EFFECT OF OUTSOURCING ON PERFORMANCE OF

FEDERAL GOVERNMENT OWNED HOSPITALS IN

ENUGU, NIGERIA

BY

ANISIUBA, ANASTESIA CHIKA

REG. NO. PG/M.Sc./05/45497

DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS

DECEMBER, 2009
EFFECT OF OUTSOURCING ON PERFORMANCE OF FEDERAL
GOVERNMENT OWNED HOSPITALS IN ENUGU, NIGERIA

BY

ANISIUBA, ANASTESIA CHIKA

REG. NO. PG/M.Sc./05/45497

DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS

A DISSERTATION PRESENTED IN PARTIAL

FULFILMENT OF THE REQUIREMENT FOR
THE AWARD OF MASTER OF SCIENCE (M.Sc.)
IN ACCOUNTANCY

DECEMBER, 2009
 CERTIFICATION

This is to certify that Anisiuba, A. C. a postgraduate student in the Department of

Accountancy, with the Reg. No. PG/M.Sc./05/45497 has satisfactorily completed

dissertation requirements for the award of the degree of Master of Science (M.Sc.) in

Accountancy.

The work embodied in this dissertation is original and has not been submitted in part or

full for any other work for any diploma or degree of this or any other University.

…………………………… ……………………….…………
ANISIUBA, A. C. (MRS.) DATE
PG/M.Sc./05/45497
 APPROVAL PAGE

This research has been approved by the Department of Accountancy, University of

Nigeria, Enugu Campus.

_______________________ ______________________
DR.(MRS) R.G. OKAFOR PROF. A. C. EZEJELUE
(HEAD OF DEPARTMENT) (SUPERVISOR)

___________________ ____________________
DATE DATE
 DEDICATION

This work is dedicated to Almighty God, the giver of life and knowledge. It is equally

dedicated to my darling husband, Dr. B. C. Anisiuba and to my four lovely children

Chidumebi, Somtochi, Chizimuzoma and Mmesomachukwu.

 ACKNOWLEDGEMENTS

I wish to express my sincere gratitude to my dissertation supervisor, Prof. A. C. Ezejelue

whose fatherly guidance encouraged and motivated me at every stage of this study.

Thanks for making this work a success.

My special thanks goes to my loving husband, Dr. B.C. Anisiuba for his financial and

psychological support and for boosting my morale, all of which contributed immensely to

the successful completion of this study. I highly appreciate your kind contribution

towards my postgraduate studies.

I am also indebted to Prof. J. U. Ogbuefi (Dean, Faculty of Environmental Sciences) for

his fatherly guidance and academic help. I am equally grateful to the staff of Reasearch

Unit and Accounts department of National Orthopaedic Hospital Enugu and also, the

staff of Public Relations Office and Accounts department of University of Nigeria

Teaching Hospital Enugu for their remarkable co-operation during the course of data

collection.

My special thanks also goes to Dr. (Mrs.) Okafor R.G., Head of Accountancy Department

and Dr. Nwaizugbo I.C., Senior Lecturer, Marketing Department, both from University

of Nigeria, Enugu Campus; Mr. Ugwuanyi G.O.C., Senior Lecturer, Statistics

Department, Institute of Management and Technology, Enugu and Dr. Ihendinihu J.U.,

Head of Accountancy Department, Micheal Okpala University, Umuahia, Abia State for

their unquantifiable assistance.

Finally, my profound gratitude goes to my dear, Miss Ebele Ilogu, who took good care of

the typing of this work throughout the period of the research. My dear you are blessed.

May God bless you more, Amen.

Anisiuba, C.A. (MRS.)

PG/M.Sc./05/45497
 ABSTRACT

This study aimed at examining the effect of outsourcing on performance of Federal

Government owned hospitals in Enugu, Nigeria by finding out whether outsourcing
has reduced cost, improve quality of services rendered, increased labour productivity
as well as built capacity in Federal Government owned hospitals in Enugu, Nigeria.
Survey research design was used for the study. Data were collected from both
primary and secondary sources. The sample size was determined using Taro
Yamene’s method of sample size determination. 370 questionnaire were administered
to respondents. Structured questionnaire and personal interview were used for data
collection. Tables and simple percentages were used in data presentation and analysis.
Hypotheses were tested using T-test of paired samples statistic at 5% level of
significance. Findings revealed that outsourcing has standardized quality of services
in Federal Government owned hospitals in Enugu, Nigeria, but costs of outsourced
services is on the high side. The researcher suggested that outsourcer should have
some element of cost control over the outsourced services to achieve efficient
performance.
 TABLE OF CONTENTS

Title Page i
Certification ii
Approval Page iii
Dedication iv
Acknowledgements v
Abstract vii

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study 1
1.2 Statement of the Problem 2
1.3 Objectives of the Study 3
1.4 Research Question 4
1.5 Research Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Limitations of the Study 6
1.9 Profile of Organization 7
1.9.1 UNTH 7
1.9.2 NOHE 8
1.10 Definition of Terms 10
References 13

CHAPTER TWO: REVIEW OF RELATED LITERATURE

Theoretical Framework: The Concept of Outsourcing

Models in Nigerian Manufacturing Firms.
The work of Innocent (2004) 14
2.1 Further Analysis of Outsourcing 15
2.2 Outsourcing, Off –Shore Outsourcing and Off – Shoring 19
2.3 What is Outsourcing? And How to track it. 19
2.4 Why Outsource? 24
2.5 Extent of Outsourcing 25
2.6 Business Process Outsourcing (BPO) 27
2.7 Business Process Outsourcing Model 29
2.7.1 Shared Service 29
2.7.2 Spin – Off 29
2.7.3 Specific Outsourcing 29
2.8 Decision to Outsource 29
2.9 Selecting an Outsourcing Partner 31
2.10 Outsourcing and Employee Relations (ER) 33
2.11 Outsourcing and Human Resource Management 34
2.12 The Impact of Outsourcing on Human Relation
Management / Employee Relation (HRM/ER) 37
2.12.1 Employee Relations Climate 38
2.12.2 Employee Commitment 39
2.12.3 Union Avoidance and Presence 40
2.12.4 Training and Skills 41
2.12.5 Occupational Health & Safety (OHS) 43
2.12.6 Unemployment 44
2.12.7 Legal Issues 45
2.13 Outsmarting with Outsourcing: An Account
of Cyndi (2006) 47
2.13.1 Ideas on Handling of Outsourcing Initiative 48
2.14 Potential Benefits of Outsourcing 51
2.14.1 Cost Savings/Reduction 51
2.14.2 Focus on Core Business 51
2.14.3 Cost Restructuring 52
2.14.4 Improve Quality 52
2.14.5 Access to External Knowledge 52
2.14.6 Legally Binding Contract 52
2.14.7 Access to Operational Expertise 52
2.14.8 Improved Capacity Management 52
2.14.9 Standardizing Business Processes 53
2.14.10 Risk Management 53
2.15 Advantages of Outsourcing 53
2.15.1 Cost Saving/Reduction 53
2.15.2 Increase in Flexibility 54
2.15.3 Increase in the Speed of Business Process 54
2.15.4 Increase in Revenue 55
2.15.5 Moderate Staffing Level 55
2.15.6 Access to Expert Skill 55
2.15.7 Accountability 56
2.15.8 Competitive Strategies 56
2.15.9 Lower Personnel Cost 56
2.15.10 Enhancement of Developing Countries 57
2.16 Disadvantages of Outsourcing 57
2.16.1 High Co–ordination Cost 58
2.16.2 Quality and Service Issues 58
2.16.3 Loss of Control 58
2.16.4 Unemployment 58
2.16.5 Downsizing 59
2.16.6 Communication Barrier 59
2.17 Criticisms of Outsourcing 60
2.17.1 Quality Fade 60
2.17.2 Increase in Rate of Outsourcing 60
2.17.3 Accents 61
2.17.4 Staff Turnover and Loss of Skills 61
2.17.5 Qualification of Outsourcer’s Staff 61
2.17.6 Economy 62
2.17.7 Threat to Domestic Work Force 62
2.17.8 Policy 63
2.17.9 Security 63
2.17.10 Fraud 63
2.18 Response to Criticisms of Outsourcing 64
2.18.1 Outsourcing Rate 64
2.18.2 Quality of Service 65
2.18.3 Labour and Economy 66
2.19 Learning Outsourcing Strategies from
the Experienced Companies 67
2.29 Summary of the Review of Related Literature 68
References 71

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Area of Study 75

3.2 Research Design 75
3.3 Sources of Data 75
3.4 Methods of Data Collection 76
3.4.1 Questionnaire 76
3.4.2 Personal Interview 76
3.5 Population of the Study 76
3.6 Determination of Sample Size 77
3.7 Tools for Analysis 79
3.8 Reliability of the Study 80
3.9 Validity of Research Instrument 80
3.10 Decision Rule 80
References 82
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Distribution and Return of Questionnaire 83

4.2 Tools for Analysis 84
4.3 Presentation and Analysis of Data Collected 85
4.4 Presentation and Analysis of Cost Information 100
4.5 Testing of Hypotheses 106

CHAPTER FIVE: SUMMARY OF FINDINGS,

CONCLUSION AND RECOMMENDATIONS

5.1 Summary of findings 119

5.2 Conclusion 120
5.3 Recommendations 120
5.4 Areas for Further Studies 121

Bibliography 122
Appendix I 127
Appendix II 133
LIST OF TABLES

2.1 Imported Inputs in Nigeria Manufacturing

Industries 1987, 1992, 1997, 2002 22

2.2 Contracting Out by Industries 26

2.3 The Nature of the Employer 45

3.1 The Research Population Distribution According

to Head of Department, Senior Staff and Junior
Staff of UNTH and NOHE 77

4.1 Returned and Unreturned Questionnaire from UNTH 83

4.2 Returned and Unreturned Questionnaire from NOHE 84

4.3 Category of Respondents 85

4.4 Practicing of Outsourcing in UNTH and NOHE 85

4.5 Department that Have Been Outsourced 86

4.6 Outsourcing Technique Adopted. 87

4.7 Outsourcing Is Relevant in your Organisation 87

4.8 Outsourcing Helped Your Organisation

to Focus More on Core Functions 88

4.9 Staffing Level Is Best With the Introduction of

Outsourcing 89

4.10 Outsourcing Has Improved Staff Commitment

to Work 90

4.11 High Job Co-ordination has been Achieved

Through Outsourcing 91

4.12 Outsourcing Has Resulted to Higher Labour

Productivity 92

4.13 Outsourcing Has Improved the Quality of

Services Rendered 93
4.14 Outsourcing Has Resulted to Standardization
of Services Rendered 94

4.15 Outsourcing Has Increased Customer’s

Patronage 95

4.16 Outsourcing Helped to Have Access to

External Skills and Knowledge 96

4.17 Outsourcing Has Increased the Efficiency and

Effectiveness of Services 97

4.18 Outsourcing Has Increased Capacity Building 98

4.19 Outsourcing Has Resulted to Loss of Control

Over the Outsourced Services 99

4.20 Outsourcing Has Resulted to Loss of

Organisation’s In-built Skills 100

4.21 Cost Incurred in Laundry Services Without

Outsourcing and With Outsourcing For The
Period 2007 and 2008 in UNTH 101

4.22 Cost Incurred in Laundry Services Without

Outsourcing and With Outsourcing For The
Period 2007 and 2008 in NOHE 102

4.23 Cost Incurred in Cleaning Services Without

Outsourcing and With Outsourcing For The
Period 2007 and 2008 in UNTH 103

4.24 Cost Incurred in Cleaning Services Without

Outsourcing and With Outsourcing For The Period
2007 and 2008 in NOHE 103

4.25 Cost Incurred in Security Services Without

Outsourcing and With Outsourcing For The
Period 2007 and 2008 in UNTH 105

4.26 Cost Incurred in Security Services Without

Outsourcing and With Outsourcing For The
Period 2007 and 2008 in NOHE 105
4.27 Paired Samples Statistics for Laundry
Services Cost Without Outsourcing and
Laundry Services Cost With Outsourcing 107

4.28 Paired Samples T-Test for Laundry Services

Cost Without Outsourcing and Laundry
Services Cost With Outsourcing 108

4.29 Paired Samples Statistics for Cleaning

Services Cost Without Outsourcing and
Cleaning Services Cost With Outsourcing 110

4.30 Paired Samples T-Test for Cleaning

Services Cost Without Outsourcing and
Cleaning Services Cost With Outsourcing 111

4.31 Paired Samples Statistics for Security

Services Cost Without Outsourcing and
Security Services Cost With Outsourcing 112

4.32 Paired Samples T-Test for Security

Services Cost Without Outsourcing and
Security Services Cost With Outsourcing 113

LIST OF BOX

2.1 Outsourcing of the Human Relation Management Function 36

ABBREVIATIONS

ASP: Application Service Provider

BPO: Business Process Outsourcing
CEO: Chief Executive Officer
ER: Employee Relation
HR: Human Relation
HRM: Human Relation Management
ITES: Information Technology Enabled Service
IT: Information Technology
KPO: Knowledge Process Outsourcing
LPO: Legal Process Outsourcing
M.C: Material Cost
NOHE: National Orthopaedic Hospital Enugu
OHS: Occupational Health & Safety
P. C: Personnel Cost
SPSS: Statistical Package for Social Sciences
UNTH: University of Nigeria Teaching Hospital
WEF: With Effect From
 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF STUDY

Outsourcing is a business strategy that occurs when a business purchase services or

products from a foreign manufacturer (or supplier), or when a business pays another

company to provide services that the business might otherwise have employed its own

staff to perform (Fiona, 2006:1). Outsourcing stemmed from attempts to reduce guild

controls in Europe in 13th century. They used abundant and cheap female and child labour

force available in the countryside to achieve a lower cost of production. This process was

termed ‘putting-out’ (Jones and kierzkowski, 2004: 4). About this time also, merchants

hire cottage workers to perform some tedious, less skilled tasks in their production

process. A major instance was in the textile manufacturing sector where peasant women

did the spinning on a putting–out basis. The merchant gave out (put-out) the raw

materials such as the raw wool, flax and cotton and collected the finished yarn.

In the late 1960s, however, outsourcing took a major leap forward when firms began to

use data transfers technology to outsource their payroll administration, that is, the tasks of

calculating workers’ wages and deductions and carrying out checks. Nowadays most

business farm out their operations to external entities that specialized in the management

of that operation. Some of the operations that are being outsourced include maintenance

functions, catering, payroll, personnel management and so on. Currently, outsourcing is

gaining momentum globally as a potential strategy for enhancing business activities

particularly in the developing economies. Outsourcing of operations or jobs from internal

handling to an external entity is changing the landscape of business. In every developed

economy, companies are taking the advantage of readily available expertise in other

markets to strengthen their competitive advantage in local markets. India, China and

other South East Asian economies have made outsourcing an important emerging and key

sector in the development of their economy.

The Nigerian economy which is one of the most vibrant in Africa provides a good

condition for outsourcing and it is playing a leading role in outsourcing particularly with

the Government interest in promoting the strategy. Government established the National

Outsourcing Policy and Institutional Framework in 2007 as well as the Guideline for

Public Service Reform of Parastatals of 2006 for the country. Outsourcing was officially

implemented by Federal Government in some of its parastatals in January, 2007. The

expectation was that outsourcing would enable the nation enjoy the benefits of free trade

such as lower cost, higher labour productivity and efficiency that was usually associated

with outsourcing.

1.2 STATEMENT OF PROBLEM

Outsourcing was introduced into the Nigerian Federal Government Parastatals in 2007

with the intention that it will benefit and improve the Parastatal’s performance in terms of

lower cost, higher labour productivity and efficiency that flows through outsourcing

activities. Whereas this is an obvious generalisation, it is not certain whether such cost

saving, higher labour productivity and efficient flows of activities have actually occurred

in Federal Government parastatals in Nigeria. This uncertainty in terms of cost saving

through outsourcing is due to level of costs shown in the financial reports of the Federal

Government parastatals. Outsourcing which is expected to bring about higher labour

productivity seems not to be giving the expected result. Moreover, there is an uncertainty

about the efficiency or quality of services being rendered in the Federal Government

parastatals in Nigeria.

These uncertainties turned out to be a source of worry to parastatals/organisations that

outsourced their services. As a result of this situation, the researcher deemed it necessary

to study the effect of outsourcing on performance of Federal Government owned

hospitals in Enugu, Nigeria, using University of Nigeria Teaching Hospital Enugu

(UNTH) and National Orthopaedic Hospital Enugu (NOHE) as organisations for the

study.

1.3 OBJECTIVES OF THE STUDY

This dissertation will examine the effect of outsourcing on performance of Federal

Government owned hospitals in Enugu, Nigeria by finding out whether outsourcing has

reduced cost, improved quality of services, increased labour productivity as well as built

capacity in Federal Government owned hospitals in Enugu, Nigeria.

Specifically, objectives of the study are summarized as follows:

1. To determine whether there is significant difference between laundry

services cost without outsourcing and laundry services cost with outsourcing

in UNTH and NOHE.

2. To determine whether there is significant difference between cleaning services

cost without outsourcing and cleaning services cost with outsourcing in UNTH

and NOHE.

3. To determine whether there is significant difference between security

services cost without outsourcing and security services cost with outsourcing

in UNTH and NOHE.

4. To determine whether outsourcing has improved the quality of services

rendered in UNTH and NOHE.

5. To determine whether outsourcing has improved labour productivity in UNTH

and NOHE.

6. To determine whether outsourcing has improved capacity building in UNTH

and NOHE.

1.4 RESEARCH QUESTIONS

To facilitate the investigation of this study, the following research questions will be

addressed:

1. To what extent has outsourcing reduced the cost of laundry services in

UNTH and NOHE?

2. To what extent has outsourcing reduced the cost of cleaning services in

UNTH and NOHE?

3. To what extent has outsourcing reduced the cost of security services in

 UNTH and NOHE?

4. To what extent has outsourcing improved the quality of services rendered in

UNTH and NOHE?

5. To what extent has outsourcing improved labour productivity in UNTH and

NOHE?

6. To what extent has outsourcing improved capacity building in UNTH and

NOHE?

1.5 RESEARCH HYPOTHESES

The following null hypotheses are formulated for this study:

1. There is no significant difference between laundry services cost without

outsourcing and laundry services cost with outsourcing in UNTH and NOHE.

2. There is no significant difference between cleaning services cost without

outsourcing and cleaning services cost with outsourcing in UNTH and NOHE.

3. There is no significant difference between security services cost without

outsourcing and security services cost with outsourcing in UNTH and NOHE.

4. There is no significant difference between improvement in the quality of services

rendered with outsourcing and improvement in the quality of services rendered

without outsourcing in UNTH and NOHE.

5. There is no significant difference between improvement in labour productivity

with outsourcing and improvement in labour productivity without outsourcing in

UNTH and NOHE.

6. There is no significant difference between improvement in capacity building with

outsourcing and improvement in capacity building without outsourcing in UNTH

and NOHE.

1.6 SIGNIFICANCE OF THE STUDY

This study shall be relevant to the extent that Federal Government of Nigeria will know

the effects of outsourcing on performance of the Federal Government owned hospitals in

Enugu, Nigeria. They will also be able to take decision on how to handle costs and other

elements of outsourced services in Government parastatals. Management of the Federal

Government parastatals shall know the effective and efficient ways to handle outsourcing

activities for higher capacity building and achievement of organizational goal.

This study shall immensely help management and employees to understand and

appreciate the positive effects of outsourcing on services rendered by their organisation.

Students as well as researchers shall find this work very useful in their quest to know

outsourcing benefits in Government owned hospitals in Enugu, Nigeria.

1.7 SCOPE OF THE STUDY

This study covered University of Nigeria Teaching Hospital (UNTH) Enugu, and

National Orthopaedic Hospital Enugu (NOHE), Nigeria. The study looked at the effect of

outsourcing on performance of Federal Government owned hospitals in Enugu, Nigeria.

1.8 LIMITATIONS OF THE STUDY

This study is limited to the Head of Departments (HODs), members of the Senior and

Junior staff of UNTH and NOHE. This is because HODs and Senior staff directly partake

in determining outsourcing strategies to be employed by the organisation. Moreover,

HODs, Senior and Junior staff partake in the execution of organization’s policies for

achievement of organizational goals.

The study was limited to the laundry, cleaning and security services in UNTH and

NOHE. This is because catering services are not fully outsourced in UNTH. Also, due to

time constraints, sample size was limited in order to complete the study within the period

available.

1.9 PROFILE OF ORGANIZATION

1.9.1 UNIVERSITY OF NIGERIA TEACHING HOSPITAL (UNTH), ENUGU

The University of Nigeria Teaching Hospital (UNTH) has come a long way. The hospital

began early in the 20th century as a Standard General Hospital for Africans built by the

colonial administrators. It later metamorphosed into a General Hospital on the attainment

of Nigeria’s independence in the 1960s. However, at the end of the Nigerian Civil War in

1970, the then government of East Central State transformed it into a specialist Hospital

with effect from July 1, 1970 by decree number 23 of 1974, the Federal Military

Government took over the hospital, but left the management in the hands of the council

of the University of Nigeria, Nsukka. The University of Nigeria Teaching Hospital

(UNTH) became independent in July 1976 with the appointment of autonomous

Management Board.

Currently, UNTH has its main hospital in Ituku-Ozalla, Enugu and three out posts -

Comprehensive Health Centres at Obukpa near Nsukka, Enugu State; Abagana in

Njikoka Local Government Area of Anambra State; and Isuochi in Abia State. It has

numerous departments such as medicine, accounts, personnel, audit, and so on. The main

objective of the University of Nigeria Teaching Hospital is to provide standard health

services to its patients.

Furthermore, following the Guidelines for Public Service Reform of Parastatals of 2006,

Section 5(1a) which states that staff in jobs which services are monetized, outsourced or

abolished (cleaners, drivers, cooks, security men, messengers, etc) should be exited, staff

in catering, cleaning, laundry and security in UNTH were laid off in December, 2006.

From January 2007, the sub-contractors started providing the services in UNTH at a fee

which depends on the nature of services they rendered. Currently, UNTH have

outsourced catering services to Cosy Hotels Ltd. and M/S Woodland Hill Ltd. (but yet to

be made permanent); cleaning services to M/S Strazbourg Investment Nig. Ltd; laundry

services to M/S Pixely Services Nigeria and security services to Hi -Tech Security Ltd.

These external entities are usually referred to as Sub-Contractors or Outsourcee, while

the organisation that outsourced their services to them is called Outsourcer.

1.9.2 NATIONAL ORTHOPAEDIC HOSPITAL, ENUGU (NOHE)

The East Central State Government of Nigeria led by Mr. Ukpabi Asika, as administrator

(Chief Executive) at the end of Nigerian civil war (1967 – 1970), established a hospital

for maimed war victims. The hospital was to offer services in Orthopaedic, plastic and

ophthalmic surgery. The foundation plague of the hospital was unveiled In January 1972,

by Emperor Haile Selassie of Ethiopia after whom it was named, for his mediating role in

the Nigerian civil war. The then Nigerian head of state, Gen. Yakubu Gowon

accompanied him to Enugu for the ceremony. The Eastern Nigeria Governors’ lodge was

converted to the Haile Selassie 1 institute for Orthopaedic, plastic and ophthalmic

surgery.

The hospital was opened to the public with the first intake of patients on 17th January

1975. The formal opening by Mrs. Victoria Gowon took place on 4th April 1975. The

Haile Selassie 1 institute was re-named State Orthopaedic Hospital in July 1975, by Col.

Anthony Ochefu, the then military governor of East Central State. The ophthalmic

surgery part of the hospital was shelved then. The federal take-over of the hospital took

place in 1976, retrospective from 1st October 1975, during which the two sister hospitals

in Dalla – kano and igbobi – lagos were also included. The three hospitals acquired the

uniformity of name; National Orthopaedic Hospital about 1977 and subsequently came

under the control of the orthopaedic hospital management. The main objective of the

National Orthopaedic Hospital, Enugu is to provide standard health services to its

patients.
Furthermore, following the Guidelines for Public Service Reform of Parastatals of 2006,

Section 5(1a) which states that staff in jobs which services are monetized, outsourced or

abolished (cleaners, drivers, cooks, security men, messengers, etc) should be exited, staff

in catering, cleaning, laundry and security in NOHE were laid off in December, 2006.

From January 2007, the sub-contractors

started providing the services in NOHE at a fee which depends on the nature of services

they rendered. Currently, NOHE have outsourced catering services to Cosy Hotels Ltd

and Foodland catering services; cleaning services to Greenearth Environment Consult

and Total Facility Management; laundry services to REMS Dry Cleaners, and security

services to JUAL Concepts Services. These external entities are usually referred to as

Sub-Contractors or Outsourcee, while the Organisation that outsourced their services to

them is called Outsourcer.

1.10 DEFINITION OF TERMS

Outsourcing:
Outsourcing is a practice used by different companies to reduce costs by transferring

portions of work to outside suppliers rather than completing it internally (Ansah, 2006:9).

It is also a handing over of package of functions to another organization for better quality

of product or service delivery, or to reduce financial burden and other encumbrances of

an organization and to make it more focused.

Performance:

In the context of this study, performance refers to the progress towards achieving the

organizational goals and objectives.

Personnel Cost:

This is the cost incurred by an organization in relation to its staff. In the context of this

study, it consists of salary/wages, hazard allowance, shift allowance, and

accommodation.

Material Cost:

In the context of this study, material cost refers to the cost of all the working materials

(excluding fixed assets) purchased by the organization for effective and efficient service

delivery.

Business Process Outsourcing:

Business process outsourcing is a form of outsourcing that involves the contracting out of

operations (or processes) of a business to the third-party service provider (Tas & sunder,

2004:24).

Information Technology (IT) Outsourcing:

This focused on hiring a third-party company or service provider to perform IT related

activities, such as application development, application management, data center

operations or testing, and quality assurance on an organization’s behalf.

Strategic Outsourcing:

Strategic outsourcing is the organized arrangement that emerges when firms rely on

intermediate markets to provide specialized capabilities that supplement existing

capabilities deployed along a firm’s value chain (Holcomb & Hitt, 2007:464). Such an

arrangement produces value within firms’ business chains beyond those benefits achieved

through cost economies.

Outsourcee:

The third party or outside organization that performs business activities (functions) on

behalf of an organization.

Insourcing:

Insourcing can be defined as the delegation of operation or job within a business to an

internal (but 'stand-alone') entity that specializes in that operation. This can be done by

building a facility within the organization. It can also be referred to as a business strategy

used to maintain the control of critical productions or competencies and to reduce costs.

It is opposite of outsourcing.

Offshore Outsourcing:

This is hiring of a company based in another country to do the work that should have

been done by the employees of that company.

Core Competency:

Core competency is a particular strength an organization has better than the other

organizations in the industry which provide the fundamental basis for the provision of

added value. It can take various forms, including technical / subject matter know-how, a

reliable process, product development or culture, such as employee dedication. It should

meet the following three conditions:

1. It provides consumer benefits

2. It is not easy for competitors to imitate

3. It can be leveraged widely to many products and markets.

Downsizing:

This is the reduction of the number of employees in an organization.

Rightsizing:

Rightsizing is referred to as the corporate restructuring or rationalization with the aims to

focus the business activities better, in other to improve efficiency and effectiveness.

Comparative Advantage:

This is the capability to specialize in the production of a product better relative to other

organizations in the same field.

REFERENCES
Ansah, G. (2006), Demystifying Outsourcing: London; Chapman & Hall Inc. p.9

Fiona, T. (2006), “The Ethics of In – House Vs. Outsourcing’’, USC Marshall School of
Business, 2 : 1 – 4.

Holcomb, T.R. and A.M. Hitt (2007), “Towards a Model of Strategic Outsourcing”,
Journal of Operations Management, 25 (2): 464-481.

Jones, W.R and H. Kierzkowski (2004),“International Fragmentation and the New

Economic Geography’’, North American Journal of Economics and Finance,
2(4):12.

National Outsourcing Policy and Institutional Framework for Nigeria, January, 2007.

Nigerian Public Service Reform, Generic Guidelines for Reform of Parastatals March,
2006. Published by Public Service Reforms. The Presidency.

Tas, J. and S. Sunder (2004), “Financial Services Business Process Outsourcing”,

Communi-cations of the ACM, 47(5): 24-50.
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

THEORETICAL FRAMEWORK: THE CONCEPT OF OUTSOURCING

MODELS IN NIGERIAN MANUFACTURING FIRMS, THE WORK OF

INNOCENT (2004)

Outsourcing is a business strategy that has been used extensively for innovative ideas. It

has knocked off many organisations from their traditional ways of carrying out business

activities.

Innocent (2004:6), carried out a test on outsourcing in organization with test of four

different companies that related their services to maximize earnings:

- Chippers Promo Limited Calabar

- Dampert Cold Fish Limited Okpu-ala-Ngwa

- Henshaw Oil Limited Calabar

- Don Pedro Plastic Manufacturing Ltd. Aba

Chippers Promo Limited manufactures iron coilings, chippings, iron rods and bars. It

sources raw materials locally from Asang and Idah as well as Ajaokuta.

Dampert Cold Fish Limited imports fish from Scandinavian countries, and has from the

year 2000 started a fish pond which it hopes to produce the fish locally. Henshaw Oil

Limited has been licensed to operate both in the upstream and downstream sector. It has

also offshore drilling license. Don Pedro Plastics manufactures all types of plastics. At a

glance, the companies are far apart and seem not to derive common benefits. Companies
do not need to produce similar products before they can be beneficial to one another

through outsourcing. One can borrow ideas from another to progress. This is the principle

on which the four distinct and fairly related companies decided to outsource their

materials, products, raw materials and human resources.

Chippers Promo Limited was consulted to be both producing for, and training of

technical personnel of Henshaw Oil Limited in the production of corrosion-resistant high

sea containers. This does not involve merger.

Dampert cold limited which has recently opened a mighty fish pond consulted the series

of High-Sea extension unit of Henshaw Oil in the production of mild disinfectant as a

conducive environment conditioner for middle class fishes.

Chippers Promo Limited outsourced with Don Pedro Plastic in the production of plastic –

coated underground cables which is highly demanded in internationally outsourcing

market in Dubai. None of the agreements above connoted merger or shareholding in the

other company. Though this may be part of wider outsourcing, but it was based on the

idea of maximizing earnings and minimizing cost through utilizing what is lacking in one

company but present in another.

2.1 FURTHER ANALYSIS OF OUTSOURCING

Outsourcing entered the business lexicon in the 1980s and often refers to the delegation

of non-core operations from internal production to an external entity specializing in the

management of that operation (Noah, 2005:13). According to McDonald (2007:6),

outsourcing “involves transferring or sharing management control and /or decision-

making of a business function with an outside supplier, which involves a degree of two-

way information exchange, coordination and trust between the outsourcer and its client.

Such a relationship between economic entities is qualitatively different from traditional

relationships between buyer and seller of services. In an outsourcing relationship the

economic entities dynamically integrate and share management control of the labour

process, rather than entering in contracting relationship were both entities remain separate

in the coordination of the production of goods and service.

Furthermore, Ansah (2006:9) said that outsourcing is a practice used by different

companies to reduce costs by transferring portions of work to outside suppliers rather

than completing it internally. Ansah went further to say that 0utsourcing is an effective

cost-saving strategy when used properly. It is sometimes more affordable to purchase a

good from companies with comparative advantages than it is to produce the good

internally. An example of outsourcing can be made using a computer manufacturing

company that buys some of its computer components from another manufacturer in order

to save production costs. Alternatively, businesses may decide to outsource book-keeping

duties to independent accounting firms, as it may be cheaper than retaining an in-house

accountant.

Furthermore, Anwah (2005:5), defined outsourcing as contracting out to another

manufacturer or supplier work that would otherwise be done by a company’s own

employee. According to Anwah, outsourcing occurs when a company purchases products

or services from an outside supplier, rather than performing the same work with its own

facilities, in order to cut costs thereby increasing revenue. The decision to outsource is a

major strategic one for most companies since it involves weighing the potential cost

savings against the consequences of a loss in control over the product or service. Some

common examples of outsourcing include manufacturing of components, computer

programming services, tax compliance and other accounting functions, training of

administrators, Personnel services, customer service, transportation of products, benefits

and compensation planning, payroll, and other human resource functions. A relatively

new trend in outsourcing is employee leasing, in which specialized vendors recruit, train,

and pay their clients' employees, as well as arrange health care coverage and other

benefits (Anwah, 2005:9).

According to Osmond (2007:4) the growth in outsourcing in recent years is partly as a

result of a general shift in business philosophy. Prior to the mid-1980s, many companies

sought to acquire other companies and diversify their business interests in order to reduce

risk. As more companies discovered that there were limited advantages to running a large

group of unrelated businesses, however, many began to divert subsidiaries and refocus

their efforts on one or a few closely related areas of business. Companies tried to identify

or develop a “core competence”, a unique combination of experience and expertise that

would provide a source of competitive advantage in a given industry. All aspects of the

company‘s operations were assigned around the core competence, and any activities or

functions that were not considered necessary to preserve it were then outsourced. Today,

outsourcing is embraced by companies and industries of all sizes. As an analyst, Osmond

commented, “many companies have decided that transactional and administrative

functions are neither core competencies nor value- added activities. In fact, some

companies are focusing on their key business activities and inviting vendors to provide

non-core services enforced by contracts and service-level agreements.

Successful outsourcing requires a strong understanding of the organization’s capabilities

and future direction. As William (2007:4) explained, decisions regarding outsourcing of

functions are among the most strategic decisions that can be made by an organization,

because they address the basic organizational choice of the functions for which internal

expertise is developed and nurtured and those for which such expertise is purchased.

These are basic decisions regarding organizational design. Outsourcing based only upon a

comparison of costs can lead companies to miss opportunities to gain knowledge that

might lead to the development of new products or technologies.

Outsourcing can be undertaken to varying degrees, from total outsourcing to selective

outsourcing. Total outsourcing may involve dismantling entire departments or divisions

and transferring the employees, facilities, equipment, and complete responsibility for a

product or function to an outside vendor. In contrast, selective outsourcing may target a

single, time-consuming task within a department, such as preparing the payroll or

manufacturing a minor component that can be handled more efficiently by an outside

specialist.
Vendors providing outsourcing services are generally grouped into two models: Business

Process Outsourcing (BPO) and Application Service Provider (ASP) (Osmond, 2007:5).

In the BPO model, some processes and assets are transferred from the company to the

vendor to handle. Under the ASP model, vendors concentrate on providing selected

services for multiple clients. Many variations exist within outsourcing. Each vendor has

particular focus and/or point of entry to the market, particularly in the ASP space. The

good news is that there is a seemingly endless combination of service, pricing, delivery,

and providing a solution for many situations. The bad news is that it can be difficult to

compare vendors on an apple - to -apple basis.

2.2 OUTSOURCING, OFF-SHORE OUTSOURCING AND OFF- SHORING

According to Lacity (2006:29), “Outsourcing”, “Offshore Outsourcing” and “Off-

shoring” are used interchangeably in public discourse despite important technical

difference. It is worthy to note that, outsourcing in a corporate context represents an

organizational practice that involves the transfer of an organizational function to a third

party within the same country. When this third party is located in another country, the

term “offshore outsourcing” makes more sense. “Off-shoring” in the contrast, represents

the transfer of an organizational function to another country, regardless of whether the

work stays in the corporation or not. Outsourcing equally means sharing organizational

control with another organization. Off-shoring, on the other hand, represents a relocation

of an organization’s function to a foreign country, not necessarily a transformation of

internal organizational control. In Off-shore outsourcing, there is no sharing of

organizational control with another organization. The outsourcee handles the business

process on its own.

2.3 WHAT IS OUTSOURCING? AND HOW TO TRACK IT

According to Lacity (2006:10), outsourcing refers to a company that contract with

another company to provide services that might otherwise be provided by its employees.

Many large companies now outsource jobs such as call center services, e-mail services,

laundry, and so on. These jobs are handled by separate companies that specialize in each

service. There are many reasons that can make companies outsource various jobs, but the

most prominent reason seems to be that it often saves money. Most of the companies that

provide outsourcing services are able to do the work for a considerably amount, mainly

because they don’t have to provide benefits to their workers, and have fewer overhead

expenses to worry about. Outsourcing allows companies to focus on the main business

issues, and leave the lesser issues to be taken care of by the third party company or

supplier. This means that a large amount of activities and attention that might fall on the

shoulders of management are often streamlined. Also, the company will have access to

world-class capabilities and new technology than a company could afford on their own.

Moreover, if a company wants to expand, outsourcing is a cost effective way to start

building extension in different countries.

Foreign outsourcing (or off-shoring) by Local firms involves the relocation of some

domestic production of goods/services to foreign countries (Lacity,2006:12). Foreign

outsourcing by a firm can involve the relocation of production that is either internal or
external to the firm. Outsourcing of production internal to the firm involves replacing the

firm’s own domestic production with foreign production, while the outsourcing of

production external to the firm involves replacing the firm’s purchase of locally sourced

inputs with purchase of inputs produced in foreign countries.

According to Thomas (2007:80), the various channels through which the outsourcing of

production takes place and its multiple effects helps to explain why measuring

outsourcing activity has been challenging using available economic data. Our analysis of

the extent and growth of outsourcing focuses on the share of imported inputs in total

manufacturing inputs for industries in the local manufacturing sector.

Nneoma (2004:81) stated that, according to federal office of statistics as shown in Table

2.1 below, the share of imported inputs in the whole manufacturing sector and

manufacturing industry groups in 1987, 1992, 1997, and 2002. Between 1987 and 2002,

the industry groups with the largest increases in the share of imported inputs were the

textiles group, the apparel/leather products group, the motor vehicles/bodies and

trailers/parts group, and the computer/electronic products group. For these groups, the

foreign-product share of total manufactured inputs rose by between 12 and 14 percentage

points during the period. Table 2.1 also showed that the growth in the share of imported

inputs in the manufacturing sector as a whole accelerated in the later part of 2002.
 TABLE 2.1

IMPORTED INPUTS IN NIGERIAN MANUFACTURING INDUSTRIES : 1987,

1992, 1997, 2002

Manufacturing Industries 1987 1992 1997 2002 Change in

Share, 1987
to 2002

Computer and electronic 22.3% 26.5% 32.7% 34.6% 12.3%

products
Apparel and leather and allied 18.9% 24.1% 24.5% 32.4% 13.5%
products
Motor vehicles, bodies and 16.3% 18.0% 19.1% 28.7% 12.4%
trailers, and parts
Miscellaneous manufacturing 16.5% 18.6% 18.0% 23.8% 7.3%
Electrical equipment, 13.2% 14.8% 18.3% 23.1% 9.9%
appliances, and components
Other transportation equipment 12.6% 15.9% 18.5% 22.9% 10.3%

Textile mills and textile product 8.8% 11.3% 14.3% 22.8% 14.0%
mills
Machinery 13.0% 13.9% 17.1% 22.2% 9.2%
Primary metals 12.8% 14.3% 21.2% 21.3% 8.5%
Chemical products 10.6% 12.0% 15.7% 20.5% 9.9%
Plastics and rubber products 9.0% 10.6% 13.3% 20.3% 11.2%
Fabricated metal products 12.4% 12.5% 15.8% 18.8% 6.4%
Wood products 8.9% 8.8% 14.3% 17.7% 8.8%
Nonmetallic mineral products 9.9% 10.4% 13.8% 17.4% 7.5%
Furniture and related products 10.1% 10.6% 13.1% 17.1% 7.0%

Printing and related support 9.4% 8.1% 14.9% 15.6% 6.3%

activities
Paper products 10.6% 10.3% 15.2% 15.0% 4.4%
Petroleum and coal products 9.5% 8.5% 9.4% 12.8% 3.3%
Food and beverage and tobacco 5.8% 6.1% 6.5% 9.8% 4.0%
products
Source: Federal Office of Statistics, Abuja.
Furthermore, from the above table, faster growth in the share of imported inputs in the

most recent 1997-2002 period are seen in 13 of the 19 manufacturing industry groups.

The increase in the latest period was especially fast for the motor vehicles/bodies and

trailers/parts industry group, in which the years from 1997 to 2002 accounted for three-

quarters of the increase in the share of foreign-sourced inputs. Of the 12.4 percentage

point increase in that group’s imported input share between 1987 and 2002 (from 16.3%

to 28.7%), the most recent five-year period accounted for 9.6 percentage points.

The data presented in the above table showed the (rising) share of imported inputs used in

Nigerian manufacturing during those periods. In the earlier period, from 1987 to 1997,

the share of imported inputs rose as their use in production grew at a faster rate than the

growth in the use of domestic goods. Between 1987 and 1997, foreign-sourced inputs

grew by 85% while domestic inputs grew by 15%. In the later period 2002, the share of

imported inputs grew as a result of continued growth in imported inputs while the volume

of domestic inputs fell.

These figures showed that foreign outsourcing, as measured by the importation of

manufacturing inputs, had gone up significantly throughout Nigerian manufacturing firms

since 1987, and has accelerated in many manufacturing industries in the last five years.

Moreover, outsourcing has been highest in those industries that have most likely seen the

largest job losses in recent years.

Still, these data suggested that outsourcing might have contributed significantly to

employment losses in Nigerian manufacturing in the last several years (Nneoma,

2004:84). And tracking the share of imported goods/services (inputs) in total purchases

of goods/services can reliably allow us to discern changes in outsourcing over time.

2.4 WHY OUTSOURCE?

According to Lawrence (2007:24), there are four distinct management rationales for

outsourcing:

1. Capacity Outsourcing:

It will serve as a means of achieving flexibility to supplement existing capacity in

response to changes in demand;

2. Specialization Subcontracting:

To help organization to have access to the use of specialized equipment or

specialized skills that is/are otherwise not always needed for business effectiveness

and competitiveness.

3. Cost Reduction:

This is to reduce higher costs of running the organization, unionized labour, or

paying for statutory employee costs such as taxes, superannuation, leave loading and

entitlements and so on;

4. Market Discipline:

This is to focus on core business activities, and leave the performance of the non-

core activities to a third party for better market performance.

According to Ethel (2007:7), most studies suggested, however, that firms undertake

outsourcing for a combination of reasons. Also, that a survey of outsourcing projects in

the Australian public sector which covered 7,500 outsourcing contracts from 1995 to

1998, suggested that the main reasons for outsourcing were:

• to achieve better access to skills,

• improved quality,

• Cost savings.

The survey also found that cost savings varied by the service that was outsourced,

varying from savings of 46% for cleaning services to minus 9% for IT services.

2.5 EXTENT OF OUTSOURCING

There is no detailed survey of outsourcing activity in Nigeria. However; it is possible to

put together trends on agency workers, and contracting out of services by industries from

various surveys.

Nneoma (2004:87) stated that, according to Federal Office of Statistics, non-employees

as a percentage of employees have increased from 4.7 per cent to 6.5 percent. In

manufacturing the increase has been greater, it has jumped from 14 percent to 21 percent.

It is quite likely that these figures are under-estimate of the true extent of non-employees

in the workforce because the population only includes workplaces with 20 or more

employees.
Further, the FOS data, which examines a subset of workplaces that survived total

outsourcing from 1990 to 1995, suggested that the majority of workplaces in 16 industry

sectors had contracted out services during the previous 6 years. This is shown in table 2.2

below:

TABLE 2.2

CONTRACTING OUT BY INDUSTRIES

Industry % of workplaces with services contracted

out during last 6 years
Electricity, gas & water supply 66.8
Construction 60.8
Education 60.4
Mining 55.3
Government administration 51.5
Manufacturing 45.7
Property & business services 33.3
Cultural & recreational services 33.2
Communication services 32.8
Transport & storage 32.3
Wholesale trade 29.8
Personal & other services 28.7
Health & community services 22.4
Accommodation/cafes/restaurants 21.7
Finance & insurance 14.8
Retail trade 10.6
Total 37.5

Source: Federal office of Statistics data

Some of these industries such as electricity, gas and water supply, as well as construction

have always been heavy users of outsourcing, but others are very much a 1990s

phenomena with education, mining, and government administration particularly hard hit.

The State government of Abia, for instance, released a book containing details of the
8,305 outsourcing contracts it is now party to. The Federal government is outsourcing

most of its multi-billion naira IT infrastructure.

The FOS data also showed that the most common services for contracting out have been

cleaning and laundry, building and maintenance, and provision of other parts for

manufacturing or production (Nneoma).

The increase in outsourcing activity has led to an identifiable ‘outsourcing industry’,

comprised of firms whose sole activity is the provision of particular services to other

companies. According to Lawrence (2007:24), a special survey of outsourcing by the

Nigerian Financial Review identified at least four separate segments in the Nigerian

outsourcing market:

1. Property and facilities management,

2. Financial processes and Human Resources Management,

3. Office support services, and

4. Internal auditing.

Other areas such as customer services, call centers, manufacturing, and maintenance

functions are equally outsourced.

2 .6 BUSINESS PROCESS OUTSOURCING (BPO)

Business process outsourcing is a form of outsourcing that involves the contracting out of

the operations and responsibilities of a specific business functions or (processes) to a

third-party service provider (Tas & Sunder, 2004:24). They went further to say that
originally, BPO was associated with manufacturing firms, such as Coca Cola that

outsourced large segments of its supply chain. In the contemporary context, Business

Process Outsourcing is primarily used to refer to the outsourcing of business services.

Business Process Outsourcing is typically categorized into back Office Outsourcing -

which includes internal business functions, such as human resources, finance and

accounting, and front Office Outsourcing - which includes customer-related services,

such as call (or contact) center services (Tas & Sunder). BPO that is contracted very far

and outside a company's country is called offshore outsourcing. BPO that is contracted to

a company's neighboring (or nearby) country is called near-shore outsourcing.

Given the proximity of BPO to the information technology industry, it is also categorized

as an information technology enabled service (ITES). Knowledge process outsourcing

(KPO) and legal process outsourcing (LPO) are some of the sub-segments of business

process outsourcing industry.

In carrying out business process outsourcing, Thomas (2007: 81) suggested that loyalty,

a lengthy bid process, and a lot of strategic alignment are concerns that can be addressed

(and minimized) by companies who go about the outsourcing process in an informed and

deliberate fashion. Knowing exactly what business process and/ or functions to

outsource, it makes sense to maintain it via a service relationship. According to Ansah

(2006:20), unless you have a lot of resources to expand, it may make sense to prioritize

outsourcing projects based on the number of benefits you expect to gain from the

arrangement. There may also be inherent advantages of maintaining certain functions

internally. For example, noted Ansah, company employees may have a better

understanding of the industry, and their vested interests and they are more likely to

make decisions in accordance with the company’s goals. Indeed, most analysts

discourage companies from outsourcing core functions that directly affect the products or

services that the business offers.

2.7 BUSINESS PROCESS OUTSOURCING MODELS

According to King (2005:65), at least three business process outsourcing models can be

distinguished:

2.7.1 Shared Service : In this model, the outsourcee comes into the organization of

the outsourcer and they will share the services to be rendered as agreed upon.

2.7.2 Spin-off : This is a model in which the spin-off (or a new) company leaves the

parent company and then specialize in certain activities which are outsourced by

the parent company.

2.7.3 Specific Outsourcing: A model in which a particular or certain function(s) of

an organization is outsourced to an external service provider called

outsourcee.

2.8 THE DECISION TO OUTSOURCE

In outsourcing, the most significant decision is whether to outsource the function or to

perform it in-house (Bardham and Kroll, 2003: 11). It is worthy to note that, decision to

outsource is made at a strategic level and normally requires board approval. The process

of taking decision to outsource begins with the firm identifying the activity to be
outsourced and generally using a make-buy analysis to justify the decision. It is only

when outsourcing decision on the scope of services to be outsourced has been established

will a search to choose an outsourcing partner begins.

Due to the complexity of work definition, codifying requirements, pricing, and legal

terms and conditions, clients often utilize the advisory services of outsourcing consultants

to assist in scoping, decision making, vendor evaluation and so on.

Companies outsource non-core business functions to the third-party service provider for

various reasons: to reduce head count, to cut expenses, and to improve service, said Moha

(2000:5). In GMAC’s case, Moha noted, the company believed it could not only reduce

personnel cost and other costs during a tough economic time, but also, might better fulfill

its core purpose: ensuring that customers have a positive home-ownership experience.

According to Moha, that meant focusing more on mortgages and selling of properties.

Thus, the real estate and facilities management arm of the business became an ideal

candidate for outsourcing.

Furthermore, according to Davecoat (2007:80), once a company has made the decision to

outsource, there are still a number of factors it must consider in making a successful

transition and forming a partner relationship with the vendor. First, the company should

determine what sort of outsourcing relationship will best meet its needs. Decide what is

important to be outsourced. If a function is not strategic to your business, for instance,

payroll function and it has many employees, consider outsourcing it to an expert

provider. Some businesses outsource on a large scale basis, while some only outsource on

a limited basis as desired.

Moreover, Ethel (2007:7) noted that the outsourcing company needs to obtain the support

of key personnel during this time. Many companies encounter resistance from employees

who feel that their jobs are threatened by outsourcing. Scully (2007:11), suggested

forming a team consisting of an outsourcing expert, representatives from senior

management and human resources, and the managers of all affected areas of the company

to help address employee concerns about the decision. Once your business has decided

which functions to outsource, it should initiate a search process that utilizes referrals from

other companies and service-provider directories.

2.9 SELECTING AN OUTSOURCING PARTNER

According to Moha (2004:18), as a first step in selecting an outsourcing partner, Cyndi

recommends canvassing your industry to come up with a handful of candidates. GMAC

hired a consulting firm to handle the search, owing to the accelerated timetable. The

consultants served as advisers at several levels:

• Suggesting potential partners.

• Helping GMAC develop a picture of what the new organization should look like

after the outsourcing must have been completed.

• Offering recommendations for defining the partnerships.

• Assisting GMAC in interviewing potential partners’ former and current

customers.
Then, Moha further suggested as follows, “look at each company’s standing in the

service provider’s industry, its flexibility, and its track record with firms similar to yours.

Look for service providing company that make a good cultural match with your own

company, and find out what you can about their portfolio of talent. Make sure they are

willing to explain the reasons behind both their success and failure if any”.

Furthermore, Schwenker (2007:42) suggested that the outsourcing company should ask

specific questions to the vendor(s) about the services they provide and their abilities to

meet the company’s unique and specific needs. Ideally, the vendor to be selected should

have experiences in handling similar business and should be able to give all of its client’s

needs the priority they deserve. “Consider the service company’s knowledge of the

entirety of your business, its willingness to customize service, and its compatibility with

your firm’s business culture, as well as the long-run cost of its services and its financial

strength, (Schwenker). During this period, you should also re-examine the company’s

culture and business needs to make sure that the outsourcing arrangement under

consideration is a good fit. Many outsourcing experts counsel businesses to select

vendors that can effectively integrate all their outsourced business functions so that they

do not have to find individual vendors for each function.

Many outsourcing horror stories began with deeply flawed vendor selection, said Jason

(2006:101). Once team members make the decision to outsourcing a task, they often want

to start reaping the benefits immediately. But finding the best partner requires

standardized review criteria combined with time and patience. Jason went further to say
that, companies avoid vendor nightmares with extensive screens of available providers.

While every situation has different requirements, Jason suggested the following top five

vendor selection criteria:

1. Proven commitment to quality

2. Price quotation

3. References and reputation

4. Flexibility contract terms

5. Resources.

Finally, the company should select a vendor they trusted in order to develop mutually

beneficial partner relationship. Greenspan (2004:20) as well as Virginia (2004:51) said

that, it is important to develop tangible measure of job performance before entering into

an agreement, as well as financial incentives to encourage the vendor to meet deadlines,

and also to provide the services effectively and efficiently. Moreover, the contract should

clearly define responsibilities and performance criteria, outline confidentiality rules and

ownership rights to new ideas or technology. It should also include a means of severing

the relationship if the service does not meet the expectations. Since the vendor is likely to

have more experience in preparing outsourcing agreements than a small client company,

it may also be helpful to consult with an attorney during contract negotiations.

2.10 OUTSOURCING AND EMPLOYEE RELATIONS (ER)

According to Ansah (2006:88), the degree to which firms are guided in making

outsourcing decisions on the basis of ER or labour relations reasons is difficult to

determine. An alleged benefit of outsourcing is said to be the ability of improving

employee relations due to shifting ER responsibility to a third party. This is especially

the case where the union representing the current ‘in-house’ employees is perceived as

militant or where workplace reform is being resisted.

Ansah (2006:25) went further to state that studies of why firms in the Australian metal

manufacturing industry outsourced their maintenance function arrived at different

conclusions. In the study, nearly half of the respondents stated that reducing the number

of unions, reducing union influence and improving ER are important factors in the

decision to outsource the maintenance function. The importance of ER was also

confirmed by case studies of four (4) firms conducted by the same authors. The case

studies suggested that the existence of demarcation issues were particularly important in

accounting for management’s decision to outsource maintenance, also that Employee

Relation (ER) is an important factor in the decision to outsource the maintenance

function were union restrictions on use of supplementary contract labour, and the failure

to restructure maintenance work after attempted negotiations with unions exists.

Similarly, a case study of the use of agency workers at the Unilever found that ‘employee

relations’ was a key reason in management’s decision to contract out some of its

operations to agency workers. Management saw the enterprise bargaining process as too
slow and a constraint in achieving the flexibility they wanted, and that the use of agency

competitive environment will be of great help.

2.11 OUTSOURCING AND HUMAN RESOURCE MANAGEMENT

According to Avijit (2006:13), Outsourcing can be defined as “the situation where an

external vendor provides on a recurring basis, a service that would normally be

performed within the organization”. Avijit went further to say that a definition favoured

by lawyers sees outsourcing as a legal partnership between two or more organizations

where one contracts out the ownership, management and staff of a particular function to a

specialist company.

Ansah (2006:20) noted that in the traditional employment relationship, the employing

company is also the producing company. Outsourcing has added another dimension to

this relationship by introducing (in some cases) an intermediary that acts as some kind of

labour supply company.

In an outsourcing situation, sometimes the workers will be employed by the labour hire

company in an employee relationship and then leased out to the host company. Amongst

some labour hire agencies, however, the workers will be engaged as contractors, not

employees. These workers can be termed ‘dependent contractors’ and be distinguished

from ‘independent contractors’ who legitimately work as sole traders. The labour supply

company in this case is acting as a broker rather than as a supplementary labour hire

company.
According to Ethel (2007:7), a further complication is sometimes raised when companies

convert their existing workforces into someone else’s employees. This can take two

forms:

1. Where a section of the organization (eg. Maintenance or canteen) is contracted out.

The same workers retain their old jobs but now work for the contracting company

and they pay the workers,

2. Where a section of the organization is set up as a separate business and is sold off to

another company, with the workers transferred along with the premises and

equipment.

Furthermore, Scully (2007:44), one implication of outsourcing for HRM/ER is the extent

to which the HRM/ER function itself is being increasingly outsourced. An extensive

literature on the pros and cons of outsourcing the HR function now exists, much of it a

‘how to’ guide rather than analysis of its implications for the firm and the management of

labour. Box 2.1 highlights some findings of interest in this area Walter stated.
 BOX 2.1

OUTSOURCING OF THE HRM FUNCTION

• Of 121 senior-level HR professionals that responded to a survey in the US, 91%

outsourced one or more of their HR functions. The reasons given for outsourcing

HR (in order of importance) were: to use the expertise of specialists, to save time,

to save money, to focus on more strategic initiatives, function not part of core

business, Responsibilities have increased, Staff reductions to cut personnel cost,

Budget cuts, To reduce liability.

• The authors of the above study suggest that these findings showed that quality and

flexibility rather than cost are the most important reasons for making outsourcing

decisions.
• Other surveys of outsourcing in HR departments suggest that the most common

reasons for outsourcing are to: enhance expertise, improve service quality, reduce

staff, and streamline process and lower costs.

• A 1998 survey of 132 firms by the Hay group in the US showed that 57%

outsourced aspects of their HR functions. Of those who did, almost 20% were not

satisfied.

- Lack of pro-activeness by the vendor (firm supplying services);

- Turnover of the vendor team;

- Vendor errors and mistakes;

- Incompatibility between client and vendor culture.

• According to a Kinnos (2005:31) survey of over 1000 Chief Financial Officers

across the corporate sector in Nigerian, human resources is the most likely corporate

function outsourced, such as recruitment, selections and training. Kinnos Jonas

Consult study predicted that the outsourcing of tactical functions by

medium-sized firms would form the next stage in the evolution of

Human Resource outsourcing.

2. 12 THE IMPACT OF OUTSOURCING ON HUMAN RELATION

MANAGEMENT/EMPLOYEE RELATION (HRM/ER)

Despite the many claims and counter-claims surrounding outsourcing and the myriad

studies of its impact on costs, there is still surprisingly little research into its effects on

HRM/ER outcomes. Outsourcing advocates such as Domberger (2005: 79) concluded

with statements such as:

Outsourcing improves organizational performance by

creating change along three principal fronts: reducing staff
numbers to cut cost, introducing new skills and working
practices; and modifying individual incentives,
employment terms, and attitudes to the workplace. But
resistance to change is ubiquitous, and nothing quite resists
change like organizational inertia.

This begs the question of what the longer-term impact of such changes may be?

Furthermore, the impact of outsourcing on ER variables will depend on the form and

nature of the outsourcing operation. For instance, outsourcing may involves the

contracting out of an entire function (e.g. Maintenance) where all of the existing

employees in that function are either made redundant or transferred over to another

entity, or a situations where some activities may be contracted out to staff from labour

hire agencies who may work alongside employees of the firm.

2.12.1 EMPLOYEE RELATIONS CLIMATE

One case study of four manufacturing companies that had out -sourced their maintenance

activities to skilled Engineering noted Harkins and Brown (1995:40) suggested that

employee relations (from the management perspective) had improved. The reasons for

this improvement were attributed to the removal of demarcation issues and work

restrictions, a reduction in number of unions on site and a cited improvement in shop

floor morale due to the decrease in the number of direct maintenance labour needed (two

companies achieved reductions in their maintenance workforce of 50%).

Improvements in employee relations climate noted Domberger (2005:80) may arise from

simply reducing staff or because employees who are contracted may work harder because

their employment is less secured. This raises the question, however, of whether fear is the

best incentive for longer-term improvements? Fear may lead to increase in worker

anxiety, stress and lack of commitment, all potentially damaging to productivity and

quality in the longer term.

2.12.2 Employee Commitment

Much of the HR literature of the 1990s observed Anwah (2005:20) has stressed that to be

competitive, firms will need to adopt strategies that enhance employee commitment. It is

possible that the use of outsourcing, especially that which involves the use of employees

from labour hire firms working alongside regular employees of the firm, will create

problems of commitment for both groups of workers.

Outsourcing, said Ansah (2006:100) creates the possibility of a form of dual

commitment: the commitment of employees to the enterprise where they work as well as

the firm that employs them (i.e. the labour hire firm). Outsourced labour, may be less

committed to the host company than regular employees. If contract workers have little

loyalty to their host company they are unlikely to cooperate with regular employees to

improve work processes and productivity. Furthermore, as a Silicon Valley manager

disgusted by the outsourced service provider’s employees remarked:

…a mercenary may shoot a guy the same as a soldier, but

he will not create a revolution, build a new society, or die
for the homeland.

According to Benson and Nick (2005:35), there are only few studies on the subject, and

they showed that:

• The presence of contractors is associated with lower trust among the firm’s

regular employees. This is often because the regular employees see the

contractors as a threat to their own position and this leads to divisiveness in the

workforce.

• In some situations, the disparity in pay and conditions between agency workers

and permanent employees doing the same job causes tension and stress, with little

team spirit and teamwork between both groups. This can have a negative impact

on employee commitment to both host firm and labour hire firm.

• A study of contract employees (all from Skilled Engineering) in four

manufacturing firms showed that over half of all the contract employees had
 similar levels of commitment to their employer and to the host company (that is,

most respondents displayed dual commitment), but that their commitment to the

host company was higher than that to their employer (Skilled Engineering).

According to Feldman (2001:24),

Organizations that outsource maintenance functions do not

appear to end up with a poorly committed group of
contractor employees… It appears that any negative
feelings about contract employment tend to affect the
relationship with the employer and not the relationship with
the host enterprise.

2.12.3 Union Avoidance and Presence

Benson and Nick (2005:65) argued that local studies have found little or no evidence that

outsourcing is associated with union avoidance strategies per se. One key study,

however, did found a relationship between union presence and a plant’s likelihood of not

engaging in outsourcing activity. The study found that non-union plants with

collaborative problem-solving committees were significantly more likely to contract out

than similar plants with employee involvement schemes. The authors suggested that such

problem solving committees are often a vehicle for management to achieve numerical

and functional flexibility.

In contrast, noted Rafiu (2005:50) when the plant had both a union and an employee

involvement program, the plants likelihood of engaging in outsourcing will be relatively

lower. This finding may be indicative of a greater commitment by management to

employment stability within the plant.

As indicated earlier, union avoidance or reducing the number of unions may be more of

an issue in the Nigerian environment. Some firms have reached agreement with unions

who in return for agreeing to contract out certain functions have been given coverage of

the employees involved. The introducing of subcontractors, however, may be a source of

tension with unions and lead to industrial disputation.

2.12.4 Training And Skills

According to Carpenter (2005: 77), a key issue in outsourcings’ impact on ER/HR is its

impact on skills and training. As Thomas (2007:10) argued:

Outsourcing can provide a short cut to a more competitive

product, but it typically contributes little to building the
people-embodied skills that are necessary to sustain
product leadership.

According to Thomas, this may lead to what is termed in outsourcing a ‘hollowing out’ of

the organisation, referring to the loss of skills, loss of corporate memory, weakened

innovative capacity and switching costs that may accompany outsourcing.

Once again, the likely impact on the skill base or knowledge of a firm will depend on

which functions has been outsourced. The impact of outsourcing Information

Technology (IT) or Human Relation (HR) is likely to have a much greater impact than

say outsourcing cleaning or canteen facilities. There have been several reports of firms

outsourcing their IT function, only to find out that the lack of in-house expertise causes a

reversal of the aim of the strategy.

In contrast, said Davecoat (2007:48) some argue that a major reason for the growth of

outsourcing, especially in areas like IT, has been the difficulties certain companies have

in attracting the right staff to run these operations in-house. IT professionals, for

instance, may see their career path in terms of the wider IT industry rather than as IT

managers in manufacturing or service sector companies. According to Davecoat, such

employees joining firms such as Unipetrol is increasingly seen as the most attractive way

of gaining exposure to the latest developments in the profession. Increasingly, much of

what happens to the internal labour markets, training and career structures in professions

such as IT, accounting, finance, and HR will depend on the practices adopted by these

large outsourcing service providers.

There is evidence, especially in skilled blue-collar trades, according to Carpenter

(2005:80) that firms that outsource might be reluctant to invest funds in training the

employees of contractors. Agency workers often receive little or no training from either

their agency or host firm and are required to undertake and pay for skills training

themselves. Clearly there is little incentive for firms to pay for or provide training to

agency employees as it in some ways defeats the purpose of outsourcing in the first place.

While this may not necessarily pose a problem for individual firms in the short term,

notes Ansah (2006:60) this situation may pose problems for all firms in the longer term if

the overall skill base of the workforce is reduced. Certain types of training and skill

acquisition are too expensive to be undertaken by individual employees and much is also

not acquired on-the-job. The relationship between outsourcing and skills/training

deserves further investigation and research.

2.12.5 Occupational Health & Safety (OHS)

According to Anelka (2007:4), another possible impact of outsourcing on employee

relations issues is its impacts on Occupational Health and Safety (OHS). A study of

contract workers in the United State (US) petrochemical industry, for instance, found that

contract employment relationships created stress with potentially serious effects on

safety. Outsourcing argues Anelka, may increase the risk of occupational accidents if it

leads to work intensification, poorer related training, or the firm having less control over

contract employees compared to its own.

A study of OHS and outsourcing in the Nigerian Child Care, Hospital, Transport and

Building industries noted Ansah (2006:60) showed that subcontracting and outsourcing

can and does have significant adverse effects on OHS. The major differences in OHS

outcomes said Ansah, were between the different industry groups with employment status

(whether workers were subcontractors or employees) being an important secondary

effect. The study also found that subcontracting was associated with increased economic

competition, work disorganization, regulatory failure and divisions in the workforce,

which had adverse OHS effects on all workers in the industries.

A more recent study of outsourcing and OHS in the Nigerian Textile, Clothing and

Footwear industry by the same authors, found that:

The OHS of outsourced workers was unequivocally and

significantly worse than that of factory-based workers

(Ansah,2005: 99).
2.12.6 Unemployment

Anelka (2007:5) said that while there is no clear link between outsourcing and

unemployment at the macro-economic level, there is clearly an impact at the level of the

individual firm. In most outsourcing arrangements, employees are transferred to the

contractor, redeployed within the firm, or made redundant. The case study of outsourcing

in the Nigerian manufacturing industry observed large employee reductions in

maintenance workforce after outsourcing. Indeed, much of the ‘how to’ outsourcing

management literature is geared to examining how to best deal with the financial and legal

implications of making the workforce redundant (Ansah,2006:63).

An analysis of manufacturing workplaces using Federal Office of Statistics (FOS) data

conducted by Kinnos Jonas Consult said Thomas (2007:79) suggested that outsourcing

has a significant impact on employment. Manufacturing workplaces were divided into

two categories: those that had engaged in contracting out and those that had not. When

asked what the impact of workplace change had been on the number of full-time

employees at the workplace, nearly half of the contracting out workplaces reported that

full-timers had decreased. Clearly, contracting out was being used to reduce the

workforce, not just to supplement employee numbers during peak activity.

2.12.7 Legal Issues

According to Thomas (2007:114), the legal implications of outsourcing for employee

relations comprise of two main issues:

1. The broader conceptual issue regarding the status of employees in an environment

where outsourcing is increasingly used.

One of the key conceptual issues that outsourcing raises is the question of whether

agency workers are employees of the outsourcer (host firm), or the outsourcee? As was

noted earlier, the nature of the employment relationship is changing with labour now not

always belonging to the producing company. This trend also creates confusion at the

workplace level. The Unilever case study asked the different parties to indicate who the

employer was. The responses are shown in table 2.3.

TABLE 2.3

THE NATURE OF THE EMPLOYER (STATED IN %)

Suggested employer Agency worker’s Agency view Host Firm Barrister

view Managers’ view view

Agency 63 44 90 -

Unilever 32 - 5 -

Self-employed 5 56 5 100

Don’t know - - - -

Source: Kinnos Jonas Consult (2005)

These findings argued Thomas showed that there exists confusion over who is the

employer of agency workers, or if in fact there is an employer. Most agency workers saw

themselves as being employed either by the agency or their host firm. The employers in

the host firm (Unilever) however, overwhelmingly saw the labour hire agency as being

the employer. The agency views were split between seeing themselves as the employer
or regarding their employees as self-employed. The host firm’s legal adviser’s (Barrister)

view was that the workers are self-employed.

The issue is not just conceptual, for who the employer is has implications for areas such

as the benefits and entitlements of employees, responsibility for training, OHS and so on.

2. The more practical implications of outsourcing with respect to complying with

various statutory Acts.

Practical legal implications of outsourcing mainly observed Moha relate to the

implementations of such decisions, Other issues noted Thomas (2004: 30) relates to

whether the relevant agreement flows on to the new employer (outsourcee) after an

outsourcing arrangement. This is of importance to the third party/contractor since it

could determine the economic viability of the outsourcing operation. A recent decision

by the Federal Court states that private sector companies winning contracts to carry out

services for government agencies will have to ensure their employees’ wages and

conditions are in line with federal public sector awards and agreements. The key legal

issue in this case was whether an entity that takes over delivery of services outsourced by

a government department is legally bound by industrial awards that applied to the

government when it delivered the service. Section 149 of the Federal Workers Relation

Act provides that existing industrial awards continue to apply to a business after it is

taken over by or transmitted to a new employer.

Apart from complying with the law with respect to outsourcing requirements, the process

or implementation of outsourcing is also important for creating or maintaining a

cooperative industrial climate. What may be needed therefore are some best practice

case studies exploring the implementation phase of outsourcing.

2.13 OUTSMARTING WITH OUTSOURCING: AN ACCOUNT OF CYNDI

(2006)

Cyndi (2006:10) had been responsible for GMAC’s Corporate Real Estate and Facilities

Management group for three months when faced with a major challenge. The large

support operation appeared to be at a crossroads. The division needed to cut costs,

manage suppliers’ performance better, and clean up the chaos engendered by a lack of

internal controls, standards, and up-to-date technology.

Cyndi presented top management with three options: to continue the present course, to

reengineer the division, or to outsource the entire operation. Management selected “Door

No. 3”. Cyndi then suggested primarily to reduce head count and improve processes

effectively. But Cyndi got more than what was bargained for: GMAC executives were so

excited by outsourcing’s potential cost savings and apparent ease of execution that they

decided to shrink the standard timeline. Whereas many firms would have allotted more

than six months to complete an initiative of this magnitude, GMAC executives asked

Cyndi to do it in six weeks. In spite of notable obstacles, Cyndi met the challenge. In

doing so, she and GMAC learned valuable lessons about launching an outsourcing

initiative.
2.13.1 IDEAS ON HANDLING OF OUTSOURCING INITIATIVES

According to Cyndi (2006:13), in proposing an outsourcing initiative, the following

guidance is worthy of being considered:

1. COST SAVINGS AND SPEED

In proposing an outsourcing initiative to senior executives, managers need to do more

than just stressing the potential cost savings. Why? “Savings come in three forms:

immediate dollars on the Profit & Loss, eventual improvements in processes, and

avoidance of costs. You won’t see all the savings show up immediately on the

company’s Profit & Loss, and some of the savings will always be hard to quantify”

(Cyndi).

Moreover, over emphasizing the financial benefits of outsourcing can cause firms to set

too short a timetable. A rapid execution has pros and cons. As Cyndi discovered, speed

enables a company to get through the most painful part of the change process quickly and

minimizes friction created by resisters. It also forces people to adapt quickly. As Cyndi

puts it, “You can’t know till you jump in the middle that you don’t know to swim, but

you learn how, really fast”.

On the other hand, speedy implementation can deprive the organization and the third-

party provider of that all important “courting” stage before the “marriage”. Cyndi was

hard-pressed to say whether she would aim again for a six week implementation. “In

some ways, six weeks was too short. We were trying for too much radical change at one
time”, Cyndi said, “but speculated that it may have been better if the process had

unfolded in stages rather than all at once, for example, facilities management first, then

lease administration, and finally property management”. Yet, Cyndi concluded,” as the

owner of an initiative, I’II take all my pain in six weeks rather than have it drawn out

over a longer period”.

2. GETTING PAST CULTURE SHOCK

According to Cyndi (2006:19), GMAC’s outsourcing initiative reduced staff by 85

percent in the company’s real estate and facilities management function and saved $6.74

million in the first year. No doubt, the staff reduction was painful, not only for those that

left, but also for those that remained in the company.

The staff who found the layoffs the most difficult was the retained workers. The

teammates of the laid-off workers were more aware of the organization’s lack of “bench

strength”, but the management understands the situation and makes effort to manage the

staff reduction’s impact on morale. This is all about organization with the old assets still

at hand. If the organization immediately makes the survivors to see the benefits of the

change and the reasons behind it, they will become champions of the effort.

Cyndi also advises constant communication with both the workforce and upper

management about the program’s goal and every aspect of its implementation. “Tell

everyone about what is going well and what isn’t going well. Own up to your mistakes

and missteps,” Cyndi urges.

Communication helps to combat the human tendency to blame outsiders for their own

problems. According to Cyndi, “at GMAC, this tendency was exacerbated by the

unpleasant experiences many employees had with previous outsourcing efforts. It is

worthy to note that no outsourcing initiative can work, unless the company as a whole

accepts the third-party provider’s role”. A deflect unwarranted blame moves away from

GMAC’s providers, who continually communicated its own role in the new initiative

through as many channels to many recipients as possible. When functional managers

complained about being asked to take on budget accountability for expenses that used to

show up in the corporate income statement, the provider made sure to point out that it

was they who had initiated the change.

In communicating about an outsourcing initiative, Cyndi stated that “patience is as vital

as consistency. The real benefits of outsourcing take time to occur. Before they kick in,

things are going to get painful, ugly, and chaotic. Though, atimes it’s easy to generate a

“big bang” early in the execution of the outsourcing initiative. Change is harder and may

take longer time”. People need to understand that, Cyndi added.

3. COALITIONS AND CHAMPIONS

According to Cyndi (2006:24), handling of regional managers, employers, employees,

and top executives show the importance of building supportive coalitions. Also, a strong

executive champion is needed. To cultivate champions, Cyndi suggested meeting with

key people frequently; telling them about “the good, the bad, and the ugly”; and laying

out the short and long-term benefits and costs of the program. Cyndi also suggested that,
even after selling the idea of the outsourcing, it is important to keep on going back to

touch base. Let the champions know that you’re still there and still very involved.

As Cyndi showed, outsourcing requires top-notch (excellent) change in management

skills as well as the ability to select the right partners and build positive, enduring

relationships with them. Managers who are charged with the outsourcing effort will

increasingly need to improve their skill and should be matched with an instant payoff

(reward). This is an important step.

2.14 POTENTIAL BENEFITS OF OUTSOURCING

Organizations that outsource are seeking to realize benefits. According to many authors,

businesses benefits from outsourcing through the following ways:

2.14.1 COST SAVINGS / REDUCTION

Outsourcing help organizations to reduce the overall cost of the services provided by the

organization. This will involve reducing the scope, business activities, personnel cost,

and so on (Engardio,2006:32).

2.14.2 FOCUS ON CORE BUSINESS

Resources (for example investment, people, infrastructure) are focused on developing the

core business activities, for example, often organizations outsource their Information

Technology(IT) support to specialized IT services companies so as to focus on their key

business activities (Gareiss,2002:25).

2.14.3 COST RESTRUCTURING

Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing

changes the balance of this ratio by offering a move from fixed to variable cost and also

by making variable costs more predictable (Gareiss).

2.14.4 IMPROVE QUALITY

Outsourcing help to achieve an upward step change in quality through contracting out the

service with a higher service level agreement (Gareiss).

2.14.5 ACCESS TO EXTERNAL KNOWLEDGE

Access to intellectual property, wider experience and external knowledge are provided

for through the help outsourcing. It also provides access to a larger talent pool and a

sustainable source of skills, business innovation, especially in science and engineering

(Engardio).

2.14.6 LEGALLY BINDING CONTRACT

Outsourcing is treated as a legally binding contract with financial penalties and legal

redress. This is not the case with internal services (Springsteel,2006:10).

2.14.7 ACCESS TO OPERATIONAL EXPERTISE

It provides access to operational best practice that would be too difficult or time

consuming to develop in-house (Gareiss,2002:26).

2.14.8 IMPROVED CAPACITY MANAGEMENT

There is an improved method of capacity management of services and technology where

the risk in providing the excess capacity is borne by the supplier (Gareiss).

2.14.9 STANDARDIZING BUSINESS PROCESSES

The birth of outsourcing brought about the trend of standardizing business processes, IT

services, application services, etc. and enabling businesses to intelligently buy desired

service at a reasonable price. In other words, it allows a wide range of businesses access

to services previously only available to large corporations (Gareiss).

2.14.10 RISK MANAGEMENT

Outsourcing gives organizations the opportunity to partner with an outsourcer that can be

able to provide mitigation in any type of risk (Roehrig,2006:15).

2.15 ADVANTAGES OF OUTSOURCING

According to Engardio (2006:33), companies that decide to outsource do so for a number

of inherent advantages. Most of which are cost reduction, realizing gains/revenue,

business excellence, and efficiency. Different merits of outsourcing are stated as follows:

2.15.1 COST SAVINGS/REDUCTION

According to Engardio, many business embrace outsourcing as a way to realize cost

reduction or effect cost control over the outsourced function. Companies usually

outsource to a vendor that specializes in a given function and performs that function more
efficiently than the company could, simply by virtue of transaction volume. The primary

driving force behind the spurt in outsourcing activities noted Walter (2007:90) are the

things involved such as total cost reduction of up to ninety percent (90%) as compared

to doing the same work in-house.

Furthermore, some of the value propositions for an outsourcing include hedging against

technology obsolescence, best-of-breed software, freedom from specific Information

Technology operational responsibility, rapid Information Technology deployment time-

frame. This in turn reduces the total cost and enables the organization to focus on its core

business area.

2.15.2 INCREASE IN FLEXIBILITY

One of the most important advantages of outsourcing is the way in which it helps to

increase a company’s flexibility especially its cash flow. Some organizations outsource in

other to achieve greater financial flexibility through the sale of assets that formally

supported an outsourced function which in turn improve a company’s cash flow. In other

words, outsourcing provides a firm with increased flexibility in its resource management

and may reduce response times to major environmental changes (Tas & Sunder,

2004:33).
2.15.3 INCREASE IN THE SPEED OF BUSINESS PROCESS

With the effective use of supply chain partners and business processes, outsourcing can

increase the speed of several business processes, such as the through-put in the case of a

manufacturing company. Outsourcing also helped to transform an organization from a

bureaucratic organization into a very agile competitor. A company can gain the

advantage of maintaining ambitious growth goals while sidestepping standard business

bottlenecks (Tas & Sunder, 2004:34). Typically, an organization is given the freedom to

grow at a rapid, steady pace through outsourcing, rather than being constrained by large

capital expenditures for people or equipment that may take years to amortize, may

become outdated or turn out to be a poor match for the organization over time.

2.15.4 INCREASE IN REVENUE

According to Willcocks et. al (2004:7), India has revenues of 10.9 billion USD from

offshore Business Process Outsourcing (BPO), and 30 billion USD from Information

Technology (IT) and total BPO in 2008. India thus has 5-6% share of the total BPO

Industry, but a commanding 63% share of the offshore component. This 63% is a drop

from the 70% offshore share that India enjoyed in the previous year. Other places like

Eastern Europe, Philippines, Morocco, Egypt and South Africa have emerged to take a

share of the market. China is also trying to grow from a very small base in this industry.

Important centers in India are Bangalore, Hyderabad, Mumbai, Pune, Chennai and New

Delhi.
2.15.5 MODERATE STAFFING LEVEL

Outsourcing according to Greenspan (2004:69) help to achieve headcount reductions, or

minimize the fluctuations in staffing that may occur due to changes in demand for a

product or service.

2.15.6 ACCESS TO EXPERT SKILLS

Access to expert skills and knowledge is one of the advantages of outsourcing. For

instance, outsourcing of computer programming, financial services, personnel services,

and other information technology function are some of the ways to gain access to new

technology and outside expertise. This may be of particular benefit to small businesses,

that may not be able to afford to hire computer experts or develop the in-house expertise

to maintain high level technology. When such tasks are outsourced, the small business

gains access to new technology that can help it to compete with larger companies

(Kevin,2007:124).

2.15.7 ACCOUNTABILITY

Outsourcing noted Bill (2005:80) is predicated on the understanding shared by outsourcer

and outsourcee. Such arrangement requires quality service in exchange for payment.

Paying for a business service creates the expectation of performance, stated Ethel. The

two parties are equally aware that this accountability is both practical and legal, with

fiscal implications. The same cannot be said for internally provided functions.
2.15.8 COMPETITIVE STRATEGIES

Through outsourcing said Walter (2007:35) companies today have the ability to develop

competitive strategies that will leverage their financial positions in the ever competitive

global market place.

Overall outsourcing said Davecoat (2007:93) is viewed by many organizations as a strong

business tactic that ultimately produces superior economic approach to developing

products and services.

2.15.9 LOWER PERSONNEL COST

It is apparent that many organizations today are making the decision to outsource. In

today’s global market place outsourcing has made itself accessible to many organizations

on a national and international level. Offshore outsourcing has provided much business

with the opportunity to harvest the benefits of lower personnel costs and to exploit the

value of less than par foreign currencies.

2.15.10 ENHANCEMENT OF DEVELOPING COUNTRIES

Outsourcing can also present advantage to non-western states. Developing countries

benefit from the patronage of companies that outsource to them in terms of increased

wages, job prestige, education, and quality of life (Jason, 2006:18).

2.16 DISADVANTAGES OF OUTSOURCING

Although Outsourcing has many potential advantages there are some disadvantages

associated with it. According to Scully (2007:47), for every study of outsourcing showing

its advantages, there will be study pointing to its failure. For instance, as Kinnos Jonas

Consult noted:

• Only 5% of 300 companies surveyed found outsourcing high on benefits. For the

remainder, the outcome from outsourcing was either mediocre or a failure.

• A study conducted on 16 large organizations found that for one third of the

companies that outsourced some of their services including information

technology, it resulted in dramatic administrative as well as total costs blowout,

disputes, high levels of failure, and loss of control. Failures were particularly high

among companies that outsourced more than 80% of their operations.

Furthermore, there are other disadvantages according to different authors as follows:

2.16.1 HIGH CO-ORDINATION COST:

The costs and difficulties of co-ordinating different outsourced activities with several

external service providers are very high compared to in-house co-ordination.

Furthermore, as with all contractual relationship, the client firm may need to intensify the

monitoring of the contracting firm’s performance in order to minimize the latter’s

incentive to shirk or cut-back on quality and service. This contributes to increase in total

outsourcing cost (Ansah, 2006:98).

2.16.2 QUALITY AND SERVICE ISSUES:

There is often room for the service provider to renege on quality, especially where quality

is difficult to verify. In terms of service provision, some of the providers render services

that are of lesser standard compare to what it was in-house.

2.16.3 LOSS OF CONTROL :

Outsourcing may lead the client firm to experiencing a loss of control over the outsourced

business activities, including personnel management (Ansah).

2.16.4 UNEMPLOYMENT :

According to Anwah (2005:25), one of the side effects of outsourcing is that it led to the

domestic unemployment of thousands of people, many of whom were new college

graduates. Also, due to the outsourcing of many jobs from the United States to India, the

prominence of Bangalore as a high-tech region has caused the rise of the term “Don’t Get

Bangalored” in American business. The term refers to loss of American jobs overseas.

There are several US websites that sell “Don’t Get Bangalored” T-shirts.

2.16.5 DOWNSIZING :

Another side effect is that many companies required their employees to train their off-

shore replacements, after which they were downsized (laid off). In one unfortunate case,
a Bank of America programmer noted Appolos (2004:50) committed suicide when forced

to train his Indian replacement.

2.16.6 COMMUNICATION BARRIER:

In practice, said Ricci (2004:25) outsourcing trend has experienced mixed results. Some

companies which hired off-shore talents reported the problem of communication barrier.

The outsourcer would often ask for one thing, but be delivered a different item. A

domestic correspondent, said Alan (2004:15), may have dealt with a foreign counterpart

for weeks, only to found out that he had left the organization recently with no notice and

was replaced with another individual. This new person would then need to be briefed on

the previous and current development on the project. According to Alan, many

customers (mostly corporate customers) of Dell complained of an inability to effectively

communicate with support staff which Dell outsourced to India, because of the heavy

Indian accents. Due to negative reaction to customer and negative publicity, Dell moved

some of its technological phone support jobs back to the United State.

2.17 CRITICISMS OF OUTSOURCING

Irrespective of so many benefits derived from outsourcing, it has been criticized in the

following ways:

2.17.1 QUALITY FADE

Quality fade is the deliberate and secretive reduction in the quality of labour in order to

widen profit margin. The downward changes in human capital are subtle but progressive,
and usually unnoticeable by the outsourcer/customer. The initial interview met desired

requirements. However, subsequently, more and more of the support team are replaced

with less experienced workers. For instance, India IT shops will continue to reduce the

quality of human capital said Kobayashi (2007:15), under the pressure of drying up

labour supply and upward trend of salary. Such practices are hard to detect, as

customers may just simply give up seeking help from the help desk. However, the overall

customer satisfaction will be reduced greatly over time (Kobayashi). Unless the

company constantly conducts customer satisfaction surveys, they may eventually be

caught in a surprise of customer churn, and when they find out the root cause, it could be

too late. In such cases, it can be hard to dispute the legal contract with the India

outsourcing company, as their staffs are now trained in the process and the original staff

of the company made redundant. In the end, the company that outsourced is worse off

than before it outsourced its workforce.

2.17.2 INCREASE IN RATE OF OUTSOURCING:

According to Jason (2006:50), the rate in which organization outsource their activities is

currently in increase. This has adverse effect of hollowing the organization. This led to

loss of skill that should otherwise be retained in-house and caused scarcity of job for the

workforce.
2.17.3 ACCENTS :

There are a number of the public whose linguistic features such as accents, word use and

phraseology are different which may be difficult for the call center agents to understand.

The visual clues that are present in face-to-face encounters might be missing from the call

center interactions and this may lead to misunderstanding and irritable situations

(McDonald and Jacob, 2005:152).

2.17.4 STAFF TURNOVER AND LOSS OF SKILLS:

The staff turnover of employee who is originally transferred to the outsourcer is a

concern for many companies. Turnover is higher under an outsourcer and key company

skills may be lost (through outsourcing) with skill being outside the company’s control.

According to Kobayashi (2007:9), in offshore outsourcing there is an issue of staff

turnover in the outsourcer companies call centers. It is quite normal for such companies

to replace its entire workforce each year in a call center. This inhibits the build-up of

employee knowledge and skill.

2.17.5 QUALIFICATION OF OUTSOURCEE’S STAFF:

There has been replacement of staff by the outsourcee with less qualified people or those

with different or non-equivalent qualifications. In the engineering discipline, there has

been a debate about the number of engineers being produced by the major economies of

the United States, India and China. The argument centers around the definition of an

engineering graduate and also disputed numbers. The closest comparable numbers of
annual graduates of four-year degrees are United States (137,437), India (112,000), and

China (351,537) (McDonald and Jacob, 2005:11). And there is no evidence that the

outsourcee will replace the company’s engineers with higher qualified engineers.

2.17.6 ECONOMY

According to Virginia (2004:10), Kerry criticized firms that outsource jobs abroad or that

incorporate overseas in tax havens to avoid paying their faire share of U.S. taxes (during

his 2004 campaign) calling such firms “Benedict Arnold corporations”. Criticism of

outsourcing, from the perspective of U.S citizens, by and large, revolves around the

costs associated with transferring control of the labour process to an external entity in

another country. Moreover, Zogby (2004:15) reported that 71% of American voters

believed that outsourcing job overseas hurts the economy, and another 62% believed that

the U.S. government should impose some legislative action against companies that

transfer domestic jobs overseas, possibly in the form of increased taxes on companies that

outsource.

2.17.7 THREAT TO DOMESTIC WORKFORCE

According to Anwah (2005:114), outsourcing became a popular political issue during the

2004 U.S. Presidential election. The political debate centered on outsourcing’s

consequences for the domestic workforce. According to Osmond (2007:20), outsourcing

appears to threaten the livelihood of domestic workforce and, in the United State, the

American Dream. This is especially true for high-tech workers who were promised the

jobs of tomorrow. But unfortunately, their job opportunities were outsourced. At a more
general level it represents a new threat to labour, contributing to lack of worker as a

central priority.

2.17.8 POLICY :

Policy solutions to outsourcing are also criticized. According to Cawthorne (2004:20) one

policy solution is retraining of domestic workers to new jobs in the form of the Trade

Adjustment Assistance Act. However, these policy recommendations do not adequately

aid all displaced workers and do not provide security to this flexible labour market.

2.17.9 SECURITY :

There are also some security issues concerning companies giving outsider access to

sensitive customer information. In early part of 2005, a high profile case involving the

theft of S350, 000 from four Citibank customers occurred when India Call Centre

workers in Pune, India, acquired the passwords to customer accounts and transferred the

money to their own accounts opened under fictitious names. Citibank did not find out

about the problem until the American customers noticed discrepancies with their

accounts and notified the bank.

2.17.10 FRAUD:

Outright fraud is also a concern. Bill (2005:16), discovered and dismissed 250 employees

after they faked their expense reports. The dismissal followed from Intel’s internal

Business Practice Excellence program of expense claims. The report concluded that

fraudulent practices such as faking bills to claim allowances like conveyance and drivers
salaries were some common malpractices in India. Intel would not put up with such

fraud. NASSCOM, which is a forum for IT companies, has attempted to address these

fraud concerns in India by creating the National skills Registry. The database contains

personal and work-related information, enabling employers to verify a staff members

credentials and allowing police to track the background of workers.

2.18 RESPONSE TO CRITICISMS OF OUTSOURCING

Amongst the responses to the criticisms of outsourcing by different authors are as

follows:

2.18.1 OUTSOURCING RATE:

According to Springsteel (2006:10), in-sourcing also occurs alongside outsourcing.

Outsourcing, as the term is typically used is not necessarily a job destroyer but rather a

process of job relocation and may not have impact on the total number of jobs in a nation

or in the global economy. Logically, “outsourcing” cannot occur without a recipient that

“in-sources”. According to economists “outsourcing” means an export of services which

renders “in-sourcing” that is an import of services. Hence, economists insist on viewing

the outsourcing/ in-sourcing debate as a debate on trade, adequately analyzed with trade

theory and recorded through official national data. For example, Amiti and Wei

(2004:105) claimed that more jobs are in-sourced (or imported), than outsourced (or

exported), in the United State and the United Kingdom, as well as other industrialized

nations. They reported that the U.S and the U.K actually have the largest net trade

surpluses in business services. However, some other countries, such a Indonesia,

Germany and Ireland have a net deficit in business service. Similar reports stated that
while the United State is exporting some jobs to other countries, the greatest beneficiary

of outsourcing is the United State itself.

2.18.2 QUALITY OF SERVICE

According to McDonald (2007:61), one criticism of outsourcing is that product quality

suffers. But the organization outsourcing a business process has the freedom to resume

management control and/or decision making for that business process if quality is

adversely affected. In fact, many American companies return previously outsourced

functions “in-house as a result of poor quality. The decision to outsource is like any other

decision to expand a business overseas, to incorporate computer technology, or to hire

new workers. If the company does it correctly, it benefits from higher profits. Tommy

(2004:60) said that proponents of outsourcing believe that arguing that outsourcing leads

to lower product quality is pointless because if it were true, consumer demand will force

firms to shift back to producing the good or service in-firm rather than out-firm.

The ability to influence the quality of outsourced production depends on the relationship

of power between consumers and producers. If producers have market power through

monopoly, they can reduce the quality of their goods without suffering a major drop in

sales. For example, many individuals do not make their own food, instead they outsource

the task to restaurants and fast-food firms. Suppose McDonald, and Hungry Jack are the

only fast-food firms. McDonald competes with Hungry Jack to win consumers in the fast-

food market. However, if Hungry Jack goes out of business, McDonald will become a

monopolist and can reduce the quality of its food without suffering a high drop in
revenue because consumers cannot switch over to Hungry Jack. But where competitions

exist, quality of goods cannot be easily tempered with. Institutions are set up to promote

competition, E.g. in Australia the ACCC (Australia Competition and Consumer

Commission) regulates businesses to prevent abuse of market power and to promote

competition. In the United States the FTC (Federal Trade Commission) takes on this role.

Sometimes poor quality goods and services must be accepted by consumers because

accountability or reporting systems regarding consumer or user feedback are limited. In

order to increase quality or maintain a high level of quality, many offshore outsource

firms should employ quality management models, like Taylor, Lean, and Differing firms

who had varying levels of implementation success.

2.18.3 LABOUR AND ECONOMY

Thomas (2007:66) noted that off-shore outsourcing is a form of trade. As such,

mainstream economists argued that the basic principles of comparative advantage (that is,

leaving out production to a better partner) and the gains from trade apply in outsourcing.

The threat to overall employment or the economy is thus no more valid like the so-called

threat from imports or migration. According to Thomas, anything that increases

economic efficiency, whether by outsourcing or a hundred other activities is likely to cost

somebody’s job. The automobile cost the jobs of people who took care of horse or made

saddles, carriages, and horseshoe. Walter (2007:19) suggested that, “we should probably

think of hundreds of jobs that either don’t exist or exist in far fewer numbers, such as,

lift operator, television repair, computer designer, mobile phone repair, and so on. Walter

went further to say that creative destruction is a discovery process where we find ways to
produce goods and services more cheaper which in turn makes everyone richer”. Also,

that nationally, 70,000 computer programmers lost their jobs between 1999 and 2003, but

more than 115,000 computer software engineers found higher-paying jobs during that

same period.

2.19 LEARNING OUTSOURCING STRATEGIES FROM THE

EXPERIENCED COMPANIES

According to Jason (2006:105), for a successful outsourcing effort, one computer

manufacturer for example, build a matrix that captures key requirements and outlines a

fair system for vendor information from outside experts. The vendor(s) themselves are

mostly past customers of the key vendor. According to Jason, the key issues in

outsourcing include:

- Identify functions to outsource

- Advertise the services to be provided

- Identify selection criteria for the vendors

- Compare and evaluate vendor responses

- Select the most capable vendor using the identified selection criteria

- Negotiate the outsourcing deal

- Develop a relationship plan with vendors

- Aligns outsourcing with corporate strategy security.

Jason also stated that even in a dangerously uneven market, nearly 70% of high rate

company executives are planning to increase one area of company spending, mainly,
Information Technology. Information Technology (IT) spending is critical to protect

companies against terrorism, disasters, hacking, fraud, and loss of reputation from

security failures.

Furthermore, companies such as Procter & Gamble, Microsoft, General Electric, BMW,

General Motors and Johnson & Marry IT focus on excellent planning to protect their

companies, their people, and their physical and data assets. Top CEOs know that now is

not the time to reduce IT and security spending. It’s no coincidence that 68% of senior

executive are increasing IT spending in the organization (Jason,2006:106).

Learning from the companies profiled in this report will help build a positive Return On

Investment (ROI) for organization’s investments, Tommy (2004: 59). For example,

several top companies profiled in the report reorganized their security functions and place

it under a Chief security responsibility over all areas of globe security. A secure

organization in uncertain times strategies was built in place at many of the world’s best-

known companies. According to Peterside (2006:11), target IT spending should

maximize ROI and show up weakest areas too. Adelaja (2004:112) made the following

suggestions:

- Conduct a rapid and thorough security review to priorities your critical needs.

- Build a strong chief security officer position with responsibility and authority.

- Get the best experienced vendor to close security gaps quickly”.

2.20 SUMMARY OF THE REVIEWED RELATED LITERATURE

In the bid of struggling to achieve more with low expenses, organizations looked for less

expensive avenues for development and better performance. Outsourcing was introduced

to achieve the desired business ideas and goals. According to Noah (2005:13),

outsourcing became part of the business lexicon in the 1980s. Outsourcing is referred to

as the delegation of non-core business activities from internal to a specialized external

entity to handle. The organization (outsourcer) and the supplier (outsourcee) enter into a

contractual agreement that defines the transferred services. The supplier acquires

employees, assets and other resources associated with the outsourced function. Business

segments typically outsourced include security, auditing, information technology,

accounting, cleaning, and catering. The decision to outsource is made at a strategic level

and normally requires board approval (Bardham and Kroll, 2003:11). A make-or-buy

analysis is usually used to justify the decision. Only once a business decision to outsource

and the scope of services to outsource have been reached will a search to choose an

outsourcing partner begins (Davecoat, 2007:80).

With the rise of globalization, outsourcing, off-shoring, off-shore, and near-shore

outsourcing started coming into play (Lacity, 2006:29). The question is, why

outsourcing? Lawrence (2007:24) mentioned capacity supplementation, cost reduction

and so on as rationales behind outsourcing. A survey of outsourcing projects in the

Australian public sector which covered 7,500 outsourcing contracts from 1995 to 1998,

suggested that the main reasons for outsourcing were to achieve better access to skills,

improve quality, and to achieve cost savings (Ethel, 2007:7). Domberger (2005:79) stated
that outsourcing improves organizational performance by creating change along three

principal fronts: reducing staff numbers to cut cost, introducing new skills and working

practices; and modifying individual incentives, employment terms, and attitudes to the

workplace.

According to Cyndi (2006:11), savings come in three forms: immediate dollars on the

Profit & Loss, eventual improvements in processes, and avoidance of costs. Although

outsourcing has many merits as stated above, there are different findings on its demerits.

Scully (2007:47) said, amongst the findings from a study conducted on outsourcing by

Kinnos Jonas Consult, only 5% of 300 companies surveyed found outsourcing high on

benefits. For the remainder, the outcome from outsourcing was either mediocre or a

failure. Also, out of 16 large organizations studied in Nigeria, one third outsourced some

of their services, and this resulted in a dramatic administrative and total costs blowout,

disputes, high failures, and loss of control. Also, that failure was particularly high among

companies that outsourced more than 80% of their operations. Moreover, Thomas

(2007:10) said that, outsourcing typically contributes little to building the people-

embodied skills that are necessary to sustain product leadership and morale.

Furthermore, outsourcing was also criticized in terms of quality fade, unemployment,

insecurity of official information, and so on. Amongst responses to this criticisms were,

in-sourcing occurs alongside outsourcing thereby creating another job opportunities

(Springsteel, 2006:10). One should probably think of hundreds of jobs that either don’t

exist or exist in far fewer numbers like lift manufacturing and/or maintenance and

develop it (Walter,2007:19).
Many authors gave ideas on strategic issues in outsourcing. For instance, according to

Jason (2004:105), the key steps in outsourcing includes: identify the service to outsource,

advertise the service, identify vendor selection criteria, evaluate vendor responses, select

the vendor that met the selection criteria, negotiate the outsourcing deal, develop a

relationship plan with the vendor, and align outsourcing with corporate strategy security.
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Apollos, J.N.N. (2004), Outsourcing in American Banks: Toronto; KJB Inc. p. 50.

Adelaja, A. (2004), Computer Informatics: Ibadan; Western gateWay. p. 12.

Alan, B. (2004), Psychology of Work: New Delhi; Pantanni Press, p.15.

Avijit, C. (2006), Outsourcing And Company Yield: Java; Western Press p. 13.

Anelka, C. (2007), Outsourcing and Human: Resource Management Miam : Prentice

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Ansah, G. (2006), Demystifying Outsourcing: London; Chapman & Hall Inc. pp. 9, 20,
25, 60, 63, 98-100.

Anwah, Y. (2005), Job loss in Outsourcing: New York; P&T Inc. pp. 5, 9, 14, 20, 25.

Amiti, M and S. Wei (2004), “Fear of Service Outsourcing: Is it Justified?”, International

Monetary Fund, 186 (4), June- August: 105-112.

Bardham, A.D. and C. Kroll (2003), The New Wave of Outsourcing: New Delhi; India
Press. p. 11.

Bill, C.J. (2005), Model of Outsourcing: London; P & T Press. pp.16, 80.

Benson, J. and I. Nick (2005), Outsourcing Decisions: Sydney; Contact Publications. pp.
35, 65 – 66.

Cawthorne, H. (2004), Technology: Buenos Aires; Falklands Avenue Inc. p. 20.

Cyndi, J. (2006), Resources and Outsourcing in a Developing Economy: Java; SW press
Inc. pp. 10 -11, 13 -16, 19 -25.

Carpenter, G. (2005), Outsourcing and Profit Maximization: Zurich; Chapman and Hall
Inc. p. 77.

Domberger, Z. (2005), The Contracting In Organization: London; Oxford Press. pp. 79,
80.

Davecoat, N. (2007), Benefits of Outsourcing: New York; Chapman & Hall Inc. pp. 48,
80, 93.

Engardio, P. (2006), “Outsourcing: Job Killer or Innovation Boost?”, Business Week, 23

(91), Nov. 24, 29 -37.

Ethel, S. (2007), “Job loss by Outsourcing”, National Underwriter, 7(2), April 14, 7-18.

Feldman, L.P. (2001), Outsourcing in US and Europe: Amsterdam; Chapman & Hall
Inc. p. 24.

Gareiss, R (2002), “Analyzing The Outsourcers”, Information Week, 18(6), Nov. 9, 20-
29.

Greenspan, P. (2004), Outsourcing and Rightsizing: London; Chapman & Hall Inc. p. 20.

Harkins, P. J. and S.M. Brown (1995), Consultancy and Outsourcing: New York;
McGraw Hill Books. p. 40.

Innocent, J. K. O. (2004), Contracting and Outsourcing: Aba; Ngwaland Publisher. pp.6-

9.

Jason, M. (2006), Outsourcing And New Age: New York; Mcgraw Hill Books Inc. pp. 18,
50, 101, 105 – 106.

Kobayashi, H.M. (2007), “India faces battle for Outsourcing”, New York Times, 19 (4),
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King, Q. (2005), The Changing Nature of Outsourcing: Calabar; Henshaw Press. p. 65.

Lawrence, G. (2007), Merits and Demerits of Outsourcing: Aba; Ngwaland, p. 24.

Lacity, A. (2006), Foreign Outsourcing: London; Chapman & Hall Inc. pp. 12, 19.

Moha, O. (2000), Outsourcing: Aba; Press Area Publishers. pp. 5, 18- 19.

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McDonald, O. (2007), Outsourcing Business Models: Accra; Oak Publishers. pp. 6, 61.

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Osmond, J.S.P. (2007), Outsourcing in British Firm: London; Chapman & Hall Inc. pp.
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 CHAPTER THREE

RESEARCH METHODOLOGY

This chapter presents the methodology used in the collection of data in order to ensure

that valid conclusions are made.

3.1 AREA OF STUDY

The study is on the effect of outsourcing on performance of Federal Government owned

hospitals in Enugu, Nigeria. University of Nigeria Teaching Hospital (UNTH), and

National Orthopaedic Hospital Enugu (NOHE) were used for the study.

3.2 RESEARCH DESIGN

Both Ex-Post facto and Survey Research designs are used for the study. In the Ex-post

facto design what has been known of outsourcing from the beginning was evaluated. In

the survey design, questionnaire and personal interview were used to sample opinion of

people on the effect of outsourcing on performance of Federal Government owned

hospitals in Enugu, Nigeria.

3.3 SOURCES OF DATA

Both primary and secondary data were used in this research. The primary sources of data

are the survey as well as observations. The secondary sources of data are the

consultations made from textbooks, journals, other published and unpublished materials.

Also, relevant cost information relating to the outsourced laundry, cleaning and security

services were extracted from UNTH and NOHE financial records, 2007 and 2008.
Moreover, personnel cost information were obtained through the personal interview the

researcher had with UNTH and NOHE accountants, and from the Federal Government

parastatals consolidated salary table w.e.f. 1st January, 2007 for analysis and hypotheses

testing.

3.4 METHODS OF DATA COLLECTION

3.4.1 QUESTIONNAIRE

The researcher used a structured and unambiguous questionnaire designed to enable

respondents understand the purpose of the research. Both open-ended and closed–ended

questions were used.

The open–ended questions allowed the respondents to freely express their opinion on the

issue raised, while the closed–ended questions confined the respondents to the options

listed against the questions. However, the use of open-ended questions was minimized to

reduce the problem of analysis.

The structured questionnaire has the advantage of presenting questions in sequence, and

also for standardization of the research instrument.

3.4.2 PERSONAL INTERVIEW

Personal Interview was used to cross check some of the responses on the questionnaire in

order to enhance the reliability of data collected.

3.5 POPULATION OF THE STUDY

The population of the study is four thousand nine hundred and ninety-nine (4999). It

consisted of four thousand, three hundred (4300) staff of University of Nigeria Teaching

Hospital, Enugu (UNTH), and six hundred and ninety–nine (699) staff of National

Orthopaedic Hospital, Enugu (NOHE). The population comprised of head of

departments, as well as senior and junior staff.

TABLE 3.1

THE RESEARCH POPULATION DISTRIBUTION ACCORDING TO HEAD OF

DEPARTMENTS, SENIOR STAFF AND JUNIOR STAFF OF UNTH AND NOHE
ARE SHOWN BELOW:

RESEARCH GROUPS UNTH(N1) NOHE(N2)

HEAD OF DEPARTMENTS 40 28

SENIOR STAFF 2526 376

JUNIOR STAFF 1734 295

TOTAL 4300 699

Therefore, the total population (N) for the study is:

N = N1 + N2

N = 4300 + 699 = 4999

3.6 DETERMINATION OF SAMPLE SIZE

In order to determine the sample size (n) of the study, Taro Yemeni’s statistical

distribution formular was used as follows:

n = N

1 + Ne2
Where: N = 4999

e = allowable sampling error taken at 5%

n= 4999
1+ 4999 (0.05)(0.05)

n= 4999 = 370
1+ 12.4975

370 sets of questionnaire was distributed as follows:

UNTH (n1) = 4300 X 370 = 318

4999 1

NOHE (n2) = 699 X 370 = 52

4999 1

Therefore, the sample size (n) for the study is:

n = n1 + n2

n = 318 + 52 = 370

Due to the nature of the dissertation topic, the researcher uses her judgementum to

allocate the questionnaire to the research groups in each organization.

318 questionnaire was distributed in UNTH as follows:

40 questionnaire was distributed to all the head of departments. This is because the

researcher believed that they have more informed opinion about the effect of outsourcing

on performance in their organisation. The stratified sampling method was used to allocate
the remaining 278 questionnaire to the senior and junior staff as follows:

Senior staff: 2526 X 278 = 165

4260 1

Junior staff: 1734 X 278 = 113

4260 1 278

52 questionnaire was distributed in NOHE as follows:

28 questionnaire was distributed to all head of departments. This is because the

researcher believed that they have more informed opinion about the effect of outsourcing

on performance in their organisation. The stratified sampling method was used to allocate

the remaining 24 questionnaire to the senior and junior staff as follows:

Senior staff: 376 X 24 = 13

671 1

Junior staff: 295 X 24 = 11

671 1 24

3.7 TOOLS FOR ANALYSIS

The questionnaire was analyzed using simple percentage distribution formula:

r x 100
n 1

Where:

r = number of responses to a variable of each questionnaire

n = number of responses to a questionnaire = observable sample size

A Pearson Product Moment Correlation Coefficient (PPMC) statistic was used to

correlate the respondent’s responses in test-retest that was carried out. The Statistical
Package for Social Sciences (SPSS) version 17 was used to determine the value of ‘r’.

This is shown in Appendix II.

Hypotheses I, II, and III were tested using t-test of paired samples statistic. The Statistical

Package for Social Sciences (SPSS) version 17 was used to determine the t-value.

Furthermore, Hypotheses IV, V, and VI were tested using z-test for proportions.

3.8 RELIABILITY OF THE STUDY

The questionnaire was given to respondents twice using a time lag of two weeks between

the distributions. Each respondent’s responses in the two batches were correlated to test

the consistency and reliability of respondent’s responses.

3.9 VALIDITY OF RESEARCH INSTRUMENT

Pilot survey test was conducted on UNTH and NOHE staff. They were asked whether

outsourcing had been relevant in re-orientating Federal Government owned hospitals,

sixteen (16) affirmed and represented 80% of success in the population, while four (4)

did not affirm and represented 20% of failure in the population.

The dissertation supervisor approved the questionnaire before it was distributed to staff of

UNTH and NOHE. The questionnaire was collected by the researcher.

3.10 DECISION RULE

For Hypotheses I, II, and III :

Reject the null hypothesis and accept the alternate hypothesis if the computed value of t

(tcal) is greater than the table value of t (te).

That is: Reject Ho if tcal > te

Accept the null hypothesis and reject the alternate hypothesis if the computed value of t

(tcal) is less than the table value of t (te).

That is: Accept Ho if tcal < te

For Hypotheses IV, V, and VI :

Reject the null hypothesis and accept the alternate hypothesis if the computed value of z

(zcal) is greater than the table value of z (ze).

That is: Reject Ho if zcal > ze

Accept the null hypothesis and reject the alternate hypothesis if the computed value of z

(zcal) is less than the table value of z (ze).

That is: Accept Ho if zcal < ze

REFERENCES

Bluman, A.G. (1998), Elementary Statistics: A step by Step Approach, 3rd ed.: United
States of America; Von Hoffmann Press, Inc. p. 50.

Brian, C.C. (2002), How to Use SPSS: A Step-by-Step Guide toAnalysis and
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Onwura, E.A. (1998), Introduction to Academic Research Methods: Enugu; Gostak

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 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

This chapter dealt with the presentation and analysis of data obtained from respondent’s
responses to the administered questionnaire. The questionnaire was made up of nineteen
questions. It was responded to by the staff of University of Nigeria Teaching Hospital
(UNTH) Enugu, and National Orthopaedic Hospital Enugu (NOHE).

4.1 DISTRIBUTION AND RETURN OF QUESTIONNAIRE

The questionnaire was distributed to a total of 370 staff, 318 questionnaire to staff of
UNTH and 52 questionnaire to staff of NOHE.

The returned and unreturned questionnaire table is shown below:

TABLE 4.1
RETURNED AND UNRETURNED QUESTIONNAIRE FROM UNTH

% Un- % Un-
Respondents Distributed Returned Returned Returned Returned
HODs 40 38 95% 2 5%
Senior staff 165 158 96% 7 4%
Junior staff 113 92 81% 21 19%
Total 318 288 91% 30 9%
Source: Field Survey, 2008.

Table 4.1 above showed the returned and unreturned rate of questionnaire from UNTH.

Out of 40 questionnaire distributed to head of departments, 38(95%) were returned with

the

questions fully answered while 2(5%) of the questionnaire were not returned. 165

questionnaire were distributed to senior staff, 158(96%) were returned with questions
fully answered while 7(4%) questionnaire were not returned. 113 questionnaire were

distributed to junior staff, 92(81%) were returned with questions fully answered while

21(19%) were not returned. In total, out of 318 questionnaire distributed in UNTH,

288(91%) were returned

with the questions fully answered while 30(9%) questionnaire were not returned.

TABLE 4.2

RETURNED AND UNRETURNED QUESTIONNAIRE FROM NOHE

% Un- % Un-
Respondents Distributed Returned Returned Returned Returned
HODs 28 25 89% 3 11%

Senior staff 13 11 85% 2 15%

Junior staff 11 10 91% 1 9%
Total 52 46 88% 6 12%
Source: Field Survey, 2008

Table 4.2 above showed the returned and unreturned rate of questionnaire from NOHE.

Out of 28 questionnaire distributed to head of departments, 25(89%) were returned with

questions fully answered while 3(11%) of the questionnaire were not returned. 13

questionnaire were distributed to senior staff, 11(85%) were returned with questions

fully answered while 2(15%) were not returned. 11 questionnaire were distributed to

junior staff, 10(91%) were returned with questions fully answered while 1(9%) were not

returned. In total, out of 52 questionnaire distributed to the staff of NOHE, 46(88%)

were returned with questions fully answered while 6(12%) questionnaire were not

returned.
4.2 TOOLS FOR ANALYSIS

In the data analysis, mainly tables and percentages were used. These instruments were

used to properly illustrate the respondent’s responses.

4.3 PRESENTATION AND ANALYSIS OF DATA COLLECTED

Returned questionnaire from UNTH and NOHE were analyzed and consolidated for

proper and unambiguous data analysis to be achieved.

TABLE 4.3

CATEGORY OF RESPONDENTS

CATEGORIES UNTH NOHE T0TAL % TOTAL

HOD 38 25 63 19%

Senior staff 158 11 169 51%

Junior staff 92 10 102 30%

Total 288 46 334 100%

% Total 86% 14% 100%

Source: Field Survey, 2008

The analysis of data on category of respondents in Tables 4.3 above shows that a total

of 63 (19%) head of departments, 169 (51%) senior staff, and 102 (30%) junior staff

responded from both UNTH and NOHE.

 TABLE 4.4
PRACTICING OF OUTSOURCING IN UNTH AND NOHE

CATEGORIES UNTH NOHE T0TAL % Total

YES 288 46 334 100%

NO - - - -

TOTAL 288 46 334 100%

% TOTAL 86% 14% 100%

Source: Field Survey, 2008

Table 4.4 above shows that 334 (100%) of the respondents said that their organisations

are practicing Outsourcing.

TABLE 4.5
DEPARTMENT THAT HAS BEEN OUTSOURCED

CATEGORIES UNTH NOHE TOTAL % TOTAL

Cafeteria Services - - - -

Security Services - - - -

Cleaning Services - - - -

Laundry Services - - -

All of the above 288 46 334 100%

Others - - - -

TOTAL 288 46 334 100%

% TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.5 above shows that 334 (100%) of the respondents said that cafeteria, security,

cleaning and laundry services have been outsourced.

 TABLE 4.6
OUTSOURCING TECHNIQUE ADOPTED

CATEGORIES UNTH NOHE TOTAL % TOTAL

Departmental Total 288 46 334 100%

Outsourcing
Departmental sub - - - - -
Total Outsourcing
Business Process - - - -
Outsourcing
Payroll Outsourcing - - - -

Others - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.6 above shows that 334 (100%) of the respondents indicated that departmental

total outsourcing technique is adopted in their organisation.

TABLE 4.7
OUTSOURCING IS RELEVANT IN YOUR ORGANISATION

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 55 12 67 20%

Agree 183 28 211 63%

Do Not Know 20 2 22 7%

Disagree 30 4 34 10%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

% TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.7 above shows that 67(20%) of the respondents strongly agree that outsourcing

is relevant to their organisation. 211 (63%) of the respondents agree that outsourcing is

relevant to their organization. 22 (7%) of the respondents do not know whether

outsourcing is relevant to their organisation, whereas 34 (10%) of the respondents

disagree that outsourcing is relevant to their organisation. No respondent strongly

disagree that outsourcing is relevant to their organisation.

From the analysis, it can be seen that majority of the respondents agree that outsourcing

is relevant to their organization.

TABLE 4.8
OUTSOURCING HELPS YOUR ORGANISATION TO FOCUS MORE ON
CORE FUNCTIONS

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 98 17 115 34%

Agree 180 26 206 62%

Do Not Know 10 3 13 4%

Disagree - - - -

Strongly Disagree - - - -

TOTAL 288 46 334 100%

% TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.8 above shows that 115(34%) of the respondents strongly agree that

outsourcing helps their organisations to focus more on core functions. 206 (62%) of
 the respondents agree that outsourcing helps their organisations to focus more on core

functions. 13 (4%) of the respondents do not know whether outsourcing helps their

organisations to focus more on core functions. Non of the respondents disagree or

strongly disagree that outsourcing helps their organisations to focus more on core

functions.

From the data analysis, it can be seen that majority of the respondents agree that

outsourcing helps their organisations to focus more on core functions.

TABLE 4.9
STAFFING LEVEL IS AT ITS BEST WITH THE INTRODUCTION OF
OUTSOURCING

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 34 11 45 13%

Agree 127 25 152 46%

Do Not Know 23 3 26 8%

Disagree 98 7 105 31%

Strongly Disagree 6 - 6 2%

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.9 above shows that 45(13%) of the respondents strongly agree that staffing

level is at its best with the introduction of outsourcing. 152 (46%) of the respondents
 agree that staffing level is at its best with the introduction of outsourcing. 26 (8%) of

the respondents do not know whether staffing level is at its best with the introduction

of outsourcing. Also, 105 (31%) of the respondents disagree that staffing level is at its

best with the introduction of outsourcing, whereas 6(2%) of the respondents strongly

disagree that staffing level is at its best with the introduction of outsourcing.

From the data analysis, it can be seen that majority of the respondents agree that

staffing level is at its best with the introduction of outsourcing.

TABLE 4.10
OUTSOURCING HAS IMPROVED STAFF COMMITMENT
TO WORK

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 145 25 170 51%

Agree 123 14 137 41%

Do Not Know 11 2 13 4%

Disagree 9 5 14 4%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.10 above shows that 170(51%) of the respondents strongly agree that

outsourcing has improved staff commitment to work. 137 (41%) of the respondents

agree that outsourcing has improved staff commitment to work. 13 (4%) of the
 respondents do not know whether outsourcing has improved staff commitment to

work. 14 (4%) of the respondents disagree that outsourcing has improved staff

commitment to work. Whereas, non of the respondents strongly disagree that

outsourcing has improved staff commitment to work.

From the data analysis, it can be seen that majority of the respondents strongly agree that

outsourcing has improved staff commitment to work.

TABLE 4.11

HIGH JOB CO-ORDINATION HAS BEEN ACHIEVED

THROUGH OUTSOURCING

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree - - - -

Agree 39 3 42 13%

Do Not Know 11 5 16 5%

Disagree 214 27 241 72%

Strongly Disagree 24 11 35 10%

TOTAL 288 46 334 100%

% TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.11 above shows that non of the respondents strongly agree that high job co-

ordination has been achieved through outsourcing. 42 (13%) of the respondents agree

that high job co-ordination has been achieved through outsourcing. 16 (5%) of the

respondents do not know whether high job co-ordination has been achieved through

outsourcing. 241 (72%) of the respondents disagree that high job co-ordination has been
 achieved through outsourcing. 35 (10%) of the respondents strongly disagree that high

job co-ordination has been achieved through outsourcing.

From the data analysis, it can be seen that majority of the respondents disagree that high

job co-ordination has been achieved through outsourcing.

TABLE 4.12
OUTSOURCING HAS RESULTED TO HIGHER
LABOUR PRODUCTIVITY

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 88 14 102 31%

Agree 153 24 177 53%

Do Not Know 8 2 10 3%

Disagree 39 6 45 13%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.12 above shows that 102(31%) of the respondents strongly agree that outsourcing

has resulted to higher labour productivity in their organisations. 177 (53%) of the

respondents agree that outsourcing has resulted to higher labour productivity in their

organisations. 10(3%) of the respondents do not know whether outsourcing has resulted

to higher labour productivity in their organisations. 45 (13%) of the respondents disagree

that outsourcing has resulted to higher labour productivity in their organizations.

 Whereas, none of these respondents strongly disagree that outsourcing has resulted to

higher labour productivity in their organisations.

From the data analysis, it can be seen that majority of the respondents agree that

outsourcing has resulted to higher labour productivity in their organisations.

TABLE 4.13
OUTSOURCING HAS IMPROVED THE QUALITY
OF SERVICES RENDERED

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 32 13 45 13%

Agree 149 24 173 52%

Do Not Know 4 1 5 1%

Disagree 98 6 104 32%

Strongly Disagree 5 2 7 2%

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.13 above shows that 45(13%) of the respondents strongly agree that outsourcing

has improved the quality of services rendered. 173 (52%) of the respondents agree that

outsourcing has improved the quality of services rendered. 5(1%) of the respondents do

not know whether outsourcing has improved the quality of services rendered. 104 (32%)

of the respondents disagree that outsourcing has improved the quality of services
 rendered. Whereas, 7 (2%) of the respondents strongly disagree that outsourcing has

improved the quality of services rendered.

From the data analysis, it can be seen that majority of the respondents agree that

outsourcing has improved the quality of services rendered.

TABLE 4.14
OUTSOURCING HAS RESULTED TO STANDARDIZATION OF SERVICES
RENDERED

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 30 15 45 14%

Agree 201 27 228 68%

Do Not Know - - - -

Disagree 57 4 61 18%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.14 above shows that 45(14%) of the respondents strongly agree that outsourcing

has resulted to standardization of services rendered. 228 (68%) of the respondents agree

that outsourcing has resulted to standardization of services rendered. 61 (18%) of the

respondents disagree that outsourcing has resulted to standardization of services

 rendered. Non of the respondents said do not know or strongly disagree that outsourcing

has resulted to standardization of services rendered.

Summarily, it can be seen that majority of the respondents agree that outsourcing has

resulted to standardization of services rendered.

TABLE 4.15
OUTSOURCING HAS INCREASED CUSTOMER’S PATRONAGE

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 39 12 51 15%

Agree 210 21 231 69%

Do Not Know 4 2 6 2%

Disagree 35 11 46 14%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.15 above shows that 51(15%) of the respondents strongly agree that outsourcing

has increased customer’s patronage. 231 (69%) of the respondents agree that outsourcing

has increased customer’s patronage. 6(2%) of the respondents do not know whether

outsourcing has increased customer’s patronage. 46 (14%) of the respondents disagree

 that outsourcing has increased customer’s patronage. Whereas, non of the respondents

strongly disagree that outsourcing has increased customer’s patronage.

From the data analysis, it can be seen that majority of the respondents agree that

outsourcing has increased customer’s patronage.

TABLE 4.16
OUTSOURCING HELPED TO HAVE ACCESS TO EXTERNAL SKILLS
AND KNOWLEDGE

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 243 29 272 81%

Agree 45 17 62 19%

Do Not Know - - - -

Disagree - - - -

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.16 above shows that 272(81%) of the respondents strongly agree that outsourcing

helped to have access to external skills and knowledge. 62 (19%) of the respondents

agree that outsourcing helped to have access to external skills and knowledge. Non of the

respondents said do not know, disagree or strongly disagree that outsourcing helped to

have access to external skills and knowledge.

 From the data analysis, it can be seen that majority of the respondents strongly agree that

outsourcing helped to have access to external skills and knowledge.

TABLE 4.17
OUTSOURCING HAS INCREASED THE EFFICIENCY AND
EFFECTIVENESS OF SERVICES

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 54 12 66 20%

Agree 167 27 194 58%

Do Not Know 39 2 41 12%

Disagree 28 5 33 10%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.17 above shows that 66(20%) of the respondents strongly agree that outsourcing

has increased the efficiency and effectiveness of services in their organisations. 194

(58%) of the respondents agree that outsourcing has increased the efficiency and

effectiveness of services in their organizations. 41 (12%) of the respondents do not know

whether outsourcing has increased the efficiency and effectiveness of services in their

organizations. 33 (10%) of the respondents disagree that outsourcing has increased the

efficiency and effectiveness of services in their organizations. Whereas, non of the

 respondents strongly disagree that outsourcing has increased the efficiency and

effectiveness of services in their organizations.

From the data analysis, it can be seen that majority of the respondents agree that

outsourcing has increased the efficiency and effectiveness of services in their

organizations.

TABLE 4.18
OUTSOURCING HAS INCREASED CAPACITY BUILDING

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 94 16 110 33%

Agree 150 25 175 53%

Do Not Know 6 2 8 2%

Disagree 38 3 41 12%

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.18 above shows that 110(33%) of the respondents strongly agree that outsourcing

has increased capacity building. 175 (53%) of the respondents agree that outsourcing

increased capacity building. 8 (2%) of the respondents do not know whether outsourcing

has increased capacity building. 41 (12%) of the respondents disagree that outsourcing

has increased capacity building. Whereas, non of the respondents strongly disagree that

outsourcing has increased capacity building. Summarily, data analysis shows that
 majority of the respondents strongly agree that outsourcing has increased capacity

building.

TABLE 4.19
OUTSOURCING HAS RESULTED TO LOSS OF CONTROL OVER
THE OUTSOURCED SERVICES

CATEGORIES UNTH NOHE TOTAL % TOTAL

Strongly Agree 223 30 253 76%

Agree 45 14 59 18%

Do Not Know 20 2 22 6%

Disagree - - - -

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.19 above shows that 253(76%) of the respondents strongly agree that outsourcing

has resulted to loss of control over the outsourced services in their organisations. 59

(18%) of the respondents agree that outsourcing has resulted to loss of control over the

outsourced services in their organisations. 22 (6%) of the respondents do not know

whether outsourcing has resulted to loss of control over the outsourced services in their

organisations. Whereas, non of the respondents disagree or strongly disagree that

outsourcing has resulted to loss of control over the outsourced services in their

organizations.
 From the data analysis, it can be seen that majority of the respondents strongly agree that

outsourcing has resulted to loss of control over the outsourced services in their

organisation.

TABLE 4.20
OUTSOURCING HAS RESULTED TO LOSS OF ORGANISATION’S
INBUILT SKILLS

CATEGORIES UNTH NOH TOTAL % TOTAL

E
Strongly Agree 214 28 242 72%

Agree 68 16 84 26%

Do Not Know 6 2 8 2%

Disagree - - - -

Strongly Disagree - - - -

TOTAL 288 46 334 100%

T % TOTAL 86% 1 14% 100%

Source: Field Survey, 2008

Table 4.20 above shows that 242 (72%) of the respondents strongly agree that

outsourcing has resulted to loss of organization’s inbuilt skills. 84 (26%) of the

respondents agree that outsourcing has resulted to loss of organization’s inbuilt skills. 8

(2%) of the respondents do not know whether outsourcing has resulted to loss of

organization’s inbuilt skills. Whereas, non of the respondents disagree or strongly

disagree that outsourcing has resulted to loss of organization’s inbuilt skills.

From the data analysis, it can be seen that majority of the respondents strongly agree that

outsourcing has resulted to loss of organization’s inbuilt skills.

 4.4 PRESENTATION AND ANALYSIS OF COST INFORMATION

Cost incurred in the laundry, cleaning and security services without outsourcing and with

outsourcing were analyzed in this section. In this study, the term ‘without outsourcing’

refers to a situation where outsourcing did not exist whereas ‘with outsourcing’ refers to a

situation where outsourcing exists. Also, material cost consists of cost of working

materials (excluding fixed assets) purchased by the organization whereas personnel cost

consists of salary/wages, hazard allowance, shift allowance, and accommodation.

Outsourcing cost refers to the cost paid to the outsourcee for services rendered.

According to the outsourcing agreement, the outsourcing cost is subject to yearly review,

but as at the time of carrying out this study it has not been reviewed. Therefore, the cost

incurred in the outsourced services without outsourcing and with outsourcing for the

period 2007 and 2008 in UNTH and NOHE are shown below:

TABLE 4.21
COST INCURRED IN LAUNDRY SERVICES WITHOUT OUTSOURCING
AND WITH OUTSOURCING FOR THE PERIOD 2007 AND 2008 IN UNTH

WITHOUT OUTSOURCING WITH OUTSOURCING

COST
ITEMS 2007 2008 2007 2008
MATERIAL COST 10,308,066.21 12,060,437.47 - -
PERSONNEL COST 31,299,503.40 32,189,606.64 - -
OUTSOURCING COST - - 72,284,999.60 72,284,999.
TOTAL N41,607,569.61 N44,250,044.11 N72,284,999.60 N72,284,999.
SOURCE: FINANCIAL RECORDS 2007 AND 2008, AND FEDERAL
GOVERNMENT PARASTATALS CONSOLIDATED SALARY TABLE WEF
IST JANUARY, 2007

TABLE 4.22
 COST INCURRED IN LAUNDRY SERVICES WITHOUT OUTSOURCING
AND WITH OUTSOURCING FOR THE PERIOD 2007 AND 2008 IN NOHE

WITHOUT OUTSOURCING WITH OUTSOURCING

COST
ITEMS 2007 2008 2007 20
MATERIAL COST 337,711.00 371,482.10 - -
PERSONNEL COST 9,472,302.84 9,732,192.84 - -
OUTSOURCING COST - - 20,220.000.00 20,220,000
TOTAL N9,810,013.84 N10,103,674.94 N20,220.000.00 N20,220,000

SOURCE: FINANCIAL RECORDS 2007 AND 2008, AND FEDERAL

GOVERNMENT PARASTATALS CONSOLIDATED SALARY TABLE WEF
IST JANUARY, 2007

Tables 4.21 and 4.22 above shows cost incurred in laundry services without outsourcing

and with outsourcing for the period 2007 and 2008 in UNTH and NOHE. These tables

shows that in 2007, without outsourcing material cost for laundry services should have

been N10,308,066.21 and N337,711.00 in UNTH and NOHE respectively. In the same

year, personnel cost for laundry services should have been N31,299,503.40 and

N9,472,302.84 in UNTH and NOHE respectively. Therefore, the total cost of laundry

services in 2007 without outsourcing should have been N41,607,569.61 in UNTH and

N9,810,013.84 in NOHE whereas with outsourcing, the total outsourcing cost of laundry

services in 2007 was N72,284,999.60 in UNTH and N20,220,000.00 in NOHE.

Also, in 2008, without outsourcing material cost for laundry services should have been

N12,060,437.47 and N371,482.10 in UNTH and NOHE respectively. In the same year,

personnel cost for laundry services should have been N32,189,606.64 and

N9,732,192.84 in UNTH and NOHE respectively. Therefore, the total cost of laundry
services in 2008 without outsourcing should have been N44,250,044.11 in UNTH and

N10,103,674.94 in NOHE whereas with outsourcing, the total outsourcing cost of

laundry services in 2008 was N72,284,999.60 in UNTH and N20,220,000.00 in NOHE.

TABLE 4.23

COST INCURRED IN CLEANING SERVICES WITHOUT OUTSOURCING

AND WITH OUTSOURCING FOR THE PERIOD 2007 AND 2008 IN UNTH
WITHOUT
OUTSOURCING WITH OUTSOURCING
COST ITEMS 2007 2008 2007 2008
MATERIAL COST 11,534,069.08 13,379,520.13 - -
PERSONNEL
COST 26,263,215.00 26,885,291.56 - -
OUTSOURCING
COST - - 81,840,000.00 81,840,000.00
TOTAL N37,797,284.08 N40,264,811.69 N81,840,000.00 N81,840,000.00
SOURCE: FINANCIAL RECORDS 2007 AND 2008, AND FEDERAL
GOVERNMENT PARASTATALS CONSOLIDATED SALARY TABLE WEF IST
JANUARY, 2007

TABLE 4.24
COST INCURRED IN CLEANING SERVICES WITHOUT OUTSOURCING
ANDWITH OUTSOURCING FOR THE PERIOD 2007 AND 2008 IN NOHE
WITHOUT
OUTSOURCING WITH OUTSOURCING
COST ITEMS 2007 2008 2007 2008
MATERIAL COST 826,276.50 983,269.04 -
PERSONNEL
COST 16,455,053.40 16,848,647.98 - -
OUTSOURCING
COST - - 33,060,000.00 33,060,000.00
N17,281,329.9 N17,831,917.0 N33,060,000.0
TOTAL 0 2 0 N33,060,000.00
SOURCE: FINANCIAL RECORDS 2007 AND 2008, AND FEDERAL
GOVERNMENT PARASTATALS CONSOLIDATED SALARY TABLE WEF IST
JANUARY, 2007
Tables 4.23 and 4.24 above shows cost incurred in cleaning services without outsourcing

and with outsourcing for the period 2007 and 2008 in UNTH and NOHE. These tables

shows that in 2007, without outsourcing material cost for cleaning services should have

been N11,534,069.08 and N826,276.50 in UNTH and NOHE respectively. In the same

year, personnel cost for cleaning services should have been N26,263,215.00 and

N16,455,053.40 in UNTH and NOHE respectively. Therefore, the total cost of cleaning

services in 2007 without outsourcing should have been N37,797,284.08 in UNTH and

N17,281,329.90 in NOHE whereas with outsourcing, the total outsourcing cost of

cleaning services in 2007 was N81,840,000.00 in UNTH and N33,060,000.00 in NOHE.

Also, in 2008, without outsourcing material cost for cleaning services should have been

N13,379,520.13 and N983,269.04 in UNTH and NOHE respectively. In the same year,

personnel cost for cleaning services should have been N26,885,291.56 and

N16,848,647.98 in UNTH and NOHE respectively. Therefore, the total cost of cleaning

services in 2008 without outsourcing should have been N40,264,811.69 in UNTH and

N17,831,917.02 in NOHE whereas with outsourcing, the total outsourcing cost of

cleaning services in 2008 was N72,284,999.60 in UNTH and N33,060,000.00 in NOHE.

 TABLE 4.25

COST INCURRED IN SECURITY SERVICES WITHOUT OUTSOURCING

AND WITH OUTSOURCING FOR THE PERIOD 2007 AND 2008 IN UNTH

WITHOUT OUTSOURCING WITH OUTSOURCING

COST ITEMS 2007 2008 2007 2008
MATERIAL COST 1,490,720.00 1,803,771.20 - -
PERSONNEL COST 45,609,558.76 46,748,341.62 - -
OUTSOURCING
COST - - 91,929,600.00 91,929,600.00
TOTAL N47,100,278.76 N48,552,112.82 N91,929,600.00 N91,929,600.00
SOURCE: FINANCIAL RECORDS 2007 AND 2008, AND FEDERAL
GOVERNMENT PARASTATALS CONSOLIDATED SALARY TABLE WEF IST
JANUARY, 2007

TABLE 4.26

COST INCURRED IN SECURITY SERVICES WITHOUT OUTSOURCING

AND WITH OUTSOURCING FOR THE PERIOD 2007 AND 2008 IN NOHE

WITHOUT OUTSOURCING WITH OUTSOURCING

COST ITEMS 2007 2008 2007 2008
MATERIAL COST 691,636.00 836,879.56 - -
PERSONNEL COST 10,881,559.80 11,165,781.59 - -
OUTSOURCING
COST - - 25,650,000.00 25,650,000.
TOTAL N11,573,195.80 N12,002,661.15 N25,650,000.00 N25,650,000.
SOURCE: FINANCIAL RECORDS 2007 AND 2008, AND FEDERAL
GOVERNMENT PARASTATALS CONSOLIDATED SALARY TABLE WEF IST
JANUARY, 2007

Tables 4.25 and 4.26 above shows cost incurred in security services without outsourcing

and with outsourcing for the period 2007 and 2008 in UNTH and NOHE. These tables

shows that in 2007, without outsourcing material cost for security services should have

been N1,490,720.00 and N691,636.00 in UNTH and NOHE respectively. In the same

year, personnel cost for security services should have been N45,609,558.76 and
N10,881,559.80 in UNTH and NOHE respectively. Therefore, the total cost of security

services in 2007 without outsourcing should have been N47,100,278.76 in UNTH and

N11,573,195.80 in NOHE whereas with outsourcing, the total outsourcing cost of

security services in 2007 was N91,929,600.00 in UNTH and N25,650,000.00 in NOHE.

Also, in 2008, without outsourcing material cost for security services should have been

N1,803,771.20 and N836,879.56 in UNTH and NOHE respectively. In the same year,

personnel cost for security services should have been N46,748,341.62 and

N11,165,781.59 in UNTH and NOHE respectively. Therefore, the total cost of security

services in 2008 without outsourcing should have been N48,552,112.82 in UNTH and

N12,002,661.15 in NOHE whereas with outsourcing, the total outsourcing cost of

security services in 2008 was N91,929,600.00 in UNTH and N25,650,000.00 in NOHE.

4.5 TESTING OF HYPOTHESES

TESTING OF HYPOTHESIS I

Ho: There is no significant difference between laundry services cost without

outsourcing and laundry services cost with outsourcing in UNTH and NOHE.

H1: There is a significant difference between laundry services cost without outsourcing

and laundry services cost with outsourcing in UNTH and NOHE.

As stated in sub-section 3.7, t -test of paired samples statistic (with SPSS) was used to

calculate t – value. The laundry services cost without outsourcing for the period 2007

and 2008 in UNTH and NOHE were added together to determine the mean, standard
deviation and standard error mean of the cost. Also, the laundry services cost with

outsourcing for the period 2007 and 2008 in UNTH and NOHE were added together to

determine the mean, standard deviation and standard error mean of the cost.

This is shown in table 4.27 below:

TABLE 4.27

PAIRED SAMPLES STATISTICS FOR LAUNDRY SERVICES COST

WITHOUT OUTSOURCING AND LAUNDRY SERVICES COST WITH
OUTSOURCING

Std. Std. Error

Mean N Deviation Mean

Pair 1 Laundry Services cost Without 2.6443E7 4 1.90673E7 9.53365E6

Outsourcing

Laundry Services cost With

Outsourcing 4.6252E7 4 3.00597E7 1.50299E7

Furthermore, table 4.28 below shows the paired samples t-test for laundry services cost

without outsourcing and laundry services cost with outsourcing. In this table, the

difference between the mean of the laundry services cost without outsourcing and the

mean of the laundry services cost with outsourcing as shown in the table 4.27 were

determined as -1.980E7. The t-value is shown to be -3.577 .

 The testing made use of two tailed test as shown below:

TABLE 4.28
PAIRED SAMPLES T –TEST FOR LAUNDRY SERVICES COST WITHOUT
OUTSOURCING AND LAUNDRY SERVICES COST WITH OUTSOURCING

Paired Differences

95% confidence
Interval of the
Std. Std. Difference
T df Sig.
Error
(2-tailed)
Mean Deviation Mean Lower Upper

Pair 1 Laundry
-1.980E7 1.10767E7 5.53834E6 -3.74351E7 -2.18420E6 -3.577 3 .037
Services
Cost without
Outsourcing -

Laundry
Services
cost With
Outsourcing

At 0.05 level of significance given degree of freedom = 3, table value (te) of t is 3.182.

To test the hypothesis, the decision rule is:

Reject Ho if tcal > te

Accept Ho if tcal < te

Since tcal (-3.577) > te (3.182), the null hypothesis (HO) that says there is no significant

difference between laundry services cost without outsourcing and laundry services cost

with outsourcing in UNTH and NOHE is rejected, while the alternate hypothesis that says
there is a significant difference between laundry services cost without outsourcing and

laundry services cost with outsourcing in UNTH and NOHE is accepted.

TESTING OF HYPOTHESIS II

Ho: There is no significant difference between cleaning services cost without outsourcing

and cleaning services cost with outsourcing in UNTH and NOHE.

H1: There is a significant difference between cleaning services cost without outsourcing

and cleaning services cost with outsourcing in UNTH and NOHE.

As stated in sub-section 3.7, t -test of paired samples statistics (with SPSS) was used to

calculate t – value. The cleaning services cost without outsourcing for the period 2007

and 2008 in UNTH and NOHE were added together to determine the mean, standard

deviation and standard error mean of the cost. Also, the cleaning services cost with

outsourcing for the period 2007 and 2008 in UNTH and NOHE were added together to

determine the mean, standard deviation and standard error mean of the cost.
This is shown in table 4.29 below:

TABLE 4.29
PAIRED SAMPLES STATISTICS FOR CLEANING SERVICES COST
WITHOUT OUTSOURCING AND CLEANING SERVICES COST WITH
OUTSOURCING

Std. Std. Error

Mean N Deviation Mean

Pair 1 Cleaning Services cost Without 2.8294E7 4 1.24412E7 6.22058E6

Outsourcing

Cleaning Services cost With 5.7450E7 4 2.81631E7 1.40816E7

Outsourcing

Furthermore, table 4.30 below shows the paired samples t-test for cleaning services cost

without outsourcing and cleaning services cost with outsourcing. In this table, the

difference between the mean of the cleaning services cost without outsourcing and the

mean of the cleaning services cost with outsourcing as shown in table 4.29 were

determined as -2.915E7. The t-value is shown to be -3.691.

 The testing made use of two tailed test as shown below:

TABLE 4.30
PAIRED SAMPLES T –TEST FOR CLEANING SERVICES COST WITHOUT
OUTSOURCING AND CLEANING SERVICES COST WITH OUTSOURCING

Paired Differences

95% confidence
Interval of the
Std. Std. Difference
Error t df Sig.
Mean Deviation Mean Lower Upper (2-
tailed)

Pair 1Cleaning Services

-2.915E7 1.57986E7 7.89932E6 -5.42953E7 -4.01701E6 -3.691 3 .034
cost Without
Outsourcing -
Cleaning Services
cost With
Outsourcing

At 0.05 level of significance given degree of freedom = 3, table value (te) of t is 3.182.

To test the hypothesis, the decision rule is:

Reject Ho if tcal > te

Accept Ho if tcal < te

Since tcal (-3.691) > te (3.182), the null hypothesis (HO) that says there is no

significant difference between cleaning services cost without outsourcing and cleaning

services cost with outsourcing in UNTH and NOHE is rejected, while the alternate

hypothesis that says there is a significant difference between cleaning services cost

without outsourcing and cleaning services cost with outsourcing in UNTH and NOHE is

accepted.
TESTING OF HYPOTHESIS III

Ho: There is no significant difference between security services cost without

outsourcing and security services cost with outsourcing in UNTH and NOHE.

H1: There is a significant difference between security services cost without

outsourcing and security services cost with outsourcing in UNTH and NOHE.

As stated in sub-section 3.7, t -test of paired samples statistics (with SPSS) was used to

calculate t – value. The security services cost without outsourcing for the period 2007

and 2008 in UNTH and NOHE were added together to determine the mean, standard

deviation and standard error mean of the cost. Also, the security services cost with

outsourcing for the period 2007 and 2008 in UNTH and NOHE were added together to

determine the mean, standard deviation and standard error mean of the cost. This is

shown in table 4.31 below:

TABLE 4.31
PAIRED SAMPLES STATISTICS FOR SECURITY SERVICES COST
WITHOUT OUTSOURCING AND SECURITY SERVICES COST WITH
OUTSOURCING

Std. Std. Error

Mean N Deviation Mean

Pair 1 Security Services cost Without 2.9807E7 4 2.08159E7 1.04079E7

Outsourcing

Security Services cost With 5.8790 E7 4 3.82665E7 1.91333E7

Outsourcing
 Furthermore, table 4.32 below shows the paired samples t-test for security services cost

without outsourcing and security services cost with outsourcing. In this table, the

difference between the mean of the security services cost without outsourcing and the

mean of the security services cost with outsourcing as shown in table 4.31 were

determined as -2.898E7. The t-value is shown to be -3.318.

The testing made use of two tailed test as shown below:

TABLE 4.32
PAIRED SAMPLES T –TEST FOR SECURITY SERVICES COST WITHOUT
OUTSOURCING AND SECURITY SERVICES COST WITH OUTSOURCING

Paired Differences

95% confidence
Interval of the
Std. Std. Difference
Error t df Sig.
Mean Deviation Mean Lower Upper (2-
tailed)

Pair 1Security Services

-2.898E7 1.74708E7 8.73539E6 -5.67826E7 -1.18283E6 -3.318 3 .045
cost without
outsourcing -
Security Services
cost with
outsourcing

At 0.05 level of significance given degree of freedom = 3, table value (te) of t is 3.182

To test the hypothesis, the decision rule is:

Reject Ho if tcal > te

Accept Ho if tcal < te

Since tcal (-3.318) > te (3.182), the null hypothesis (HO) that says there is no

significant difference between security services cost without outsourcing and security

services cost with outsourcing in UNTH and NOHE is rejected, while the alternate

hypothesis that says there is a significant difference between security services cost

without outsourcing and security services cost with outsourcing in UNTH and NOHE is

accepted.

TESTING OF HYPOTHESIS IV

Ho: There is no significant difference between improvement in the quality of services

rendered without outsourcing and improvement in the quality of services rendered

with outsourcing in UNTH and NOHE.

H1: There is a greater improvement in the quality of services rendered with

outsourcing than improvement in the quality of services rendered without

outsourcing in UNTH and NOHE.

That is, Ho : p = 0.5

H1 : p > 0.5

Table 4.13 is used to test this hypothesis. As stated in sub-section 3.7, z- test for

proportions is used for the hypothesis testing as follows:

Z = p–p

Pq
n
Where:

P = sample proportion

P = hypothesized population proportion

n = sample size

q = 1-p

Therefore, p = 0.66, p = 0.5, n = 329, q = 0.5

The critical value is 1.645.

z = 0.66 – 0.5 = 0.16

0.5 (0.5) 0.028 = 5.71
329

To test the hypothesis, the decision rule is :

Reject Ho if z cal > ze

Accept Ho if z cal < ze

Since z cal (5.71) > ze (1.645), the null hypothesis that says there is no significant

difference between improvement in the quality of services rendered with outsourcing and

improvement in the quality of services rendered without outsourcing in UNTH and

NOHE is rejected, while the alternate hypothesis that says there is a greater improvement

in the quality of services rendered with outsourcing than improvement in the quality of

services rendered without outsourcing in UNTH and NOHE is accepted.

TESTING OF HYPOTHESIS V

Ho: There is no significant difference between improvement in labour productivity

with outsourcing and improvement in labour productivity without outsourcing

in UNTH and NOHE.

H1: There is greater improvement in labour productivity with outsourcing than

improvement in labour productivity without outsourcing in UNTH and NOHE.

 That is, Ho : p = 0.5

H1 : p > 0.5

Table 4.12 is used to test this hypothesis. As stated in sub-section 3.7, z- test for

proportions is used for the hypothesis testing as follows:

Z = p–p

Pq
n

Where:

P = sample proportion

P = hypothesized population proportion

n = sample size

q = 1-p

Therefore, p = 0.86, p = 0.5, n = 324, q = 0.5

The critical value is 1.645.

z = 0.86 – 0.5 = 0.36

0.5 (0.5) 0.0278 = 12.95
324

To test the hypothesis, the decision rule is :

Reject Ho if z cal > ze

Accept Ho if z cal < ze

Since z cal (12.95) > ze (1.645), the null hypothesis that says there is no significant

difference between improvement in labour productivity with outsourcing and

improvement in labour productivity without outsourcing in UNTH and NOHE is rejected,

while the alternate hypothesis that says there is a greater improvement in labour
productivity with outsourcing than improvement in labour productivity without

outsourcing in UNTH and NOHE is accepted.

TESTING OF HYPOTHESES VI

Ho: There is no significant difference between improvement in capacity building

with outsourcing and improvement in capacity building without outsourcing

in UNTH and NOHE.

H1: There is greater improvement in capacity building with outsourcing than

improvement in capacity building without outsourcing in UNTH and NOHE.

That is, Ho : p = 0.5

H1 : p > 0.5

Table 4.18 is used to test this hypothesis. As stated in sub-section 3.7, z- test for

proportions is used for the hypothesis testing as follows:

Z = p–p
Pq
n

Where:

P = sample proportion

P = hypothesized population proportion

n = sample size

q = 1-p

Therefore, p = 0.87, p = 0.5, n = 326, q = 0.5

The critical value is 1.645.

z = 0.87 – 0.5 = 0.37
0.5 (0.5) 0.0277 = 13.36
326

To test the hypothesis, the decision rule is :

Reject Ho if z cal > ze

Accept Ho if z cal < ze

Since z cal (13.36) > ze (1.645), the null hypothesis that says there is no significant

difference between improvement in capacity building with outsourcing and improvement

in capacity building without outsourcing in UNTH and NOHE is rejected, while the

alternate hypothesis that says there is a greater improvement in capacity building with

outsourcing than improvement in capacity building without outsourcing in UNTH and

NOHE is accepted.
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

This chapter dealt with the summary of findings, conclusion and recommendations.

5.1 SUMMARY OF FINDINGS

Findings from this research were that UNTH and NOHE have outsourced laundry,

cleaning, security and catering services. The outsourcing technique they adopted is

departmental total outsourcing. The study revealed that there is a significant difference

between laundry services cost without outsourcing and laundry services cost with

outsourcing in UNTH and NOHE. Also, there is a significant difference between

cleaning services cost without outsourcing and cleaning services cost with outsourcing in

UNTH and NOHE. Moreover, there is a significant difference between security services

cost without outsourcing and security services cost with outsourcing in UNTH and

NOHE. The cost analysis shows that there is an increase in the service cost with

outsourcing compared to service cost without outsourcing in UNTH and NOHE.

Furthermore, this investigation revealed that outsourcing has improved labour

productivity, quality of services rendered and it has helped in building capacity in UNTH

and NOHE. Other findings are that outsourcing has helped the organisations to focus

more on core functions, improved staff commitment to work, helped to have access to

external skills and knowledge, effectiveness of services and it has also resulted to

standardization of services rendered. Moreover, the study shows that outsourcing has
resulted to low job co-ordination, loss of organisation’s inbuilt skills and loss of control

over the outsourced services.

5.2 CONCLUSION

From the outcome of the investigation it is obvious that outsourcing has resulted to

increase in the cost of laundry, cleaning and security services that were outsourced in

Federal Government owned hospitals in Enugu, Nigeria. Though there is increase in the

outsourced services costs, outsourcing still have some benefits to offer to the Federal

Government owned hospitals in Enugu, Nigeria. These benefits are seen in areas such as

ability of outsourcing to help hospitals to focus more on core functions, improvement in

staff commitment to work as well as the provision of access to external skills and

knowledge.

Moreover, outsourcing has many positive effects on the performance of the Federal

Government owned hospitals in Enugu, Nigeria which can never be over emphasized.

Some of these positive effects are standardization of services, increase in the

effectiveness of services, improvement in the quality of services rendered, as well as

increase in capacity building and customer’s patronage.

Furthermore, beside the positive effects of outsourcing on the performance of Federal

Government owned hospitals in Enugu, Nigeria, there are some negative effects of

outsourcing which includes low co-ordination of job, loss of control and inbuilt skills

over the outsourced services in the Federal Government owned hospitals in Enugu,

Nigeria.
5.3 RECOMMENDATIONS

The researcher recommend as following:

Emphasis should be laid on the need to achieve the cost reduction benefit of outsourcing

in the Federal Government owned hospitals in Enugu, Nigeria. This can be done through

issuing of general guideline by the Federal Government on the limits to be charged by the

service provider (Outsourcee) to avoid arbitrary fixing of charges.

Outsourcing organisation (Outsourcer) should have some element of cost control over the

outsourced services. This will help to achieve high co-ordination of services and more

effective and efficient performance of the Federal Government owned hospitals in Enugu,

Nigeria. Also, Federal Government of Nigeria should prioritize their outsourcing projects

based on the number of benefits expected to be gained from the arrangement. No benefit,

no outsourcing policy should be adopted. This will go a long way to curb unnecessary

and non-cost effective outsourcing in Federal Government owned hospitals in Enugu,

Nigeria.

5.4 AREAS FOR FURTHER STUDIES

Further studies are recommended to be carried out in the following areas:

1. Causes and effects of high costs of outsourced services in the Federal Government

Parastatals, Nigeria.

2. Effect of outsourcing on performance of Non-Governmental organizations in

Nigeria.

3. Benefits of outsourcing in a Manufacturing Sector in Nigeria.

4. Effects of outsourcing on performance of Educational Sector in Nigeria.

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APPENDIX I

QUESTIONNAIRE ON EFFECT OF OUTSOURCING ON PERFORMANCE OF

FEDERAL GOVERNMENT OWNED HOSPITALS IN ENUGU, NIGERIA

School of Postgraduate Studies

Faculty of Business Administration
Department of Accountancy
University of Nigeria
Enugu Campus
25th April, 2008.

Dear Sir / Madam,

I am a postgraduate student of the above named University. I am carrying out a research

work on the topic:

“EFFECT OF OUTSOURCING ON PERFORMANCE OF FEDERAL

GOVERNMENT OWNED HOSPITALS IN ENUGU,NIGERIA”

This work is purely for academic purpose, and is not in any way meant to undermine
your secrecy. You are kindly required to sincerely fill this questionnaire. All the
information extended to me will be strictly used for this study and treated with utmost
confidence.

Thanks for your Co-operation.

Yours Faithfully,

Anisiuba Chika A. (Mrs.)

 Direction: Please tick [√] against the option that corresponds to your answer.

1. Name of your Organization _____________________

2. Category of staff

(a) Head of department [ ]

(b) Senior staff [ ]

(c) Junior staff [ ]

3. Do you practice outsourcing in your organisation?

(a) Yes [ ]

(b) No [ ]

4. Which department in your organisation has been outsourced?

(a) Cafeteria [ ]

(b) Security [ ]

(c) Cleaning [ ]

(d) Laundry [ ]

(e) All of above [ ]

(f) Others__________________________________

5. What outsourcing technique did your organisation adopted?

(a) Departmental Total Outsourcing [ ]

(b) Departmental Sub -Total Outsourcing [ ]

(c) Business Process Outsourcing [ ]

(d) Payroll Outsourcing [ ]

(e) Others ____________________________________

6. Outsourcing of services is very relevant to your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

7. Outsourcing has helped your organisation to focus more on core functions.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

8. Staffing level in your organisation is at its best since the introduction of outsourcing.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

9. Outsourcing has improved staff commitment to work in your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

 (d) Disagree [ ]

(e) Strongly disagree [ ]

10. High job co-ordination has been achieved since the introduction of outsourcing in

your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

11. Outsourcing has resulted to higher labour productivity in your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

12. Outsourcing has improved the quality of services rendered in your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

13. Outsourcing has helped to standardize the services rendered in your organisation.

(a) Strongly agreed [ ]

(b) Agreed [ ]

(c) Do not know [ ]

(d) Disagreed [ ]

(e) Strongly disagreed [ ]

14. Outsourcing has increased customer patronage in your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

15. Outsourcing has helped your organisation to have access to external skills and

knowledge.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

16. Outsourcing has increased the efficiency and effectiveness of services in your

organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

17. Outsourcing has increased capacity building in your organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

18. Outsourcing has resulted to loss of control over the outsourced services in your

organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

19. Outsourcing has resulted to loss of inbuilt skills in the outsourced services of your

organisation.

(a) Strongly agree [ ]

(b) Agree [ ]

(c) Do not know [ ]

(d) Disagree [ ]

(e) Strongly disagree [ ]

APPENDIX II

MEASUREMENT OF THE STRENGTH OF RELATIONSHIP BETWEEN

RESPONDENT’S RESPONSE IN THE TEST- RETEST

Pearson Product Moment Correlation Coefficient statistics was used to measure the

strength of relationship between respondent’s responses to first test and second test. But

in this work, Statistical Package for Social Sciences (SPSS) version 17 was used for the

measurement. The test-retest scores of 10 respondents to questionnaire are shown below:

TEST-RETEST SCORES OF 10 RESPONDENTS

First Test Score Second Test Score

Respondent (X) (Y)

1. 35 29
2. 40 34
3. 38 30
4. 41 38
5. 39 36
6. 35 31
7. 40 33
8. 35 31
9. 40 36
10. 37 32
Source: Field Survey, 2008
The results of the Pearson correlation between the two variables X and Y using SPSS are
shown below:

TEST RE-TEST RELIABILITY COEFFICIENT

first test re-test

First test Pearson correlation

Sig. (2-tailed) 1 .817**
N
10
.004

10

re- test Pearson correlation

Sig. (2-tailed) .817** 1
N
.004
10
10
**. Correlation is significant at the 0.01 level (2-tailed).

The correlation coefficient is between -1 and +1. Coefficient close to -1 showed

negative correlation and Coefficient close to +1 showed positive correlation. Significant

correlations are flagged with asterisks. A significant correlation indicates a reliable

relationship. Correlations greater than .7 are considered strong. Correlations less than

.3 are considered weak. Correlations between .3 and .7 are considered moderate. The

same ranges apply to negative values.

From the above table, a Pearson correlation coefficient was calculated for the

relationship between respondent’s first test and re-test scores.

A strong positive correlation was found (r (9) = .817, p < .01), indicating a significant

linear relationship between the two variables. Therefore, the relationship between the

two variables is reliable.