CHAPTER ONE

INTRODUCTION

1.1             BACKGROUND OF THE STUDY

The strategic value of an activity determines its capability as a source of competitive advantage. Barney (1991) states that sustainable competitive advantage is a result of possessing immobile resources that permit clear product or service differentiation. However, not all resources have the potential to be a source of sustainable competitive advantage for the firm. Barney (1991) also affirms that for a resource to have that potential, it must satisfy four conditions: be valuable, rare, imperfectly imitable and non-substitutable. The strategic resources that satisfy the conditions for being sources of competitive advantage are superior assets and capabilities and distinctive core competences (Prahalad & Hamel, 1990). Distinctive core capabilities are those processes that involve a combination of physical and human resources and which are later responsible for the organization’s tacit and explicit knowledge. (Espino-Rodriguez, Pardon-Robaina, 2005).

          The debate on human resource (HR) outsourcing is polarised. HR outsourcing is seen as an opportunity for the HR function by some and as a threat by others. The first view suggests that HR outsourcing is an instrument creating time for HR to become a strategic partner. The second view considers HR outsourcing as a cost cutting instrument gradually reducing HR staff. (Delmotte, Sels, 2008).

The increased competitive aspects and the importance of increasing bottom line performance have caused management to seek ever increasing cost-saving solutions such as outsourcing which is seen as being contributory to organizational efficiency and effectiveness and is aimed at minimizing costs and maximizing profits. Outsourcing as an alternative for today’s businesses has become a standard feature in modern organization. Dwyner and Tanner (1999) describe outsourcing as the process of finding other organizations to supply the buying organization with products or services, usually those that was previously created in-house. It is a strategic trend, caused in part by a trend in strategy where organizations focus on their core businesses. Although most outsourcing issues are centred on transferring management and handling of technology to highly specialized organizations, it often involves other departments like human resources. Considerations with regards to human resource management issues add complexity to the entire outsourcing landscape.

Sinderman (1995) and Carney (1997) suggest that outsourcing providers are taking increasing responsibility in realms that have traditionally remained in-house. Camey (1997) noted that 42 percent of communication firms, 40 percent of computer manufacturers and 37 percent of semiconductor companies in the US rely on global outsourcing. A survey conducted by the National Manpower Board in 2009, indicates that more than 73 percent of Nigerian business organizations surveyed were involved in at least one type of outsourcing function. Jennings (1996) affirms that human resource expenses are the primary reasons behind outsourcing.

Initially, much of outsourcing was concerned with easily definable issues previously carried out internally. Such activities remain a part of the outsourcing continuum today, but the big opportunities in outsourcing is in strategic partnership with organizations for specific but not always easy-to-define, state of activities. It is not uncommon now for a whole department to be fully outsourced. While outsourcing may prove highly beneficial for many organizations, it also has many drawbacks. It is important that each organization accurately assesses their needs to determine if outsourcing is a viable option. Often, moves to integrate outsourcing within the overall strategic management of an organization can be highly controversial. While some studies on outsourcing tend to favour its use because of the perceived and actual benefits others are not so sure yet of its long term effects. It is important to consider both sides of the outsourcing business because while it may be a boom to those that host outsourced services, it can also be a bane to affected business and industries.

Outsourcing has matured into an indispensable management tool. Drucker (2003) noted that of all the powerful management tools to emerge in the last half of the 20th century outsourcing uniquely compels managers to ask "what to do," thereby increasing the central management challenge. All of the elements of outsourcing combined are what make it a unique management practice. Outsourcing providers are partners, given significant managerial discretion for how to deliver the service, who manage the day-to-day delivery of that service. The value they create is based on being long-term partners who understand the business, can deliver on the requirements of the relationships, and look ahead to how they can better service client firms.

1.2             STATEMENT OF THE PROBLEM

Some companies consider it more profitable to produce their products and services in-house whiles others see it more profitable to source from other expert companies. As noted earlier, outsourcing is a strategy that has become very crucial in most firms’ corporate decisions. As far as corporate strategy is concerned, the final decision may always have a positive or negative impact on the organization’s financial position in the long run. The debate on human resource (HR) outsourcing is polarized. HR outsourcing is seen as an opportunity for the HR function by some and as a threat by others. Theses treats or problems include cost cut, increased capacity, improve quality, increase profitability and productivity, improve financial performance, lower innovation costs, risks, and improved organizational competitiveness, are very commonly considered as the main reasons to justify outsourcing strategies. All of these inconclusive arguments necessitate the need for this study. Therefore, this study examines the effect of outsourcing human function and performance in an organization.

1.3             OBJECTIVES OF THE STUDY

The objectives of the study are to find out the following:

i)                   To examine the effect of outsourcing human resource function and performance in Stanbic IBCT Bank Plc.

ii)                To determine the relationship between outsourcing human resource and organizational profitability in banking sector.

iii)             To find out whether outsourcing human resource leads to increase in profitability in Stanbic IBCT Bank Plc.

iv)              To find out the challenges of outsourcing human function in Stanbic IBCT Bank Plc.

1.4             RESEARCH QUESTIONS

i)                   Does outsourcing human resource functions have any effects on the performance of Stanbic IBCT Bank Plc?

ii)                Is there any relationship between outsourcing human resource and organizational profitability in banking sector?

iii)             Does outsourcing human resource leads to increase in profitability in Stanbic IBCT Bank Plc?

1.5             Research Hypotheses

The following research hypotheses were formulated to guide this study:

Hypothesis 1

H0:     There is no significant relationship between the effects of outsourcing human resource function and performance in Stanbic IBCT Bank Plc.

H1:     There is a significant relationship between the effects of outsourcing human resource function and performance in Stanbic IBCT Bank Plc.

Hypothesis 2

H0:     There is no significant relationship between outsourcing human resource and organizational profitability in banking sector.

H1:     There is a significant relationship between outsourcing human resource and organizational profitability in banking sector.

1.6             SIGNIFICANCE OF THE STUDY

This study is significance to the following:

1.                 To the researcher, since research is a continuous process in the academic field, it will help widen up the vocabulary and horizon of the researcher in his academic pursuit.

2.                 To future researchers, the study will help the students who will need to carry out research on the topic closely related to the one of this study and will serve as a secondary source of data to them.

3.                 To the human resource managers, it will help them to know their responsibilities as well as the importance outsourcing of human functions.

1.7             SCOPE OF THE STUDY

The study is limited to the Human Resource Management department, Stanbic IBCT Bank Plc and upon the research topic which centers on outsourcing human resource function and performance in Stanbic IBCT Bank Plc.

1.8     LIMITATION OF THE STUDY

The limitation of this study consists of the following:

1.   

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