | | | | | |
|Lack of qualified personnel to handle the outsourced services led to the |15.09 |54.72 |0.00 |13.21 |16.98 |100 |
|outsourcing decision | | | | | | |
|Insufficient capital to invest in the needed resources was the cause of the |58.49 |35.85 |5.66 |0.00 |0.00 |100 |
|outsourcing decision | | | | | | |
|Insufficient internal processes, tools and technology led to the outsourcing of |67.92 |24.53 |1.89 |3.77 |1.89 |100 |
|revenue cycle activities | | | | | | |
|Hospital outsourced in order to focus on its core activities |73.58 |22.64 |3.77 |0.00 |0.00 |100 |
|Hospital outsourced in order to make capital funds available for more profitable|45.28 |39.62 |5.66 |1.89 |7.55 |100 |
|operations | | | | | | |
|Hospital outsourced in order to improve delivery and reliability of its services|7.55 |79.25 |3.77 |9.43 |0.00 |100 |
|N = 58 |
Opinion on Financial performance as the driving force
11.32% of those studied strongly agreed with the reasons behind the outsourcing decision, while as 73.58% agreed that indeed financial performance was the driving force towards the outsourcing decision. This resulted to 84.9% of the employees were positive that financial performance was the driving force towards outsourcing.
The finding complement previous studies (Bowersox ,1999 ; Crane, 1999; and Quinn, 2000) and proves that outsourcing is undertaken for purposes that have a large impact on the organizations bottom line.
Opinion on outsourcing in order to increase employee performance
7.55% of those studied strongly agreed with the reasons behind the outsourcing decision, while as 58.49% agreed that the hospital outsourced in order to improve employee performance. This resulted to 66.04% of the employees being positive though they felt they need to be more involved than the position stands currently.
The effects of outsourcing on the employee’s morale and performance though 66.04% agreed to the decision to outsource the Hospital need to inform the employees in every step of the outsourcing decision and make them feel they have participated in the decisions to ensure they perform well.
Other reasons that contributed to the outsourcing decision
From the employees studied it was clear that they felt that there existed other reasons which led to the hospitals decision to outsource. These reasons were stipulated in the questioner as what the participants felt were the other reason why the decision to outsource were undertaken.
1. Reduction of the number of staff in the payroll
2. Reduction in insurance costs
3. The possibility of obtaining cheaper labor from the market
4.2.3 The extent to which outsourcing has lead to improved financial performance
Table 8: Effects of outsourcing on performance
|Effects of outsourcing on performance | |
| |% |% |% |% |
|Outsourcing opportunity match the organizational business needs |66.04 |22.64 |11.32 |100 |
|Outsourcing led to the Hospital reducing costs |81.13 |15.10 |3.77 |100 |
|Out sourcing led to improved cash flow in the organization |77.36 |0.00 |22.64 |100 |
|N = 53 |
From the employees studied 66.04% felt that the outsourcing opportunity matched the organizational business needs, 22.64% felt otherwise while as 11.32% were not sure. The employees studied, 81.13% felt that the outsourcing has led to reduction of costs by the hospital, 15.1% felt that there was no saving in cost as a result of the outsourcing decision and 3.77% were not sure on whether there has been a cost reduction experienced by the hospital, and 22.64% were not sure of any increased cash flow from the organization. From those studied it was evidence that the Hospital conducts performance evaluation of the outsourced services on quarterly basis.
4.2.4 The impact outsourcing revenue cycle functions had on the hospital employees
Table 9: Impact of Outsourcing to employees
|Effects of outsourcing on Employees | |
| |Yes |No |Not sure | |
| |% |% |% |% |
|Did outsourcing result to additional new skills from employees of the outsourced Company |79.25 |20.75 |0 |100 |
|Did outsourcing bring about organizational change in practice and culture |88.68 |9.43 |1.89 |100 |
|Did outsourcing boost the employees morale |54.72 |16.98 |28.30 |100 |
|Outsourcing enhanced the relationship between employees and the management |37.74 |52.83 |9.43 |100 |
|Are employees more efficient as a result of outsourcing |71.70 |18.87 |9.43 |100 |
|Has out sourcing led to high staff turnover |24.53 |69.81 |22.64 |100 |
|N = 53 |
79.25% of the respondents agreed that the outsourcing by the Hospital has facilitate its employees in acquiring new skills, 88.68% felt that the organizational culture and practice has changed as a result of the outsourcing decision and 52.83% felt that the decision led to reduced relationship among the employees and the management.
The Hospital management needs to step in and re build trust among the workers, reevaluate those jobs and provide incentives to employees to make them understand that they are part of the process and make them know they have a share on the improved bottom line of the Hospital. This will enable them perform better.
4.2.5 Employees comment on the reaction of the staff union on the outsourcing decision
Employee’s studies concluded that the staff union participated in the decision to outsource thereby ensuring that they were not victimized and that no one was sent home so as to create room for employees of the outsourced company. They however felt that they need to be involved more in those decisions which affect them directly.
4.2.6 The extent to which outsourcing has improved patient service and satisfaction
Table 10: Impact of Outsourcing to patients
|Selected possible areas that led to outsourcing decision | |
| |Strongly |Agree |Neutral |Disagree |Strongly | |
| |agree | | | |Disagree | |
| |% |% |% |% |% |% |
|Patients are more satisfied by the services offered by the Hospital than |69.81 |9.43 |5.66 |3.77 |11.32 |100 |
|before | | | | | | |
|Are there fewer patients complain as a result of outsourcing |77.36 |13.21 |9.43 |0.00 |0.00 |100 |
|As a result of the satisfaction derived employees would prefer seeking |60.38 |28.30 |0.00 |9.43 |1.89 |100 |
|medical attention from the hospital | | | | | | |
|Patients always refer other patients to the Hospital since they get more |92.46 |3.77 |3.77 |0.00 |0.00 |100 |
|satisfied | | | | | | |
|N = 53 |
77.36% of the responded agreed that there were fewer patients complains, 92.46% said that patients are more satisfied and refer other patients to the Hospital to receive services and 11.32% disagreed that patients were more satisfied with the services that were offered by the hospital.
The results indicate that the decision to outsource has a greet impact in the way services are provided
4.2.7 Comments on the overall perception of the patients towards the service delivery of the hospital
In this question employees commented that they have been receiving commendation from patients they serve and also relatives of those patients on their service in this they felt that the patients were satisfied with the services delivered by the Hospital in general.
4.3 The extent to which outsourcing has benefited the wider community
4.3.1 How does the community in general perceive the Hospitals decision to outsource?
Employees studied commented that the community with the Hospital has fully benefited from the outsourcing decision this was clearly expressed in cases where the community is contacted for provision of care for the terminally ill patients especially those suffering from HIV & AIDS who needs assurance and love during their last days and with the use of services from the community it gives such patients comfort and the feeling of belongingness from the company they get from those taking care of the yet the people are hired from the community and as a result jobs are created.
CHAPTER FIVE
5. Summary, conclusions and recommendation
1. Summary
This research paper purposed to find out the effects of outsourcing to organizational performance in The Mater Hospital. From the study it was quite evidence that outsourcing led to improved performance to organizations depending on how the outsourcing is structured and the competencies of the firm from which outsourcing has been contracted from.
It was indeed evident that the decision to outsource can lead to competitive advantages for businesses and for outsourcing to be successful the decision needs to be an informed one. Good, hard, detailed information in the hands of strong management can help avoid a costly step, one that is not easily reversed. Ultimately, for outsourcing in any form to be successful, quick response times to strategic opportunities and threats are essential. Effective management of the outsourcing relationships is an organizational imperative.
The top reasons for undertaking outsourcing projects identified by the survey results were to reduce costs, improve quality, improve delivery and reliability, gain access to materials only available abroad, establish a presence in foreign market, use resources not available internally, reduce the overall amount of specialized skills and knowledge needed for operations, make capital funds available for more profitable operations, and focus on core competencies of the corporation.
These findings complement previous studies (Bowersox 1990; Crane 1999; and Quinn 2000) and suggest that outsourcing is undertaken for purposes that have a large impact on the organization’s bottom line, although more tangential purposes such as strategy, profitability, and competitive advantage may have been the rationale for the more direct reasons.
This study was guided by the following research questions:
1 To what extent has outsourcing led to financial performance improvement?
1. What impact did outsourcing revenue cycle functions have on the hospital employees?
2. To what extent has outsourcing improved patient service and satisfaction?
3. To what extent has outsourcing benefited the wider community?
The study employed descriptive research. It targeted all employees of the Mater Hospital. The researched used Stratified Sampling and Simple Random Sampling to select a sample of 60. Only 53 employees returned the filled in questionnaire. To obtain information from the respondents the researcher used questionnaires. Data were collected by the researcher and summarized into frequencies, percentages and narrative reports.
5.2 Conclusions
Based on the findings, the following are the conclusions:
1) Based on the researcher’s knowledge of outsourcing, the respondents showed that The Mater Hospital outsourcing decision was well informed, and has led to a significance change on how the Hospital operates.
2) The respondents possessed concepts; perspectives and conviction that they need to be more involved in the outsourcing decisions by the Hospital to ensure that they have all information to enable them monitor the operations of the outsourced company.
3) The researcher clearly deduced from the responses that respondents knew that outsourcing has a great impact to the Hospital performance and delivery of its services.
4) The Employees expressed their willingness to improve their relationship with the management if they were more involved in decision making in those areas which touched on them and were critical.
5.3 Recommendations
Based on the findings the researcher made the following recommendations:
1) The Mater Hospital should establish a department or centre to coordinate employees and to collect their views on the operations of the Hospital.
2) The Hospital needed to invite tenders for the services currently being outsourced to be assured that they are getting the best services at the lowest costs.
5.4 Suggestions for Further Studies
1) Similar research studies should be carried out in all organization to ensure that the true effects of outsourcing are experienced.
2) A study need conducted to establish whether the outsourced companies are equipped with the right skills and competencies to tackle the assigned activities
3) A study should be carried out to find out the extent to which the employees of the outsourced company are utilized to attain the desired objectives.
4) A study should be carried out to establish the challenges that are facing the decision to outsource some activities which are usually seen as key to the organization.
REFERENCES
1. Quinn, B.J. 2000. Outsourcing innovation: The new engine of growth. Sloan Management review 41 (14)
2. (Ella Venus 2009
3. Barney, J.B. 1999. How a firm’s capabilities affect boundery decisions. Sloan Management review, (40: 3)
4. Coase R. H (1937). The nature of the form. Cited in: J Barney, W Ouchi (Eds). Organizational economics san Francisco: Jossey – Bass, 1986
5. Williamson, 1981).
6. 2030 vision. In 2007
7. Medical Device Daily February 28 2008).
8. (Maltz and Ellram 2000;)
9. (Lewis and Talalayevsky 2000)
10. ( Mahnke, Overby, and Vang 2005).
11. (Murphy and Poist 2000)
12. ( Knemeyer, Corsi, and Murphy 2003).
13. Sharpe, M. 1997. Outsourcing gains speed in outsourcing world. Journal of labour research (Fall): 535 - 549
14. Bowers, D. J. 1990. The strategic benefits of logistics alliances. Harvard Business Review 68 (4): 6 – 45.
15. Greer, C. R., S. A. Youngblood and D. A. Gray. 1999. Human resource management outsourcing: The make or buy decision. Academy management Executive 13(3): 85 – 96. (Alexander and Young, 1996).
QUESTIONNAIRE
Dear Respondent: My name is Kiptoo Maritim Bernard, am a Bachelor of Business management Student at the Moi University, Nairobi Sattetlite Campus. Am conducting my Academic research, which is a partial fulfillment of the requirement of this course. The Mater Hospital has permitted me to conduct this research. I will treat your opinions confidentially. You honesty is both critical and paramount when you respond to the questionnaire.
Please tick (√) as appropriate.
Section A: Background Information
1. Gender of Respondent
2. Male Female
3. How long have your worked for this organization (in terms of years)
0-5 6-10 11-15 over 15
4. Management level of respondent
Management Level Supervisory Level Subordinate Staff
5. Your department: _______________________________________
6. Which services are currently being outsourced? _________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Section B: Effects of outsourcing
6. In this statement kindly indicate your level of agreement
1 – Strongly agree 2 – Agree 3 – Neutral 4 – Disagree 5 – Strongly disagree
|Factor |1 |2 |3 |4 |5 |
|Financial performance improvement in terms of cost reduction was the major reason why the outsourcing decision | | | | | |
|was taken | | | | | |
|The hospital outsourced in order to increase employee performance and ensure greater job satisfaction resulting | | | | | |
|from better training and more efficient work processes | | | | | |
|Improving patient service or satisfaction by reducing waiting times to receive care or expediting claims | | | | | |
|processing and payment was the driving force for outsourcing in the hospital | | | | | |
|The Hospital outsourced due to lack of access to qualified personnel to handle the outsourced services | | | | | |
|Insufficient capital in invest in the needed resources was a cause for outsourcing | | | | | |
|The hospital resulted into outsourcing since internal processes, tools and technology were insufficient to handle| | | | | |
|revenue cycles activities efficiently and effectively | | | | | |
|The Hospital outsourced in order to focus on it core competencies | | | | | |
|The Hospital outsourced in order to make capital funds available for more profitable operations | | | | | |
|The Hospital outsourced in order to improve delivery and reliability of its services | | | | | |
7. What are the other reasons that contributed to the decision of outsourcing by the management oftheHospital:_____________________________________________________________________________________________________________________________________________________________________________________________________________________
8. Does the outsourcing opportunity match the organizations business needs?
Yes No Not Sure
9. Has the outsourcing helped the Hospital to reduce and control costs?
Yes No Not Sure
10. Has the outsourcing led to improved cash flow of the organization?
Yes No Not Sure
11. How often do you carry out performance evaluation on the outsourced services?
Weekly Monthly Quarterly
Semi - Annually Annually Never
12. Did outsourcing provide Hospital employees with additional benefits such as new skills from employees of the outsourced Companies?
Yes No Not Sure
13. Did outsourcing bring change in organizational practices and culture?
Yes No Not Sure
14. Did outsourcing boost the morale of the employees?
Yes No Not Sure
15. Did outsourcing enhance the relationships between the employees and the management?
Yes No Not Sure
16. Are the employees more efficient as a result of outsourcing?
Yes No Not Sure
17. Has outsourcing led to higher staff turnover?
Yes No Not Sure
18. Comment of the reaction of the staff union (if any) on the outsourcing decision: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________
19. In the following statements, please indicate the level of agreement as follows:
1 – Strongly agree 2 – Agree 3 – Neutral 4 – Disagree 5 – Strongly disagree
|Factor |1 |2 |3 |4 |5 |
|Patients are now much more satisfied by the services offered by the Hospital the before | | | | | |
|There are fewer patient complaints as a result of outsourcing | | | | | |
|As a result of satisfaction derived from the outsourced services patients would always prefer seeking medical| | | | | |
|attention from the Hospital | | | | | |
|Patients always refer other patients to this Hospital since the get more satisfied | | | | | |
20. Comment on the overall perception of the patients towards the service delivery of the Hospital: ________________________________________________________________________________________________________________________________________________________________________________________________________________________________
21. How does the community in general perceive the Hospital’s decision to outsource? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________
-----------------------
Benefits to the wider community
Saving on Human resource
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Specialty Performance
References: Outsourcing decisions involve decision making on the boundary of a firm (Barney, 1999). According to the Transaction Cost Theory, the boundary of a firm is decided by the cost effectiveness of the activity (Coase, 1937; Williamson, 1981).
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Outsourcing provides an increase in operating efficiency, higher return on assets, and increase in profits. Outsourcing can provide new revenue streams with fewer risk and lower collateral investment (Gnusche, Wallace, Wilson, Smith, 2004).…
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Outsourcing is a good strategy for the following situations: Tasks that require specific manufacturing equipment and technical expertise can be outsourced to vendors who specialize in these fields to produce goods faster and of better quality. Outsourcing the supporting processes enables the firm to concentrate on its core business processes. Outsourcing also helps in risk sharing since the outsourced vendor is a specialist who can mitigate risks better. Outsourcing also helps a firm to decrease its operating risk by not completely relying on domestic suppliers; and reduces lead times in case of domestic supply shortage. Sometimes government in the foreign country provides incentives for foreign investment. Companies can sometimes access restricted market to sell their goods only if they purchase certain goods or services from the foreign country. Outsourcing helps a firm to increase its ability to operate 24 hours per day. A firm that sources from abroad may be able to exploit local competitive advantages such as cheap labor, skilled personnel, and technical experts. Outsourcing also enables firms to tap in to a knowledge base for better innovation. Outsourcing enables companies to generate better revenue recognition and provides them an added competitive differentiator.…
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3. What unique internal costs might be incurred when outsourcing? What can be done to minimize them? What should NOT be done to minimize them?…
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Elmuti, Dean, Grunewald, Julian, and Abebe, Dereje “Consequences of Outsourcing Strategies on Employee Quality of Work Life, Attitudes, and Performance” Journal of Business Strategies vol. 27, no. 2 (2010), pp. 178-203…
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As it is stated in our book, outsourcing contributes to enhancing competitive business advantage as it allows organizations to remain focused on their core strategic activities. Instead of spending a lot of company’s money on learning, developing and producing some of the parts or whole products in the United States, organizations have a great opportunity to outsource it and concentrate on something what they are good at. They would not have to devote their time to all these elements of production, and instead they could work on their other important issues.…
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We've analyzed our potential suppliers for each gauge, taking into account their capacity, cost of production for each plant, and transportation costs (The model and our objective function can be found in the appendix.) Our goal was to allocate spinning production (at Filatoi Riuniti and six local mills) in a manner that would minimize overall costs, while meeting the demand and operating within the capacity constraint of each plant. Given the output of our optimization model, we should be outsourcing the spinning of our yarn in this way:…
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Outsourcing has many advantages, but also faces some disadvantages. To begin, an advantage in a globalized company because of working with external parties would be the expertise the outside company brings. They specialize in the task of the operation, and therefore, that specific task is completed faster and more efficiently. Also, costs are reduced, because it eliminates the need to hire talents to complete the jobs, and without the need of the labor, costs can be condensed from the recruiting expenses. A global, cost-efficient example is when the primary business outsources production to a third party in another country, such as China, who’s labor costs are significantly cheaper than in most countries. Also, management is able to accomplish more tasks and have a more detailed focus on the entire in-house operations resulting in higher quality outputs. Outsourcing in today’s economy is an intelligent business…
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In analyzing the Case Study IV-3 - IT Infrastructure Outsourcing at Schaeffer (A): The Outsourcing Decision, both sides of the outsourcing debate are well represented. Once the Schaeffer board assigned the highly ambitious growth goals to Reitzel, the Vice President of Human Resources made the recommendation that they outsource some of its IT processes and resources. During the initial evaluation of the possibility of outsourcing, Schaeffer determined what the benefits would be of having a vendor manage their IT. They determined that they would be able to focus on core activities during growth periods, which would help them to meet the goals set forth by the board. Outsourcing IT will allow them to remain focused on those business activities that are important without sacrificing quality or service…
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Outsourcing is an attractive mechanism that has been practice for long time and some companies have had positive results. However outsourcing is not a magical path that leads to a profitable and successful business all the time. There are a lot of risks inherent to this practice and any company willing to outsource should evaluate these risks responsibly.…
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The US’s growing unemployment rate is related to this outsourcing trend. One figure from Forrester’s Research shows that at least 40% of Fortune 1,000 companies are sending US jobs overseas. The proponents of outsourcing argue that the outsourced workers will be able to find job replacements through retraining. However, according to a report by the McKinsey Global Institute, 31% of workers who lost their jobs never found employment, (Reingold). In addition,…
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Outsourcing is the contracting of a business process by another party. Outsourcing sometime involves transferring employee and assets from one firm to another. It can be foreign or domestic contracting and sometimes involves moving a business to another country. Financial savings from lower international labor rates can provide the biggest motivation for outsourcing. Companies will outsource for many reasons. The first reason is time, theoretically no company has the time to take care of everything. Companies seek help from foreign companies to get the job done. Second is money, many companies use cost efficiency as a reason to outsource. The final reason is skills and knowledge. Outsourcing allows companies to bring skills required to run the organization from outside the company. In the 80’s U.S. factory workers began losing their jobs when American cooperation’s realized that they could manufacture their goods cheaper in a foreign country. One after another U.S. plants closed and moved overseas, leaving millions…
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There is no single, universally accepted definition for strategy. Some understand it as a deliberate plan, drawn up to achieve set goals, others see it more as a process, whereby a company’s decision and actions are made in alignment with opportunities or threats in the industry. Even others define it as a pattern of consistent actions in decision-making and lastly there are those with a military view of strategy, who consider it a manoeuvre to beat and outsmart the competition (Parthasarthy, 2006). By drawing from each of the definitions, one could say that strategy and by extension, strategic management, is constituted of short-term strategies involving managing and planning for the present and long-term decisions and actions, made, taken and implemented by managers to achieve superior competitive advantage, compared to their competitors.…
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