Effect of Outsourcing Strategy on Organizational Performance: A Study of Equator Bottlers, Kisumu.

Abstract

As a component to the growing division of labor worldwide, outsourcing has been a growing aspect of supply chain management and is receiving a lot of attention from companies globally. It usually involves contractual agreements between two or more organizations involving an exchange of services and payments. Despite the significant growth of the outsourcing concept, not all organizations embarking on outsourcing achieve their intended performance result. The purpose of this study was to determine the effect of outsourcing strategy on organizational performance with specific reference to equator bottlers, Kisumu. Specifically the study sought to establish the activities outsourced by Equator Bottlers, determine the benefits of outsourcing to Equator bottlers, and identify the challenges encountered by Equator Bottlers in carrying out outsourcing. The relationships of the variables of the study were set on a conceptual framework that depicts the interrelationship between the variables in an environment of other intervening variables. The target population was 180 respondents with a sample size of 124 representing 69% of the total target respondents drawn from the top management, the procurement department and the user I departments. Structured questionnaires and interviews used to obtain primary data while secondary data sourced from business magazines, internet sources, newspapers and textbooks. The data was analyzed using descriptive statistics. Using Correlation analysis, a relationship between the variables under study was drawn. The findings were presented in form of tables and charts. From the study findings it was revealed that human resource services is the most commonly outsourced activity by Equator Bottlers in Kisumu with a highest percentage response of 37(29.8%), followed by advertising and sales promotion 33(26.6%), then transport services 25(20.2%) and finally cleaning services 9(7.3%).The' findings also indicated that outsourcing enables the company to focus on its core competencies as the greatest benefit identified by the respondents with the highest response rate of 38(30.6%).It was also discovered that the major challenge to outsourcing in this company is the risk of losing vital information to its competitors with a response rate of 44(35.5%). The correlation analysis between outsourcing and performance indicators revealed that correlation between advertising/sales promotion and improved competitive advantage, increased productivity and improved quality is positive and significant with coefficients of 0.764, 0.353 and 0.304 respectively. The study revealed that the correlation coefficients between outsourcing and various indicators of performance were significantly positive but varied and the strongest correlation was between advertising and sales promotion and improved competitive advantage with correlation of 0.764, p<O.Ol at 2 tailed significance level. The study will help organizations to know under which situations to outsource, benefits of outsourcing and the steps to take in order to achieve competitive advantage. It recommends that Equator bottling company should invest more on expert outsourcing as this will influence positively on performance.