Business Process Outsourcing, Operational Efficiency, Firm Characteristics and Performance of Oil and Gas Distribution Firms in Kenya

Abstract

Business process outsourcing (BPO) has become a universal business concept that has enabled firms to successfully engage with the dynamics of the competitive environment through formulating and implementing strategies to improve firm performance. The main objective of the study was to determine the influence of operational efficiency and firm characteristics on the relationship between business process outsourcing and performance of oil and gas distribution firms in Kenya. This study was premised on the Theory of Constraints that argues by applying the right framework, a firm may eliminate constrains that limit high performance, improve production timelines, enhance flexibility, increase customer satisfaction and reduce unnecessary costs. The study applied cross sectional descriptive survey research design. All the oil and gas distribution firms in Kenya that are registered with the Energy Regulatory Commission formed the study population. Primary data was collected through a structured questionnaire. Cronbach’s Alpha was used to test for the reliability of data while content validity and construct validity tested the validity of data. Analysis techniques used included descriptive and inferential statistics. Descriptive statistics such as frequency distribution, mean, standard deviation and coefficient of variation were computed to describe the characteristics of the variables of interest. Inferential statistics was also used to test the nature and magnitude of the relationship between the variables and conclusions drawn. Simple, Path, Hierarchical and Multiple regressions were used to test the four hypotheses. The study established that business process outsourcing has a statistical significant influence on firm performance of oil and gas distribution firms in Kenya. The findings provided satisfactory statistical evidence indicating that operational efficiency has a full mediating influence on the relationship between business process outsourcing and firm performance of oil and gas distribution firms in Kenya. It was further revealed that firm characteristics have a significant moderating influence on the relationship between business process outsourcing and firm performance of oil and gas distribution firms in Kenya. Finally, the study revealed that business process outsourcing, operational efficiency and firm characteristics had a significant joint influence on firm performance. The study recommended an interactive model where all the variables; business process outsourcing, operational efficiency and firm characteristics can be considered across the oil and gas distribution firms to foster performance since the joint effect was found to be more significant than their individual effect on performance. This study has contributed to theory development by confirming the postulations of the Theory of Constraints and the Dynamic Capabilities Theory which state that operational efficiency contributes more to performance by supporting the business process outsourcing dimensions. The study contributed to policy by better understanding the benefits to clients and service providers in joint strategic outsourcing partnerships. The study had some limitations mainly caused by the scope of work as respondents consisted of only the executive management team excluding the other categories of staff. Organizational hierarchy sampling would have provided a more inclusive population sample. Future research efforts should extend the scope of this study by including important contextual variables such as, the external environment (politics, competition), and/or strategy to the research framework and also focus on firms outside the oil and gas distribution firms, and across other sizes of firms in order to determine whether the conclusions reached in this study are applicable in the context of other areas of Kenya’s business sectors.