Business Process Outsourcing And Organisational Performance Of Commercial Banks In Kenya

ABSTRACT

The overarching objective of any going-concern business entity is performance sustainability. However, performance sustainability challenges continue to persist in the banking industry despite appropriation of different performance management strategies. This challenge obtains in commercial banks in Kenya as evidenced by the recent assumption of cost rationalisation measures, increasing volumes of non-performing loans, acquisitions, liquidation, and statutory management of some banks due to liquidity problems. Thus, this study sought to establish the efficacy of business process outsourcing strategy in addressing performance challenges of commercial banks. Specifically, the study sought to establish the effect of outsourcing information technology, human resource management, marketing, and security processes on performance of commercial banks in Kenya; the mediating effect of competitive advantage and the moderating effect of organisational characteristics on the relationship between BPO and performance of commercial banks. The philosophical foundation of the study was positivism. The study employed descriptive and explanatory research designs and was longitudinal in nature. The target population was thirty two commercial banks. Four managers from each commercial bank at the headquarters (Information Technology, Human Resource Management, Marketing and Operations departments) were targeted thus yielding a sample size of one hundred and twenty eight respondents. Primary data were collected using selfadministered questionnaires based on the 5-point Likert scale. Descriptive statistics were computed to describe the characteristics of the study variables while multiple linear regression analysis was used to establish the nature and magnitude of the relationships between the independent and dependent variables. All statistical tests were subjected to 95 per cent level of significance (p=≤0.05). The study established that outsourcing information technology, human resource management, marketing, and security processes, all had statistically significant positive effect on performance of commercial banks in Kenya. Competitive advantage was found to fully mediate the relationship between BPO and bank performance while bank size was found to moderate the relationship between BPO and bank performance. Owing to the empirical findings, commercial banks in Kenya should wholly embrace BPO as an effective performance management strategy and widen the bracket of the range of businesses processes to be outsourced. Extant literature shows that most commercial banks mainly outsource noncritical non-core business processes. Positive results of this study that focused mainly on critical non-core business processes should motivate and give more confidence to the top management in outsourcing more critical processes and gradually core business processes as is the case in developed countries. Management of commercial banks should give more attention to outsourcing of marketing processes as well as software development as they were highly correlated with bank performance. Whereas, outsourcing training was highly supported by respondents, outsourcing recruitment and performance management were not. Therefore, vendors should exercise due diligence in understanding specific requirements for different industries. Commercial banks should be more creative in managing their security processes as their outsourcing was the least correlated with performance. With the modern trend of housing banking halls under the same roof with other business entities especially in shopping malls, managing physical security can be collaboratively done in order to save on costs. The study findings are instrumental in informing the Central Bank of Kenya decisions when reviewing policies relating to business process outsourcing in commercial banks.