Business Process Outsourcing Strategies and Competitive Advantage of Commercial Banks in Kenya

Abstract

Business process outsourcing proved to be an important instrument in an organization’s business strategies. There has been gradual growth in the financial sector in as far as BPO is concerned and the growth has mainly been witnessed in terms of nature and scope of activities outsourced with a focus to survive in today’s business environment. Despite, financial institutions using outsourcing to drive efficiency, deliver compliance, reduce costs, standardize processes, automate processes and transform fixed costs to variable costs, commercial banks still face substantial challenges in evaluation of outsourcing process suitability. This study sought to answer the question of the aspect of how business process outsourcing strategy provides competitive advantage to commercial banks in Kenya. The study adopted descriptive survey design. The survey was cross-sectional in nature since it covered all the 42 commercial banks which were in operation in Kenya as at 31st December 2016. The collection of primary data was done by use of a semi-structured questionnaire while that of secondary data was from financial statements of all the commercial banks under study as at December 2016. The data was analyzed descriptively. The findings produced conflicting results where test of individual strategies on competitive advantage provided a positive and significant effect, while estimations of joint effect indicated that only software development and benefit administration were statistically significant towards competitive advantage of commercial banks in Kenya. However, logistics and distribution, research and development, human resource, and contact centers seem not to have significant effect on competitive advantage of commercial banks in Kenya. The study revealed that business process outsourcing affected competitive advantage of commercial banks in Kenya positively. The study recommends that there is need for top level management to make diligent decisions on business process outsourcing as a strategy for gaining competitive advantage. Furthermore, the banking industry in Kenya should adopt viable practices of business outsourcing where possible in a bid to improve on their service delivery and ensure quality.