Outsourcing Human Resource Functions And Performance

Project and Seminar Material for Commerce

Outsourcing Human Resource Functions And Performance


The study assessed the outsourced human resource functions and performance in Commercial banks with emphasis on Stanbic IBTC Bank Plc. It also examined reasons for outsourcing human resource functions with a view to identifying benefits and challenges facing outsourcing in the commercial banking industry in Nigeria. The study utilized primary data which were collected through the use of in-depth interview and questionnaire. The in-depth interview was conducted on twenty staff each of the 10 branches of Stanbic IBTC banks which have their headquarters based in Lagos. The result showed that majority of staff in the commercial banking industry is being outsourced and these staffs were spread across five activities such as human resource, recruitment and training, security, ATM and IT Unit and Marketing and Promotion Units of department/units in the banks.

Chapter One


1.1 Background to the Study

Human resources outsourcing evolved from hiring payroll processing companies in the 1990s to delegating tasks previously performed by human resources assistants and specialists, such as recruiting, coordinating benefits and handling unemployment claims. Some small businesses outsource entire human resources departmental functions; however, many companies outsource singular processes. Small businesses to large corporations decide for one reason or another that outsourcing human resources functions is a way to improve efficiency and minimize staffing costs.

Large organizations that employ thousands of people may find it’s simpler to outsource a process, such as payroll, rather than employ two to three payroll clerks and purchase sophisticated technology than engage the services of an organization that focuses entirely on processing payroll (Elmuti, 2003). Small companies might decide that outsourcing human resources processes is more cost-effective and efficient than creating a human resources department while the business is focused on other projects associated with starting a new business (Elmuti, 2003).

Organizational performance is an important consideration when small business owners weigh the pros and cons of Human resource outsourcing. One school of thought is that a organizations can focus its energy and expenditures on developing the product it sells. This enables organization to allocate its resources to areas that include engineering and research and development, instead of recruiting staff, maintaining personnel files and other human resources tasks.

The other school of thought has more to do with human capital and talent believes that an organization may find herself without the talent she needs to build an efficient human resources department. In this case, Human resource outsourcing resolves the dilemma organizations face during the search for an in-house human resources expert. In the first scenario, an organization directing its focus on product design and sales may determine the expense of Human resource outsourcing can be easily justified by more attention given to product sales. An organization that doesn’t have the requisite talent to lead a human resources department can justify the expense of Human resource outsourcing by the confidence in the level of competency Human resource outsourcing companies offer.

A well-designed human resource outsourcing strategy can allow organizations to focus on their core competencies in order to increase efficiency without having to invest in people and technology (King, 2007; Lau & Zhang, 2006). Additionally, this production strategy permits organizations to become increasingly profitable, and better able to service both local and international customers (Maidment, 2003). An example of this is Nike Inc. which outsources nearly 100 per cent of its shoe production, locally manufacturing only key components of the “Nike Air” product. As a consequence of this outsourcing, Nike Inc. can focus solely on its core competencies, such as production design, marketing, distribution and sales (Entrekin & Court, 2001).

1.2 Statement of the Problem

In recent years, organizations have outsourced an expanding variety of activities including human resource functions in an attempt to improve service and product quality, reduce production cycle times, lower costs, increase their focus on core competencies, and, in general, enhance organizational performance. organizations appear to be focusing on a relatively narrow set of functions and are contracting with outside suppliers to perform the others.
Despite the trend toward Human resource outsourcing, evidence of its performance effects is scarce. Appealing arguments have made the case both for and against outsourcing as a means of achieving long-run competitive advantage.

On the one hand, by outsourcing human resource management tasks to specialist organizations, organizations may better focus on their most value-creating activities, thereby maximizing the potential effectiveness of those activities. In addition, as outsourcing increases, costs may decline, and investment in facilities, equipment, and manpower can be reduced). On the other hand, anecdotal evidence suggests that increased reliance on outsourcing may lead to reduced innovation (Kotabe, 1992), eventual competition from outsourcing partners (Bettis et al., 1992), and reductions in control of the task in question. Thus, the performance effects of outsourcing are uncertain. However, the researcher is examining the impact of outsourcing human resource functions on organizational performance at Stanbic IBTC Bank Plc.

1.3 Objectives of the Study

The following are the objectives of this study:

  1. To examine the impact of outsourcing human resource functions on organizational performance at Stanbic IBTC Bank Plc.
  2. To identify the benefits derived in outsourcing human resource functions at Stanbic IBTC Bank Plc.
  3. To ascertain the relationship between Human resource outsourcing and organizational performance.

1.4 Research Questions

What is the impact of outsourcing human resource functions on organizational performance at Stanbic IBTC Bank Plc? What are the benefits derived in outsourcing human resource functions at Stanbic IBTC Bank Plc? What is the relationship between Human resource outsourcing and organizational performance?

1.5 Hypothesis

  • HO: There is no significant relationship between outsourcing human resource functions and organizational performance at Stanbic IBTC Bank Plc
  • HA: There is significant relationship between outsourcing human resource functions and organizational performance at Stanbic IBTC Bank Plc

1.6 Significance of the Study

The following are the significance of this study:

The findings from this study will be useful to the management of Stanbic IBTC Bank Plc and all other corporate organizations in Nigeria on how they can use Human resource outsourcing as a tool for organizational performance and effectiveness.

This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.7 Scope / Limitations of the Study

This study on the impact of outsourcing human resource functions on organizational performance at Stanbic IBTC Bank Plc will cover Human resource outsourcing approaches at Stanbic IBTC Bank Plc with a view of identifying its effect on organizational performance and effectiveness.

Limitation of Study
Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  • Chapter one is concern with the introduction, which consist of the (background of the study), statement of the problem, objectives of the study, research questions, research hypotheses, significance of the study, scope of the study etc.
  • Chapter two being the review of the related literature presents the theoretical framework, conceptual framework and other areas concerning the subject matter.
  • Chapter three is a research methodology covers deals on the research design and methods adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to evaluate the impact of outsourcing on employee’s engagement.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of outsourcing human resource functions and performance in Stanbic IBTC bank Plc.

5.2 Summary

Given that “the quality of the workforce is the key to customer satisfaction” consideration of the impact of outsourcing onhuman resource functionis vital to the success of the change effort. Walsh and Deery (2006) succinctly highlighted “customers’ perceptions of service quality are critically affected by the organizational commitment of employees. Moreover, high turnover rates of employees have been found to have a negative impact on customer sales in various service settings”. If subcontracting leads to less committed employees and an increasingly unstable workforce, it will likely affect the quality of service provided and require firms to recalculate the net benefits of outsourcing. Outsourcing provides great benefits when implemented effectively, yet also exposes a host of risks to personnel and therefore the organization as a whole. To combat the risks of trust, job satisfaction, motivation, and stress, companies contemplating outsourcing must adhere to open communication with staff, ensure that decisions are made ethically, seek out the employee perspective and provide appropriate support in response, and outline a detailed and comprehensive plan that gives thought to each phase of the process. Future research questions around outsourcing strategies are countless. In terms of addressing employee well-being and functionality, given the increasing challenge and variety of potential complications, firms that use outsourcing might benefit from implementing a unique department that is devoted to providing outsourcing management expertise (Barthélemy, 2003). Outsourcing is on its way toward becoming a unique field with distinctive issues. Developing field-specific expertise of all aspects of outsourcing benefits, challenges, and best practices will be increasingly valuable given the vast array of common pitfalls. Many firms are unknowingly operating under experimental conditions without privilege to the existing research around outsourcing best practices. Ideally, as outsourcing continues to grow, the risks and issues associated will become more commonly acknowledged.

5.3 Conclusion

Thestudy assess the benefits and challenges facing outsourcing in the industry. The study found that majority of Nigerian commercial banks outsource various services including cleaning security, information, system, recruitment, ATM, consultancy, maintenance, internet banking, card processing and human resource. Similarly, the study also established that banks outsource in order to reduce cost efficiency, for technical considerations, increase productivity performance and need to focus on core activities. Thus, the commercial banks aimed at meeting changing customer needs, making better use of time and energy costs, redirecting or conserving energy directed at the competencies of the banks service, or tomake more efficient use of labour, capital, technology and human resources. The study also found that the benefits that have resulted from outsourcing in the banks include improvement in service delivery, improved efficiency, meeting the set target, effective decision making, growth of the banks increased customer base, freeing up resources to other areas, helps to avoid union challenges, helps to increase expertise and professionalism and leads to better administration. The study also revealed the challenges facing outsourcing in Nigerian banking industry include financial risk lack of compliance with the contract opposition from internal staff, failure to adhere to quality system poor planning, dilution of control among other. The study concluded that when outsourcing is applied judiciously it could contribute to the improvement of the banking industry performance.

5.4 Recommendation

Outsourcing is an emerging process in the Nigeria banking industry. Therefore, Nigerian commercial banks need to pass through a learning phase before outsourcing is recognized as an efficient management and regulatory tool. Thus banking industry needs time before the capacities of managers and providers are adequately developed and streamlined. Outsourcing is complex and cannot be the solutions for all problems of the bank, services, not everything can or should be outsourced. When outsourcing is applied judiciously, it could contribute to this improvement of the bank services. It is also vital for the continued successes of the banks and its services to regularly review and update its outsourcing process. The management team should be actively involved in the supplier’s selection and management of the suppliers. Strategically managed organizational do not outsource because they want to down size. Therefore, for outsourcing to be successful, the outsourcing decisions needs to be informed decisions. It is also very important for the Nigerian banking industry to have a dedicated outsourcing unit for ensuring that the organizations outsourcing policy is applied consistently. Finally, bank managers must know that the successful outsourcing requires a shift in their mindset, which means that they must manage their contractors and workers in order to improve on efficient service delivery.

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