Impact of outsourcing practices on performance of commercials banks in Kenya
This paper examines the impact of outsourcing practices on performances of commercial banks in Kenya. According to Barako and Gatere, 2008, there is a significant rise in outsourcing (around 50%) in Kenyan banking sector. This is attributed to perceived benefits expected to accrue to a firm from outsourcing and hence enable banks to improve their performance. Shareholders of banks expect good returns in terms of return on assets (ROA), return on equity (ROE) and return on investment (ROI) among other performance indicators. However there are inherent risks that accompany outsourcing practices which if not adequately checked will negatively impact on banks' performance. Thus the level of risk management practices employed by banks will inevitably determine the degree of success or failure of outsourcing ventures. Outsourcing is a widely used business practice for organizations that are in an effort to improve firm performance and add firm value. Empirical studies show that IT outsourcing has very limited positive impact on firm performance. However, there is to date no research done in Kenya that has exclusively focused on outsourcing impact on firm performance in the banking industry, which is one of the most technology-intensive industries. This paper attempts to fill this gap and the survey method covered 16 commercial banks which represent 43 ofthem currently in operation in Kenya. Results obtained from primary and secondary sources indicated positive performance results. The research results suggest that the perceived benefits outweigh perceived failures and hence outsourcing is viewed to have enhanced banks' performance. However, as a suggestion to future research, a more sophisticated performance measurement system ought to be used.