CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Business environment in today’s world is severely dynamic (Jae, Minh, Kwok and Shih, 2000). Rapidly changing and increasingly complex business issues are creating key shift in organizations and the manner in which they do business (Sev, 2009). One fact is still certain; every organization has its goals; also, the success of an organization is measured by the level at which it attains its goals.
In order to achieve its set goals in the presence of technological advancement, sophistication of business processes, knowledge explosion and need for constant growth, an organization looks out for strategies to enhance performance (Dominguez, 2006). It therefore reflects on the capabilities of its workers (staff ), its technological knowhow, business processes and so on, and answers the question of whether it can achieve its goals with what it already has on ground or look out for ways to complement (Sev, 2009; Isaksson and Lantz, 2015). In struggling to meet the demands of customers and shareholders, an organization may look out for ways that it has a comparative advantage. It therefore focuses on core competences and seeks to reduce operation cost which presents outsourcing as the right strategy (Akewushola and Elegbede, 2013). Outsourcing is one management tool that has gained relevance among managers in addressing today’s business dynamics (Jae, et al. 2000). It entails contracting out of a business function (Jae, et al. 2000; Dominguez, 2006; Isaksson and Lantz, 2015). It is the replacing of in-house provided activities by subcontracting it out to external agents. Consequently, the management and development of innovations in outsourced activities become the responsibility of an agent external to the firm. Outsourcing avails organizations the opportunity to concentrate her core competencies on definable preeminence business area and provides a unique value for customers Dominguez (2006; Gro¨ßler, Laugen, Laugen and Fleury, 2012). Also worthy of note is the fact that present day outsourcing is no more limited to peripheral activities such as cleaning, catering and security. As noted by Jennings (1997) and Dominguez (2006), outsourcing also includes critical areas such as design, manufacturing, marketing, distribution, information system etc. Outside Nigeria, notable companies which have outsourced are among others Kodak Company who subcontracted its computing operations to International Business Machines (IBM); the result of which was higher quality computing system and operation at Kodak for less money than it was spending (Sev 2009). Also as noted by Hill (1997), Boeing as at 1997, was world’s largest manufacturer of commercial jet aircraft with a 60% share of the global market. Despite the large share of the market, Boeing was faced with competitors like Europe’s Airbus industries. The dog fight between the big two resulted to high operating cost which made Boeing to look out for ways to beat down cost. In 1993 Boeing undertook a companywide review of its make or buy decision. In pursuit of this decision, Boeing decided and outsourced certain components to China. Worthy of note is the fact that Boeing avoided outsourcing the production of wings because it believed that doing so might give away valuable technology to potential competitors. In Nigeria, Sev (2009) noted some examples of companies who have outsourced their operations. The examples are Ashaka Cement Plc, which outsourced its operations and services to Blue Circle industries of United Kingdom; Dangote Cement, Gboko (Benue) plant which acquired the expertise of Pakistani who have managerial know-how and expertise to give quality services and operations. Notable also is in the banking sector. Several Nigerian Mega banking groups have outsourced their operations and services to “Experts” to enhance global competition in the international financial markets. The United Bank for Africa (UBA) plc, Access Bank plc, and other universal banks in Nigeria outsourced Automated Teller Machines (ATM) to a company called interswitch. Similarly, most banks’ recruitment exercises are being outsourced to other human resource companies like Dragnet and Philips consulting.
All the organizations identified so far are by all standards, big organizations. It is therefore pertinent to submit here that, all forms of organizations engage in one form of outsourcing or another regardless of their size (whether small or large) (Isaksson & Lantz, 2015). Be it manufacturing, services, information technology, management services, product engineering, and research process or marketing services (Suraju & Hamed, 2013). It is usual sight to see SMEs collect contracts from their customers and rather than do it themselves turn out to subcontract them to other organizations, either small or big to execute them for them. Instances of such outsourcing in Nigeria can be seen in the outsourcing of security services from security outfits by some hotels that focus on rendering hotelier services which is their core operation. Also, a pilot study conducted revealed that, most SMEs outsource their major accounting operations to external accounting firms instead of employing accountants. They most at times have one or few accountants whose job is to record transactions and then acquire the services of external accountants who do the computation and preparation of sophisticated accounts and also audit their operations. Other areas of outsourcing by SMEs as noted by Isaksson and Lantz, (2015) and Akewushola and Elegbede, (2013) are training of staff, advertising and other supporting activities. The reasons for outsourcing over the years are seen as to pave way for an organization’s concentration on their core competencies thereby experiencing effectiveness and efficiency through cost savings, reduced capital investment within the firm, improved responsiveness to changes in the business environment, increased competition among suppliers ensuring higher quality goods and services in the future, reduced risk of changing technology, among others (Jae, et al. 2000; Dominguez, 2006; Sev, 2009; Isaksson and Lantz, 2015). In line with the above established merits of outsourcing, several organizations (some of which are noted above) have ventured into outsourcing. However, as noted by Sev (2009), despite the outsourcing they have been carrying out over the years, some organizations still suffer in terms of their goal achievement; some have experienced low productivity both in terms of quality and quantity, their profitability has not been stable, and their capacities are grossly underutilized.
The Fast Food industry in Nigeria today is a beehive of activities and is gaining a lot of attention both within and outside the country. Industry trends such as rapid outlet expansion, strategic alliances (especially with companies in downstream sector of the oil and gas industry), and entrant of foreign players amongst others lends credence to these assertions. There exist in every economy, (whether developed, developing or less), various type of industries; manufacturing, service, food and beverage, textile and chemical. These industries compete among themselves for resources, infrastructure, market share and relevance, for successful competition, companies use creative and innovative weapons to compete favourably for profit maximization. However the concept of outsourcing has not received a lot of attention as considered to be important elements that account for the growth and remarkable performance of the fast foods industry in Nigeria. Also the effects of outsourcing on firms’ performance are not completely clear. Previous outsourcing studies show contradictory results; while some claim a positive relationship between outsourcing and performance outcomes, others report no significant or even negative effects (Rothaermel and Deeds, 2001). Outsourcing without proper management control could sometimes result in job losses, According to Ghodeswar and Vaidyanathan (2008), a large number of employees whose organizations outsource their business activities may have similar problems to those employees that have undergone downsizing, while organizations claim that the basis for outsourcing is to increase business efficiency. however employees who are lucky to remain in the company after outsourcing effects believe that the possibilities of them staying in the company is low, because they could be the next in line to lose their jobs. Hammer (2001) posits that in situations where the outsourcer is not satisfied with the service, it could be difficult to break the contract because outsourcing contracts usually require a stipulated period. It will be costly to reverse the situation and return the services inhouse. Nevertheless, extant literatures and observed online interviews of business executives have shown that the positive outcome of outsourcing as a platform for reducing cost of production and for increasing the profit of firms. However, limited study have been able to link it with returns on marketing investment. Return on marketing investment (ROMI) is the contribution attributable to marketing (net of marketing spending), divided by the marketing 'invested' or risked. ROMI is a relatively new metric. It is not like the other 'return-oninvestment' metrics because marketing is not the same kind of investment. Instead of fund being 'tied' up in plants and inventories, marketing funds are typically 'risked.' Marketing spending is typically expensed in the current period. The idea of measuring the market’s response in terms of sales and profits is not new, but terms such as ROMI are now being used more frequently than in past periods.
1.2. STATEMENT OF THE GENERAL PROBLEM
the poor method of outsourcing by business in Nigeria overtime has been very unfortunate, this has led to the poor survival of business and thus the high level of job loss in recent time which has by extension negatively affected economic growth and development which is the prerogative of any people oriented government. the fast food industry being a new industry in Nigeria has had its fair share poor outsourcing strategies which has led to most these industries not being able to maintain good performance thus helping to create jobs in Nigeria.
1.3. AIMS AND OBJECTIVES OF THE STUDY
The major aim of the study is to examine the effect of outsourcing strategies on the organizational performance of fast food industries. Other objectives of the study include;
1. To examine the major types of outsourcing strategies in the Nigerian fast food industries.
2. To determine if these strategies have been adegqautely implemented to ensure growth and performance.
3. To determine the relationship between outsourcing strategies and organizational performance in Nigerian fast food industries.
4. To examine the major challenges to an executing an effective outsourcing strategy in the Nigerian fast food industry.
5. To recommend ways of ensuring the application of effective outsourcing strategies for the fast food industry in Nigeria.
1.4. RESEARCH QUESTIONS
1. What are the major types of outsourcing strategies in the Nigerian fast food industries?
2. Do these strategies have been adequately implemented to ensure growth and performance?
3. What is the relationship between outsourcing strategies and organizational performance in Nigerian fast food industries?
4. What are the major challenges to an executing an effective outsourcing strategy in the Nigerian fast food industry?
5. What are the ways of ensuring the application of effective outsourcing strategies for the fast food industry in Nigeria?
1.5. RESEARCH HYPOTHESIS
H0: There is no significant effect of outsourcing strategies on organizational performance in the fast food industry.
H1: There is a significant effect of outsourcing strategies on organizational performance in the fast food industry.
H0: There is no significant relationship between outsourcing strategies and organizational performance in the fast food industry.
H1: There is a significant relationship between outsourcing strategies and organizational performance in the fast food industry.
1.6. SIGNIFICANCE OF THE STUDY
The study would be of immense importance towards the development of the fast food industry so as to ensure the viability of this industry with the sole aim of creating more jobs for the teeming unemployed/under employed youths in the country. This study will also be beneficial to students, researchers and scholars who are interested in developing further studies on the subject matter by serving as a source of relevant literature.
1.7. SCOPE AND LIMITATION OF THE STUDY
This study is on the effect of outsourcing strategies on the organizational performance of fast food industries in Lagos state Nigeria.
LIMITATION OF THE 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.
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