The Effects of Outsourcing Strategies on Organization Performance

ABSTRACT

This project focused on the effects of outsourcing strategies on organization performance with special reference to Nigeria Breweries Plc. The importance of outsourcing strategies in organizations cannot be overemphasized, hence the need for this research work. The objective of this study were to examine the relationship between outsourcing and organizaiton performance and to asses uses of outsourcing by organizaiton to gain competitive advantage  over its competitors. Based on these objectives, data were sourced through the use of survey research method and data was collected from a sample size of 99 respondents which was arrived at through the use of quantitative method. The study found out that outsourcing strategy help organizations to cut cost, increase profitability and productivity which in turn leads to higher organizaitonal performance. Therefore, it was recommended that organizations should embrace the outsourcing strategies and improve service delivery to their customers. Also, organizations should continue to monitor the contractor’s activities and establish constant communication.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In today’s dynamic and highly competitive business environment, organizations continually face pressure to improve operational efficiency, minimize costs, and enhance overall performance. Companies must adopt strategies that not only optimize internal processes but also allow them to respond effectively to market demands. One such strategy that has gained significant attention over the past few decades is outsourcing. Outsourcing allows organizations to delegate specific business processes or services to third-party providers rather than managing them internally. By doing so, organizations can focus on their core competencies while leveraging the specialized skills and resources of external experts (Quinn & Hilmer, 1994).

Outsourcing has evolved beyond merely a cost-cutting mechanism to become a strategic tool that organizations use to gain competitive advantage. Firms across various sectors now outsource functions ranging from human resources, IT services, logistics, and procurement, to marketing and customer support. The primary goal of outsourcing is to achieve operational excellence, reduce non-core workload, and improve the quality of services delivered to customers. By relying on external providers, organizations can access cutting-edge technologies, skilled personnel, and innovative solutions that may not be feasible to maintain in-house (Lacity & Willcocks, 1998).

On a global scale, outsourcing has proven to be a vital strategy for organizations seeking flexibility and efficiency. Research indicates that companies that effectively implement outsourcing strategies can achieve significant cost savings, increased productivity, and higher profitability (Jensen & Pedersen, 2010). Multinational corporations and large enterprises in developed economies have long recognized the benefits of outsourcing in streamlining operations and reallocating resources to strategic areas. For example, outsourcing IT services enables organizations to maintain advanced technological capabilities without incurring substantial infrastructure costs.

In the Nigerian context, outsourcing is gaining increasing prominence across industries such as manufacturing, banking, telecommunications, and service sectors. Nigerian firms face challenges such as rising operational costs, stiff competition, and limited resources, making outsourcing an attractive strategy. Nigeria Breweries Plc, being a leading player in the beverage industry, provides an insightful case for studying outsourcing practices. The company relies on outsourcing for various critical functions, including logistics management, IT support, supply chain operations, and human resource management. These outsourced functions enable the firm to maintain efficiency while concentrating on product development, marketing, and customer engagement.

Despite the advantages, outsourcing is not without risks and challenges. Dependence on external contractors can reduce the organization’s control over critical business processes, potentially affecting service quality and consistency. Additionally, misalignment between the organization and its service providers may lead to conflicts, delays, and operational inefficiencies (Gilley & Rasheed, 2000). Organizations must therefore establish robust monitoring systems, clear communication channels, and strategic partnerships to mitigate these risks and ensure that outsourcing contributes positively to overall performance.

Given the increasing reliance on outsourcing, it becomes essential to understand its impact on organizational performance. This study aims to explore the effects of outsourcing strategies on performance outcomes such as cost reduction, productivity improvement, profitability, and service quality within Nigeria Breweries Plc. By examining these effects, the research provides insights into the strategic value of outsourcing in enhancing competitiveness and achieving organizational goals. Understanding these dynamics will not only guide management decisions but also inform policy and best practices for other firms seeking to optimize outsourcing strategies in Nigeria and beyond.

1.2 Statement of the Problem

In today’s business environment, organizations face increasing pressure to remain competitive while simultaneously minimizing operational costs and maintaining high standards of service delivery. Market dynamics, technological advancements, and customer expectations have heightened the need for firms to operate efficiently and strategically. To address these challenges, many organizations have turned to outsourcing as a mechanism to reduce costs, improve productivity, and focus on core business functions. However, the success of outsourcing depends heavily on effective planning, management, and alignment with organizational objectives.

Despite the growing adoption of outsourcing, many organizations struggle to fully reap its potential benefits. One major issue is poor contractor management, where external service providers may fail to meet agreed-upon performance standards. Without proper oversight and accountability, organizations risk service delays, quality lapses, and operational inefficiencies. Additionally, a lack of strategic alignment between the outsourcing initiative and the organization’s overall goals often results in wasted resources and missed opportunities for performance improvement.

Another challenge is insufficient monitoring and evaluation of outsourced functions. Organizations that do not regularly assess contractor performance or establish clear communication channels may experience discrepancies in expected outcomes. This can negatively impact productivity, cost efficiency, and overall organizational effectiveness. In some cases, over-reliance on third-party providers may also weaken internal capabilities, making it difficult for the organization to maintain control over critical processes.

In the Nigerian context, particularly within the manufacturing sector, there is a limited body of empirical research examining the direct impact of outsourcing on organizational performance. While several studies have explored outsourcing in developed economies, the unique challenges and operational realities in Nigeria—such as infrastructural limitations, labor issues, and regulatory environments—necessitate context-specific research. Understanding how outsourcing influences performance outcomes in Nigerian organizations is therefore crucial for both management and policymakers.

Given these gaps, this study seeks to investigate the effects of outsourcing strategies on the performance of Nigeria Breweries Plc. By examining areas such as cost reduction, productivity improvement, profitability, and service quality, the research aims to provide actionable insights into how outsourcing can be effectively implemented to enhance organizational performance. The findings will not only guide management decisions but also offer lessons for other organizations seeking to optimize outsourcing strategies in Nigeria.

1.3 Objectives of the Study

The main objective of this study is to assess the effects of outsourcing strategies on organizational performance. The specific objectives are:

1. To examine the relationship between outsourcing strategies and organizational performance in terms of productivity, cost reduction, and profitability.
2. To assess the extent to which organizations use outsourcing as a strategy to gain competitive advantage over rivals.
3. To identify the challenges and risks associated with outsourcing, including contractor management, service quality, and operational control.
4. To evaluate the effectiveness of monitoring and communication mechanisms in ensuring that outsourcing contributes positively to organizational goals.

1.4 Research Questions

To guide this study, the following research questions are formulated:

1. What is the relationship between outsourcing strategies and organizational performance in Nigeria Breweries Plc?
2. To what extent does Nigeria Breweries Plc use outsourcing to gain competitive advantage?
3. What are the major challenges and risks associated with outsourcing in organizational operations?
4. How effective are the monitoring and communication mechanisms in ensuring outsourcing positively impacts organizational performance?

1.5 Research Hypothesis

The study formulated the following hypothesis for testing:

H₀: Outsourcing strategies have no significant effect on organizational performance of Nigeria Breweries Plc.

H₁: Outsourcing strategies have a significant effect on organizational performance of Nigeria Breweries Plc.

1.6 Significance of the Study

The significance of this study lies in its potential contributions to a variety of stakeholders, including organizations, employees, researchers, and policymakers. For organizations, the findings of this study will provide valuable insights into the benefits and challenges associated with outsourcing strategies. By understanding how outsourcing can enhance productivity, reduce operational costs, and improve overall performance, management can make informed strategic decisions that align outsourcing practices with organizational goals. This will ultimately support the development of more efficient and competitive business operations.

For employees, the study offers clarity on how outsourcing impacts job roles, responsibilities, and career development within organizations. While outsourcing may lead to a redistribution of tasks or changes in workforce structure, it can also open opportunities for skill development and specialization. By examining these effects, the study helps employees understand the broader implications of outsourcing on their work environment, job security, and professional growth.

Researchers and academics stand to benefit from this study by gaining access to empirical data on outsourcing practices in the Nigerian manufacturing sector, which is currently limited. The findings contribute to the existing body of knowledge on outsourcing strategies, performance outcomes, and operational efficiency. This study provides a foundation for future research, enabling scholars to explore related topics such as outsourcing in different sectors, risk management, and strategic alignment in Nigerian organizations.

The study also holds significance for policy makers who are responsible for shaping regulations and policies that govern business operations in Nigeria. Insights from this research can inform policy decisions regarding outsourcing practices, labor laws, and contractual standards for third-party service providers. Such guidance can help ensure that outsourcing contributes positively to the economy while protecting the interests of organizations and employees.

Furthermore, the study is valuable to industry practitioners and consultants who advise organizations on operational strategies. By identifying the challenges and best practices in outsourcing, the research offers practical recommendations for improving contractor management, monitoring systems, and service delivery. This can enhance the overall effectiveness of outsourcing as a strategic tool within organizations.

Finally, the study contributes to societal knowledge and economic development by highlighting how effective outsourcing can improve organizational performance, productivity, and profitability. Organizations that optimize outsourcing strategies are better positioned to compete in the market, create jobs, and deliver quality goods and services to consumers. Consequently, the study provides insights that can support sustainable business growth and development in Nigeria.

1.7 Scope of the Study

The study focuses on Nigeria Breweries Plc, examining how outsourcing strategies affect its organizational performance. The research covers areas such as cost reduction, productivity, profitability, and service delivery. The study is limited to employees and management staff directly involved with outsourced functions.

1.8 Operational Definition of Terms

• Outsourcing: Contracting out business processes or services to external providers to enhance efficiency and reduce costs.
• Organizational Performance: A measure of how effectively an organization achieves its objectives, including financial performance, productivity, and customer satisfaction.
• Competitive Advantage: The ability of an organization to outperform its rivals through unique resources or strategies.