Business process outsourcing strategy and competitive advantage in commercial banks in Kenya
Mugi, Joseph Karanja
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The purpose of this study was to investigate the effect of business process outsourcing strategy and competitive advantage in commercial banks in Kenya. Specifically, the study sought to fulfill the following objectives: To establish the services outsourced by commercial banks in Kenya; To determine competitive advantages gained by commercial banks in Kenya through engaging in business process outsourcing and; To establish the challenges faced by commercial banks in Kenya in business process outsourcing. This study was justified by the fact that outsourcing has become a vital element of the business strategies of many organizations. Increasingly, organizations have been looking beyond the traditional boundaries of the firm to reduce costs and improve performance. This research problem was studied through the use of a descriptive survey design. The survey was cross sectional in nature since it covered all 43 commercial banks in Kenya. The research employed a census method due to the small size of the population which did not validate sampling. All the 43 commercial banks were included as study subjects. The study used both primary and secondary data. Primary data was collected using semi-structured questionnaires to CEOs. The data and information obtained through the questionnaires was first checked for completeness and consistency and then analyzed based on descriptive statistics. These were then presented using tables, pie charts and bar graphs for easier interpretation. Findings indicate that commercial banking sector has adopted business process outsourcing albeit on a low level. There have been various competitive advantages arising from this practice which include efficiency, better service and focus on core processes. Major challenges from business process outsourcing include information privacy, poor employee morale, and lack of reliability of some service providers. Other major challenges include poor knowledge retention by suppliers which leads to slow learning, hidden costs which become evident after the contract has commenced, information security and privacy issues and high transaction costs which even surpass the costs of providing the costs in-house. Recommendation made include the following. BPO industry requires some policy and regulations to streamline it since it is in its infancy. However, BPO vendors will have to use business rules to expose the key decision-points within their processes whether or not they provide transparency in a more general case. Companies simply have their own way of doing business and even in a standard process there will be variation in decision-making that needs to be imposed by the client on the outsourcer. The industry can also adopt the use of business rules management systems which would allow the outsourcer to expose these decisions to each of their clients while still running a standard, and black-box, process. BPO Best Practices should include choosing a vendor that's leveraging technology effectively and asking for visibility into the vendor's processes and platforms.