Page 1 of 9
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 598
A Study of Outsourcing and Performance of Commercial Banks
in Lagos, Lagos State, Nigeria
Jegede Charles Temitope PhD
Institute for Entrepreneurship and Development Studies, Obafemi Awoloowo University Ile-Ife, Osun
State, Nigeria
Abstract
The study assessed the outsourced services in
Nigerian Commercial Banks. It also examined
reasons for outsourcing business services with
a view to identifying benefits and challenges
facing outsourcing in the commercial banking
industry of Lagos, Lagos State, Nigeria.
The study utilized primary data which were
collected through the use of in-depth
interview. The in-depth interview was
conducted on five staff each of the 10
commercial 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 cleaning,
recruitment and training, security, ATM and
IT Unit and Marketing and Promotion Units
of department/units in the banks. The result
further showed that the identified reasons for
outsourcing business services in banks include
the need to focus on core activities, cost
reduction, technical considerations, increase
productivity and performance.
The study found that outsourcing has been
beneficial in five ways to banking industry
namely: focused on core competence,
reduction in staff head counts/size, curtailing
and preventing industrial disputes, cost
reduction in manager’s burden and meeting
targets. The result also revealed that the
major challenges facing outsourcing include
failure to adhere to quality requirement and
specification dilution control, financial risks,
poor planning, opposition from internal staff
among others.
The study concluded that outsourcing
activities has been beneficial to the overall
bank performance and has greatly improved
service delivery and overall operational
efficiency of banks in Lagos in particular and
Nigeria in general.
Keyword: Business services, Core Areas
Operational Efficiency, Outsourcing,
Performance.
Introduction
Outsourcing has attracted growing interest in
recent years as managers consider whether it is
in their best interest to perform activities in- house or contract out to external body or
bodies. Outsourcing is a process of
replacement of in-house provided activities by
sub-contracting it out to external agents
(Irefin, Olateju and Hammed, 2012). It is also
a system whereby organizations give out some
of its services to outside services providers to
handle on their behalf. Outsourcing of human
resources has come a long way in history and
has continued to be more acceptable in Nigeria
and other developing nations of the world.
In Nigeria, most commercial banks resort to
outsourcing without any regulatory guidelines
as well as evidence of performance
implications of outsourcing. Recent financial
crisis episodes in the Nigerian commercial
banking industry have resulted in several
Page 2 of 9
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 599
empirical issues about its contributing factors
and how to mitigate the adverse effect of such
crisis. Most of these studies concentrated on
issues relating to corporate governance, risk
management, merger and acquisition. There
was little or no sufficient evidence in the
existing literature on the outsourced services,
reasons for outsourcing in the commercial
banking industry in Nigeria. Thus, the study
endeavors to bridge the gap. It is against this
backdrop that this study sets to examine the
outsourcing and performance of commercial
banks in Lagos, Lagos State, Nigeria.
Objectives the study
The general objective of this research is to
explore outsourcing and performance of the
commercial banks in Lagos. The specific
objectives are to:
(i) examine the services outsourced in the
commercial banks of Lagos, Lagos State,
Nigeria.
(ii) identify the reasons for outsourcing
business services in the commercial banks
based in the
state
(iii) assess the benefits of outsourcing; and
(iv) explore the challenges facing
outsourcing in the commercial banking
industry of Lagos,
Lagos State, Nigeria.
Outsourcing: A Conceptual Review of
Literature
Different definitions have been offered by
scholars and researchers across the globe in
explaining the concept of outsourcing.
Adegbami et al. (2012) defined outsourcing as
a contract service agreement in which an
organization hires out all or part of its
operation to an external company. Corbett
(199(9) regarded outsourcing as an approach
through which major but non-core
organization functions are delegated to expert
service provider. For him the works being
outsourced are the non-core activities which
“internal staff” could not render or
organizational works that need specialized
personnel.
Domberger (1998) in his more detailed
definition regarded outsourcing as a strategy
of delegating organizational services or works
to other party under in business agreement that
includes time of service in relation to cost,
quality and the timeliness of providing the
services. To Beaument (2006), outsourcing
can be said to be one sub-type of production to
external entity such as a sub-contractor.
Outsourcing has become an alternative which
all major corporations must consider in order
to remain competitive. It has also helped to
increase efficiency, improve service quality,
accountability, values, decreased head counts
and cash infusion and gain access to world
class capability and sharing risk (The
Outsourcing Institute, 2006).
Therefore, outsourcing in the context of the
study is defined as the process whereby
activities traditionally carried out internally
are contracted out to external body or bodies.
It is therefore the transfer of an activity from
an internal governing body to external
governing body.
Historical Perspective of Outsourcing
Over the last two hundred years, firms have
been organized in almost every way
imaginable organizations have evolved from a
focus on a single activity to vertical integrated
businesses to multi-dimensional business and
how many firms are returning a narrower
focus by outsourcing non-core activities.
However, outsourcing was not formally
identified as a business strategy until 1989
(Mullin, 1996). Most organizations were not
totally self-sufficient; they outsourced those
functions for which they had no competency
Page 3 of 9
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 01 Issue 11
December 2015
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 600
internally. They use of external supplier for
these essential but ancillary services might be
termed stage in the evolution of outsourcing.
The next stage is outsourcing support services.
This is because as organizations began to
focus more on cost-saving measures, they
started to outsource those functions, necessary
to run a company but not related to the core
business. These organizations use outsourcing
to strive for greater efficiencies and cost
reduction (Mclvor, 2005).
The current stage in the evolution of
outsourcing is the development of strategic
partnership. This is because the focus today is
less on ownership but more on developing
strategic partnership to bring about enhance
results. Consequently, organizations are likely
to select out sourcing more on the basis of
who can deliver more effective results for a
specific function than on whether the function
is of core competency. Thus, this trend in
outsourcing is leading developed countries to
outsource into developing economics where
there are lower labour cost and more
favourable employment legislation.
Reasons for Outsourcing
Looking through past research (Prasad and
Prasad, 2007) posited that the drive for greater
efficiencies and cost reductions has forced
many organizations to increasingly specialize
in a limited number of key areas. This has led
organizations to outsource activities
traditionally carried out in-house. Although
the term outsourcing has become popular in
recent years, organizations have always made
decisions about determining their boundaries
(Daniel, 2006).
Across the globe companies are establishing
and executing outsourcing plans in order to
match competitors in their outsourcing
endeavors, improve non-competitive cost
structures, focus on core competencies and
reduce capital investment and overall fixed
costs, achieve cost competitive growth in the
supply base for goods, services and
technologies in a company’s value chain and
establish or future sales footprint in a low-cost
country by outsourcing simple goods or
business processes. These factors are forcing
companies to fully evaluate their outsourcing
models to determine in today’s highly
competitive world (Akingbola, 2012).
Outsourcing Activities and Role of
Performance
Past researches have focused on outsourcing
performance measures (Kotabe et al 1998).
For example they identified three types of
performance measures as necessary
components in any performance measurement
system; strategic measures, financial measures
and quality measures. While other studies use
additional dimensions of market performance
such as cost savings, customer satisfaction and
productivity to measure effectiveness of
outsourcing strategy (Atallah and Li, 2005).
From a different perspective, obstacles such as
poor choices of sourcing partners, inadequate
planning and training needed to manage
outsourcing activities and poor organizational
communication have also been identified as
impacting the success of outsourcing projects
(Maskell, Peterson and Dick-Nielsen, 2007).
The increasing use of outsourcing
arrangements, as well as the unfamiliar
complexity, suggests the need to know more
about how to effectively utilize this strategy.
Consequently, more information is needed to
understand successful outsourcing and
problems encountered in outsourcing activities
and its impact on overall organizational
performance. These areas represent the areas
that companies and demonstrate high
