Maritim Project

8/2/2019 Maritim Project

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IMPACT OF OUTSOURCING ON ORGANIZATIONAL

PERFORMANCE

A CASE STUDY OF MATER HOSPITAL, NAIROBI.

BY

KIPTOO MARITIM BERNARD

REG. NO: BBM/2609/11

RESEARCH PROPOSAL SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF

THE DEGREE OF BACHELOR OF BUSINESS MANAGEMENT

OF THE SCHOOL OF BUSINESS MANAGEMENT AND

ECONOMICS

MOI UNIVERSITY


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DECEMBER, 2011

DECLARATION

I declare that this is my original work and to the best of my knowledge, has not been submitted to

any other institution or University for the purpose of examination.

Signature .. Date_

KIPTOO MARITIM BERNARD (BBM/2609/11)

The project proposal has been submitted for examination with approval as University supervisor.

Signature .. Date_

WELDON NGENO

LECTURER

MOI UNIVERSITY


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DEDICATION

This work is dedicated to all organizations which perceive outsourcing as one of their strategies

that will lead to improvement in the organizational performance. I hope this research will inspire

the Government, planners, Outsourcers and implementers of outsourcing to facilitate the dream of

Kenya becoming an outsourcing hub by the year 2030

ABSTRACT

The aim of this paper is to assess the effects of outsourcing on performance of organizations.

Outsourcing is a strategic use of outside resources to perform activities that are usually handled by

internal staff and resources. By using a well managed outsourcing agreement, can gain in

markets that would otherwise have been uneconomical. This study was designed to explore the

impact outsourcing has on organizational performance. The results show that organizations

benefits from outsourcing strategies if they identify their outsourcers wisely.

The target population for the study was 60 employees. The questions tried to find out the extent to which

outsourcing led to financial performance improvement, the impact did outsourcing revenue cycle

functions have on the hospital employees, extent has outsourcing improved patient service and

satisfaction and extent has outsourcing benefited the wider community.


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The instruments for data collection were questionnaires and interview schedule. The questionnaire was

administered to the employees. This was a useful tool that enabled the researcher to receive responses on

same questions from many respondents. Descriptive statistics was used to summarize data into

frequencies and percentages. The data findings revealed that outsourcing has an impact on the

performance of organizations.

Table of Contents

1.1 Back ground to the problem...........................................................................................................1

1.2 Mater hospital.................................................................................................................................2

1.3 Statement of the problem................................................................................................................3

1.4 Research Questions.........................................................................................................................4

1.5 Significance of the Study................................................................................................................5

1.6 Scope...............................................................................................................................................6

2.1 Introduction.....................................................................................................................................2

2.2 Determinants of outsourcing..........................................................................................................3

2.3 Types of outsourcing......................................................................................................................4

2.3.1 Total Outsourcing........................................................................................................................5

2.3.2 Multiple suppliers outsourcing....................................................................................................6

2.3.3 Joint venture/strategic alliance outsourcing................................................................................2

2.3.4 In sourcing...................................................................................................................................3

2.3 Theories of outsourcing..................................................................................................................4

2.3.1 Transaction cost theory................................................................................................................5

2.3.2 The Agency Theory.....................................................................................................................6

2.3.3 Resource-based theory.................................................................................................................1

2.3.4 Resource-dependent theory.........................................................................................................2

2.3.5 Game theory.................................................................................................................................3

3.1 Introduction.....................................................................................................................................4


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3.1 Research Design.............................................................................................................................5

3.2 Target Population............................................................................................................................6

3.3 Description of the Sample and Sampling Procedures....................................................................1

3.4 Description of Data Collection Procedures....................................................................................2

3.4.1 Questionnaire..............................................................................................................................3

3.5 Description of Data Analysis Procedures......................................................................................4

4.1. Introduction....................................................................................................................................5

4.2 Presentation of finding....................................................................................................................6

4.2.1 Respondents Background Information......................................................................................1

4.2.2. Opinion of employees on the decision to outsource..................................................................2

4.2.3 The extent to which outsourcing has lead to improved financial performance..........................3

4.2.4 The impact outsourcing revenue cycle functions had on the hospital employees......................4

4.2.5 Employees comment on the reaction of the staff union on the outsourcing decision................5

4.2.6 The extent to which outsourcing has improved patient service and satisfaction.......................6

4.2.7 Comments on the overall perception of the patients towards the service delivery

of the hospital...............................................................................................................................1

4.3 The extent to which outsourcing has benefited the wider community..........................................4

4.3.1 How does the community in general perceive the Hospitals decision to outsource?.................5

5.0 Summary, conclusions and recommendation.................................................................................6

5.1 Summary.........................................................................................................................................6

5.2 Conclusions.....................................................................................................................................6

5.3 Recommendations...........................................................................................................................6

5.4 Suggestions for Further Studies......................................................................................................6


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Table of Figures and tables

Figure 1: Diagrammatic representation of value from outsourcing.....................................................6

Table 1: Distribution of the target population......................................................................................6

Table 2: The sampling matrix ..............................................................................................................6

Table 3: Employees Gender ................................................................................................................6

Table 4: Service in years.......................................................................................................................6Table 5: Management level..................................................................................................................6

Table 6: Department of the respondent ...............................................................................................6

Table 7: presents a summary of what employees felt were the reason towards outsourcing ...... ...6

Table 8: Effects of outsourcing on performance.................................................................................6

Table 9: Impact of Outsourcing to employees.....................................................................................6

Table 10: Impact of Outsourcing to patients........................................................................................6

References ...........................................................................................................................................6

Appendices ...........................................................................................................................................6


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CHAPTER ONE

INTRODUCTION

1.1 Back ground to the problem

In todays world of ever increasing competition, organizations are forced to look for new ways to

generate value. The world has embraced the phenomenon of outsourcing and companies have

adopted its principles to help them expand into other markets (Bender, 1999). Strategic

management of outsourcing is perhaps the most powerful tool in management, and outsourcing of

innovation is its frontier (Quinn, 2000)

Outsourcing is getting into an agreement with other Companies or persons to do a specific job or

function (Ella Venus, 2009). It is an arrangement in which one company provides services for

another company that could also be or usually have been provided in-house. Outsourcing is a trend

that is becoming more common in information technology and other industries for services that

have usually been regarded as intrinsic to managing a business.

Outsourcing decisions involve decision making on the boundary of a firm (Barney, 1999).

According to the Transaction Cost Theory, the boundary of a firm is decided by the cost

effectiveness of the activity (Coase, 1937; Williamson, 1981).

Africas outsourcing industry is very young but continues to grow slowly and gradually begins to

attract global attention and consideration in key research papers, publications and business

meetings. In Kenya, Business Process Outsourcing is one of the six pillars of economic growth in

the 2030 vision. In 2007, the ICT Board was established with the mandate of making Kenya the

preferred destination for outsourcing in Africa, and a top-10 global ICT hub.

1.2 Mater hospital

The Mater Hospital Nairobi first opened its doors in 1962 as a 60 bed unit. Gradually over the

years the Hospital grew significant additions being a maternity extension in 1970, the

paramedical building in 1987, a consultants clinic and family life centre in 1988, additional


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operating theatres, Accident and Emergency and ICU block in1994, a separate chapel in 1997, and

a School of Nursing in 2004.

Today the Hospital has 137 beds, a 9 bedded ICU/HDU, a Renal Dialysis Unit, four operating

theatres, a Cardiac Unit, a 24-hour A & E service, a School of Nursing and numerous outpatient

services including a very busy Comprehensive Care Clinic (CCC) for HIV/ AIDS clients.

1.3 Statement of the problem

The recent reports in the media of Moi referral hospitals (second largest referral hospital in

Kenya) ICU and theatre have been closed due to cash crisis (Daily nation of October 18 th 2011)

and KNH operations at the largest referral in east and central Africa (standard News paper of 30th

October 2011) were paralyzed by strike of its 4,000 staff demanding commuter allowance. Perhaps

the solutions to this problems experienced by the two largest referrals hospital in Kenya is

outsourcing. This has prompted me access the impact outsourcing decisions has on the

performance of the hospital.

The practice of charging external service providers with the task of performing in-house activities,

has attracted growing interest in recent years as managers consider whether it is in their best

interest to perform activities in-house or externally (Maltz and Ellram 2000)

Research on outsourcing has concentrated on particular support services, notably facilities

management, logistics and IT provision. Some conclude that true costs and benefits are difficult to

assess. Some evaluations of outsourcing, favorable (Sharpe, 1997) and unfavorable (Stein, 1997),

are founded on ideology and management fashion (Hendry, 1995; Alexander and Young,

1996).

1.4 Objectives of the study1.4.1 General objectives

Successful implementation of an outsourcing strategy has been credited with helping to cut costs

(Bowersox 1990; Greer, Youngblood and Gray 1999), increase capacity, improve capacity,

improve quality (Lau and Hurley 1997, Kotabe, Murray and Javulagi 1998), increase profitability

and productivity (Casale 1996; Sinderman 1995), improve financial performance (Crane, 1999),


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lower innovation costs and risks (Quinn, 2000) and improve organizational competitiveness (Lever

1997; Steensma and Corley 2000; Sharpe 1997).

1.4.2Specific objectives

Specifically the study sought to;

2 To establish the extent to which outsourcing affects costs in mater hospital

3 To determine the relationship between quality and outsourcing in mater hospital.

1.5 Research Questions

The following research questions guided this study:-

1 To what extent has outsourcing led to financial performance improvement on the Hospital?

2 To what extent has outsourcing improved patient service and satisfaction?

3 To what extent has outsourcing benefited the wider community?

1.6Significance/ Important of the study of the Study

The study would have different implications to different stakeholders. The main stakeholders to

benefit from the study include: Hospital Management, Patients, government and Academicians

The study would enable the Hospital Management by providing an insight on the effects of

Business process outsourcing and its significance to the hospital; it will also be useful to the

patients in that the outcome will provide the way forward on the provision of medical facilities

which could not be currently available in the hospital.

The government will be able to spearhead the government in policymaking regarding regulatory

requirements of the Kenyan outsourcing firms and the study will form a basis upon which further

studies on business process of outsourcing strategies and its effects in an organization can be

carried out.

1.7 Scope


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The scope of this study was limited to the assessment of the effects of outsourcing to the Mater

hospital. The study covered the organization entirely for effective results.

1.8 Limitation of the study

The numerous security guards in the hospital made collection of the data to be amajor hindrance. Access to the hospital was very difficult and even after accessing ,

most managers tried to shift the responsibility of completing questionnaires to other

employees.

To overcome the problem I established link with some employees of the hospital

which I used to contact management.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

Outsourcing has increasingly become a vital tool for the implementation of business strategy in

many organizations. Competition continues to increase and organizations are being continuously

forced to find ways to improve business performance and to obtain competitive advantage.

Increasingly, organizations are looking beyond the traditional boundaries of the firm to obtain

performance improvement. The growing prevalence of outsourcing service providers is shaping the

development of competitive strategies as well. The Business Process Outsourcing (BPO)

phenomenon has grown as organizations have been transferring responsibility for entire functions

such as human resource management, finance and information services to service providers

sometimes referred to as unbundling (Hagel and Singer, 1999).

Most firms often operate with limited resources and capabilities. The firms must learn to make the

most with the limited resources and capabilities (Hamel and Prahalad, 1989). Outsourcing provides

a way for the managers to grow their firms by obtaining the needed resources from external


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suppliers and/or partners (Quinn, 2000; McIvor, 2005). Instead of doing everything internally,

firms may opt to source the needed goods and/or services from outside.

The aims are usually concerned with better cost control, which assumes that in-house costs are

known precisely beforehand, although that is not always the case. In some cases the outsourcing is

concerned more with gaining access to technical expertise which may not be available in the

outsourcing organization. There may be an emphasis on time saving for some organizations (cost

control in terms of staff time costs). Increasingly, perhaps, many outsourcing relationships are

becoming partnerships as outsourcing becomes an accepted way of conducting business, and

relationships between those involved develop over time (Grover, Teng, & Cheon, 1998).

2.2 Determinants of outsourcing

Outsourcing and its productivity effects may be obtained by looking directly at the determinants of

outsourcing.

i. Wages

(Girma and Grg, 2004), who estimated the productivity effect of outsourcing in the chemical,

engineering, and electronic manufacturing industries in the United Kingdom, estimated the

determinants of outsourcing. Focusing on plant characteristics, they found that high wages were

positively related to outsourcing. As they argue, this could suggest that cost-savings are important

in the firms decision to outsource. It could also indicate, however, a specialization process by skill

intensive plants in which they are outsourcing their relatively low-skill intensive processes.

ii. Asset Specificity

In transaction cost theory, assets are durable resources that include sites, physical assets, and

human assets (Williamson, 1985). Asset specificity refers to the degree to which such resources are

specialized to an exchange. In this way, asset specificity can be viewed as an exchange attribute as

well as a resource property, one that explains the resources potential for affecting transaction

costs.

Transaction cost theory asserts that asset specificity is important in conjunction with bounded

rationality, opportunism, and uncertainty. When asset specificity increases, under these conditions

the redeploy ability of the assets decreases, and the contracting hazards (notably, the hazard of

opportunism) as well as the bilateral dependency (notably, the risk of hold-up) between the parties


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involved in an exchange, increase (Williamson, 1985). Consequently, the likelihood of hierarchical

forms of transaction governance increases (Williamson, 1991).

Asset specificity can not only cause hold-ups, with their associated monitoring and contract

enforcement costs, but it also affects the transaction costs engendered by other exchange attributes,

such as uncertainty and frequency (Williamson 1975, 1985; David and Han 2004).

Indeed, Williamson asserts (Williamson, 1999) that much of the explanatory power of the

transaction cost perspective turns on transaction-specific assets. A precise understanding of the

concept of asset specificity is important in order to assess its role in a firms decision on how to

govern an activity (Carter and Hodgson, 2006).

iii. Firms specificity

Although firm specificity is often meant to denote resource among firms, so far researchers have

not agreed on a formal definition of the term. Different researchers emphasize different aspects,

such as the specificity of resources with respect to fields of application (Collis and Montgomery,

1997), specificity with respect to a firms needs (Chi, 1994)

A firms resources could still be firm-specific, even if the firm was not endowed with them, in the

sense that their potential to generate value would be greater for that firm than for another. Firm

specificity of activity-enabling resources is also often associated with the difficulties involved in

imitating and substituting this resource bundle (Rumelt, 1984), as well as with the value-enhancing

linkages (complementarities) among these resources and the firms overall resource position

(Conner, 1991).

Firm-specificity is one of the resource properties that define strategic assets (Amit and

Schoemaker, 1993).The greater a resources specificity to a firm, the greater its rent potential to

that firm, given favorable conditions of demand, public policy and competitor action. Firm-specific

resources are often associated with increased efficiency (Jacobides, 2004)

2.3 Types of outsourcing

Outsourcing is an important decision that has implications far beyond the improved financial

results most organizations hope to gain. Only hospitals that understand the real financial and

human costs and benefits can determine when it adds value. This can help a Hospital in determine


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the levels of outsourcing it can accommodate in its services. There are basically four types of

outsourcing (Currie & Willcocks, 1998)

2.3.1 Total Outsourcing

Total outsourcing involves developing a partnership with a single supplier, with IT perceived as a

service or support function. The aim is usually to reduce IT costs, or eliminate a problem IT

function, but the outsourcing organization retains strategic control.

2.3.2 Multiple suppliers outsourcing

Multiple suppliers out sourcing is less concerned with partnerships as the aim is to foster

innovation and create competition between suppliers, although it is recognized that suppliers will

form alliances among themselves for bidding purposes.

2.3.3Joint venture/strategic alliance outsourcing

Joint venture/strategic alliance outsourcing is more concerned with development of new

knowledge for the client, and there is more emphasis on shared risks and rewards. Sometimes

various organizations will foster the creation of a supplier company to which they will outsource

work, but still have more control than they would do in a multiple supplier or total outsourcing

arrangement.

2.3.4 In sourcing

In sourcing, or keeping the IT department and services in-house, occurs when organizations view

IT as core to their business, or when they mistrust possible suppliers. A more recent type of

outsourcing is the ASP (application service provider) model, where organizations purchase

software use on an as and when basis (Kern, Kreijger, & Willcocks, 2002).

2.3.5 Theories of outsourcing

The increasing use of outsourcing arrangements, as well as the unfamiliar complexity of

outsourcing suggests the need to know more of how to effectively utilize this strategy.

Consequently, more information is needed to understand successful outsourcing and the problems

encountered in outsourcing activities and its impact on the overall organizational performance.

The capabilities of a firm must include control over or access to complementary assets and

activities that would enable them to innovate, and to profit from the innovations (Nelson, 1991).

The ability to control and make the most of critical capabilities whether or not they reside within

the firm is more important than the ownership of the capabilities (Gottfredson, Puryear and


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Phillips, 2005). Outsourcing provides strategic options for the firms to address the challenges of

operating and growing given the limitations of their resources and capabilities (Gottfredson 2005).

2.3.5.1 The Agency Theory

Agency cost theory expands on one aspect of TCT, as it deals with the different perspectives of

risk that client and supplier have, and differentiates between outcome-based contracts, and

behavior-based contracts. If the client distrusts the supplier then the extent of monitoring required

will be greater for the client, than it would be if the client could wholly trust the supplier to deliver.

The client has two main choices: a contract which stipulates payment by results (an outcome-based

contract), or a contract that states the supplier should do certain things at stipulated times, or spend

a certain amount of time on certain functions. If one cannot trust a supplier to deliver a product

some months down the line, then it might pay to ensure that it looks as if they are doing something.

On the supplier side, a behavior-based contract at least allows them to claim that they did spend x

hours on this task, even if the outcome could not be achieved as originally intended.

Agency cost theory helps to distinguish the most productive and fairest method of minimizing risks

for both client and supplier. Agency theory addresses relationships in which one party (the

principal) delegates work to another (the agent) who performs the work according to a mutually

agreed contract. Both parties are self-interested with incongruent goals. This leads to two

problems: 1) ex-ante, before signing the contract: the problem of adverse selection and 2) ex-post,

after signing the contract: the problem of moral hazard.

Adverse selection arises pre-contractually because the agent possesses private or hidden

information about the real quality of his service and the principal is unable to find out that

information. This leads to information asymmetry and puts the principal in a disadvantaged

position since the principal is faced with a pool of bidders with often insufficient qualifications.

The principal cannot easily distinguish the bad cars or lemons from the good ones (Akerlof,

1970).


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2.4 Conceptual frame work

Although outsourcing may prove beneficial in specific situations, hospitals need to consider the

true costs of outsourcing, which include the opportunity cost of outside contractors continually

tapping into the hospitals revenue stream rather than having the additional revenue flow back to

the hospital.

Before outsourcing revenue cycle functions, hospitals need to determine why they have not yet

accomplished their performance improvement objectives.

Does the organization lack access to qualified personnel?

Are internal processes, tools, and technology insufficient to handle revenue cycle activities

efficiently and effectively?

Is there insufficient capital to invest in needed resources?

What attempts have been made to address these issues?

What were the outcomes of these efforts?

Once the answers to these questions are clear, the unique capabilities, skills, and resources an

outsourcer must be able to provide to overcome existing barriers to success can be identified.

Hospitals should work closely with potential outside contractors to document and verify their skills

and capabilities and ensure they can demonstrate a consistent, long-term track record of success.

Hospitals may hope to achieve several objectives through outsourcing; financial performance

improvement is usually the chief among them. Increased employee performance, greater job

satisfaction, and improved workforce morale resulting from better training, more efficient work

processes, or enhanced technology that an outsourcer may provide are other common objectives.

Some hospitals hope that outsourcing revenue cycle activities will improve patient service or

satisfaction by reducing waiting times to receive care or expediting claims processing and

payment. Still others anticipate benefits to the broader community by boosting the margin

available to help fulfill the hospitals mission. Accomplishing all of these objectives, rather than

just one or two, should be the goal of any revenue cycle improvement effort.

To truly understand the real financial benefits and costs of outsourcing, hospitals need to carefully

evaluate the ways they expect outsourcing to drive financial performance improvement. Because


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the revenue cycle affects so many stakeholders (patients, employees, and the community), it is

important not only to consider the objectives but also to evaluate the impact that outsourcing will

have on all of these constituencies.

Figure 1: Diagrammatic representation of value from outsourcing

CHAPTER THREE

Outsourci

ng

Specialty Performance

Service Quality

Cost saving

Improved satisfaction

Savings on capital investments

Adaptability to the environment

Saving on Human resource

Benefits to the wider community

Service Quality

Cost saving


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3.0 RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

This chapter has research approach, designs, sample and sampling procedures, research

instruments, administration of research instruments/data collection and analysis procedures.

3.1 Research Design

In assessing the effects of outsourcing to the organizational performance of the Mater Hospital, the

researcher used descriptive research. This approach is appropriate to this study because the study

involves fact finding and enquiries of different kind to describe the state of the affairs (effects of

outsourcing) as they exist at the time of this study.

3.2 Target Population

In assessing the effects of outsourcing to the organizational performance of the Mater Hospital, the

researcher targeted a population size of 602 people who included senior Management, paramedic

staff, contracted staff, low come staff and senior management staff. The population of 602

consisted of the total number of employees from the fivedepartments of The Mater Hospital and

will be being distributed as follows:

Table 1: Distribution of the target population

DEPARTMENT POPULATION SIZE

Subordinate 253

Paramedic 211

Contracted 72

Low come 48

Senior Management 18

Total 602

3.3 Description of the Sample and Sampling Procedures


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The selection of the actual sample size was done using Stratified Sampling. Simple Random

Sampling was then used to get the figures. Stratified random sampling which is one method of

Probability Sampling (Kombo and Tromp, 2006) was used to divide the staff population into

homogeneous subgroups and then took simple random sample in each subgroup.

Simple random sampling was then used taking 10% to ensure that the sample was representative in

proportion to their number in population. This is because for descriptive studies 10% of the

population is adequate for sampling (Gay, 1996). Simple random sampling ensured that each

individual employee had an equal chance of being selected and therefore avoided biases.

Below is tabulation of how the sample was derived.

Table 2: The sampling matrix

DEPARTMENT POPULATION SIZE SAMPLE SIZE

Subordinate 253 25

Paramedic 211 21

Contracted 72 7

Low come 48 5

Senior Management 18 2

Total 602 60

Using the organizational chart and list of staff members, the population was first stratified

according to departments and then determined the size of each department. Using proportionate

method, the researcher established the size of the subject of each department and by use of

purposive sampling method, picked subjects for each department. This sampling process enabled

the researcher to deal with the subject critical to the study.

3.4 Description of Data Collection Procedures


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The study used primary data and secondary data. Primary data refers to the information a

researcher obtains from the field from the subjects in the sample while the secondary data refers to

information a researcher obtains from books, reports and other publications which had been

collected for other purposes (Kothari, 2003). These sources assisted the researcher in comparing

the two types of data for reliability.

According to (Mugenda and Mugenda ,2003) qualitative methods provide in depth explanations

while quantitative methods provide the hard data needed to meet required objectives.

3.4.1 Questionnaire

A questionnaire with structured and unstructured questions was used to collect data. According to

(Kothari ,2003), structured questions (closed ended) refer to questions which are accompanied by a

list of possible alternative answers from which respondents select the answer that best describes

their situation. Closed ended questions are easier to analyze and administer because of specific

alternative answers, however they are difficult to construct and responses are limited. Questions

were therefore standardized to ensure all respondents reply to same questions in a defined manner.

Open ended questions refer to questions which give respondents complete freedom of response.

They permit greater response though can encourage irrelevant response (Kothari, 2003). They were

used in some specific areas that require explanations. The questionnaires were delivered by hand to

each subject by the researcher who then instructed the subject on how to complete the

questionnaire and also make clarifications on issues that required to be clarified.

3.5Description of Data Analysis Procedures

(Kerlinger, 1973) describes data analysis as categorizing, ordering, manipulating and summarizing

data to obtain answers to research questions. He stresses that the purpose of analysis is to reduce

data to intelligible and interpretable form in order to study and test the relations of research

problems. The data obtained will be analyzed using data management software, Statistical Package

for Social Sciences (SPSS) for quantitative data and content analysis for qualitative data.


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All questionnaires were adequately checked and verified for reliability. The information was

codified, entered into a spreadsheet and analyzed using SPSS by the researcher. Exploratory

analysis was first performed to ensure that the output were free from errors. The data was then

analyzed using qualitative and quantitative techniques. This involves creating descriptive statistics

namely percentages, and measures of central tendency. The data was then presented using tables

and cross tabulations. Scalar types of questions were analyzed using descriptive statistics to

establish the level of perception to various attributes provided.

CHAPTER FOUR

4.0 PRESENTATION, DISCUSSION AND INTERPRETATION OF THE FINDINGS

4.1. Introduction

This chapter presents the research findings from employees of The Mater Hospital. The study

sought to find out the effects of outsourcing to organizational performance. Questionnaires were


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administered to 60 employees in different departments. Only 53 employees returned the

questionnaires.

The findings are hereby presented in descriptive statistics. These findings are presented in five

sections. The first section gives background information of the respondents and the rest four are in

line with the four research questions. The main sections shall be as follows:

1) Respondents Background Information

2) The extent to which outsourcing has lead to improved financial performance

3) The extent to which outsourcing has improved patient service and satisfaction

4) The extent to which outsourcing has benefited the wider community

4.2 Presentation of finding

4.2.1 Respondents Background Information

Table 3: Employees Gender

Gender Frequency %

Male 29 54.7

Female 24 45.3

53 100

Out of the 60 questioners which were administered, a total of 53 employees participated in the

study among which 24 were female and 29 male. This was 88.3% of the sample size that had been

selected.

Table 4: Service in years

Service in Year Frequency %

0 - 5 22 41.5

6 - 10 17 32.1

11 -15 9 17

Over 15 5 9.4

Total 53 100


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Of the total employees who participated 41.5% has served the Hospital for less than five years,

32.1% for six to ten years, 11% for eleven to fifteen years and 9.45 has served the Hospital for

over 15 years. These results indicate that very few employees stay in the Hospital for long.

Effective communication among the management and the employees could reduce the rate of staff

turnover. The management needs to rebuild trust with the employees this can be achieved through

support by the top management and providing incentives to employees who meet their expectations

(Jones, 1997; foster, 1999)

Table 5: Management level

Level in Management Frequency %

Management Level 2 3.77

Supervisory level 23 43.4

Subordinated staff 28 52.83

Total 53 100

52.83% of the employees who participated were subordinate staff, 43.4% were supervisory staff

and 3.77% were in the management level.

The subordinate staffs being the main participants in the exercise were the most affected in the

outsourcing decision of the hospital this was due to the fear that their jobs were at stake and risked

losing them to the outsourced company.

The individuals in the subordinate level were expected to manage the outsourcing relationship and

therefore required to have a complete understanding of the business goal, specific performance

criteria and their individual roles. This can be achieved through training and communication and

can help reduce resistance or resentment (Foster 1999)

Table 6: Department of the respondent

Department Frequency %

Subordinate 23 43.4

Paramedic 18 33.96


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Contracted 6 11.32

Low come 4 7.55

Senior Management 2 3.77

Total 53 100

Part of the employees who returned their questionnaire 43.4%, 33.96 %, 11.32%, 7.55% and

3.77% were in the Subordinate, Paramedic, Contracted, Low come and Senior Management

departments respectively.

The research was carried out in all departments of the Hospital to ensure that opinion was obtained

from all levels because the decision of the Hospital to outsource affected all the employees

irrespective of the department in which they were placed.4.2.2. Opinion of employees on the decision to outsource

This sections findings shall be responding to the employees opinion on the driving force to the

decision to outsource. The first question in the questionnaire sought to find out employees overall

opinion towards the reasons of outsourcing as concerned cost savings, employee morale and skills,

insufficient capital resources, focus on core competences and improved delivery and reliability

Table 7: presents a summary of what employees felt were the reason towards outsourcing

Selected possible areas that led to outsourcing decision

Strongly

agree

Agree Neutral Disagree Strongly

disagree

% % % % % %

Financial performance was the driving force that lead

to Outsourcing

11.32 73.58 9.43 3.77 1.89 100

Hospital outsourced in order to increase employee

performance

7.55 58.49 3.77 18.87 11.32 100

Improving patient service / satisfaction was a driving

force to the outsourcing decision

32.08 49.06 7.55 9.43 1.89 100

Lack of qualified personnel to handle the outsourced

services led to the outsourcing decision

15.09 54.72 0.00 13.21 16.98 100


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Insufficient capital to invest in the needed resources

was the cause of the outsourcing decision

58.49 35.85 5.66 0.00 0.00 100

Insufficient internal processes, tools and technology

led to the outsourcing of revenue cycle activities

67.92 24.53 1.89 3.77 1.89 100

Hospital outsourced in order to focus on its core

activities

73.58 22.64 3.77 0.00 0.00 100

Hospital outsourced in order to make capital funds

available for more profitable operations

45.28 39.62 5.66 1.89 7.55 100

Hospital outsourced in order to improve delivery and

reliability of its services

7.55 79.25 3.77 9.43 0.00 100

N = 58

Opinion on Financial performance as the driving force

11.32% of those studied strongly agreed with the reasons behind the outsourcing decision, while as

73.58% agreed that indeed financial performance was the driving force towards the outsourcing

decision. This resulted to 84.9% of the employees were positive that financial performance was the

driving force towards outsourcing.

The finding complement previous studies (Bowersox ,1999 ; Crane, 1999; and Quinn, 2000) and

proves that outsourcing is undertaken for purposes that have a large impact on the organizations

bottom line.

Opinion on outsourcing in order to increase employee performance

7.55% of those studied strongly agreed with the reasons behind the outsourcing decision, while as

58.49% agreed that the hospital outsourced in order to improve employee performance. This

resulted to 66.04% of the employees being positive though they felt they need to be more involved

than the position stands currently.

The effects of outsourcing on the employees morale and performance though 66.04% agreed to

the decision to outsource the Hospital need to inform the employees in every step of the


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outsourcing decision and make them feel they have participated in the decisions to ensure they

perform well.

Other reasons that contributed to the outsourcing decision

From the employees studied it was clear that they felt that there existed other reasons which led to

the hospitals decision to outsource. These reasons were stipulated in the questioner as what the

participants felt were the other reason why the decision to outsource were undertaken.

1. Reduction of the number of staff in the payroll

2. Reduction in insurance costs

3. The possibility of obtaining cheaper labor from the market

4.2.3 The extent to which outsourcing has lead to improved financial performance

Table 8: Effects of outsourcing on performance

Effects of outsourcing on performance

% % % %

Outsourcing opportunity match the organizational business needs 66.04 22.64 11.32 100

Outsourcing led to the Hospital reducing costs 81.13 15.10 3.77 100

Out sourcing led to improved cash flow in the organization 77.36 0.00 22.64 100

N = 53

From the employees studied 66.04% felt that the outsourcing opportunity matched the

organizational business needs, 22.64% felt otherwise while as 11.32% were not sure. The

employees studied, 81.13% felt that the outsourcing has led to reduction of costs by the hospital,

15.1% felt that there was no saving in cost as a result of the outsourcing decision and 3.77% were


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not sure on whether there has been a cost reduction experienced by the hospital, and 22.64% were

not sure of any increased cash flow from the organization. From those studied it was evidence that

the Hospital conducts performance evaluation of the outsourced services on quarterly basis.

4.2.4 The impact outsourcing revenue cycle functions had on the hospital employees

Table 9: Impact of Outsourcing to employees

Effects of outsourcing on Employees

Yes No Not

sure

% % % %

Did outsourcing result to additional new skills from employees of

the outsourced Company

79.25 20.75 0 100

Did outsourcing bring about organizational change in practice and

culture

88.68 9.43 1.89 100

Did outsourcing boost the employees morale 54.72 16.98 28.30 100

Outsourcing enhanced the relationship between employees and the

management

37.74 52.83 9.43 100

Are employees more efficient as a result of outsourcing 71.70 18.87 9.43 100

Has out sourcing led to high staff turnover 24.53 69.81 22.64 100

N = 53

79.25% of the respondents agreed that the outsourcing by the Hospital has facilitate its employees

in acquiring new skills, 88.68% felt that the organizational culture and practice has changed as a

result of the outsourcing decision and 52.83% felt that the decision led to reduced relationship

among the employees and the management.

The Hospital management needs to step in and re build trust among the workers, reevaluate those

jobs and provide incentives to employees to make them understand that they are part of the process

and make them know they have a share on the improved bottom line of the Hospital. This will

enable them perform better.

4.2.5 Employees comment on the reaction of the staff union on the outsourcing decision


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Employees studies concluded that the staff union participated in the decision to outsource thereby

ensuring that they were not victimized and that no one was sent home so as to create room for

employees of the outsourced company. They however felt that they need to be involved more in

those decisions which affect them directly.

4.2.6 The extent to which outsourcing has improved patient service and satisfaction

Table 10: Impact of Outsourcing to patients

Selected possible areas that led to outsourcing

decision

Strongly

agree

Agree Neutral Disagree Strongly

Disagree

% % % % % %

Patients are more satisfied by the services offered by

the Hospital than before

69.81 9.43 5.66 3.77 11.32 100

Are there fewer patients complain as a result of

outsourcing

77.36 13.21 9.43 0.00 0.00 100

As a result of the satisfaction derived employees

would prefer seeking medical attention from the

hospital

60.38 28.30 0.00 9.43 1.89 100

Patients always refer other patients to the Hospital

since they get more satisfied

92.46 3.77 3.77 0.00 0.00 100

N = 53

77.36% of the responded agreed that there were fewer patients complains, 92.46% said that

patients are more satisfied and refer other patients to the Hospital to receive services and 11.32%

disagreed that patients were more satisfied with the services that were offered by the hospital.

The results indicate that the decision to outsource has a greet impact in the way services are

provided

4.2.7 Comments on the overall perception of the patients towards the service delivery of the

hospital


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In this question employees commented that they have been receiving commendation from patients

they serve and also relatives of those patients on their service in this they felt that the patients were

satisfied with the services delivered by the Hospital in general.

4.3 The extent to which outsourcing has benefited the wider community

4.3.1 How does the community in general perceive the Hospitals decision to outsource?

Employees studied commented that the community with the Hospital has fully benefited from the

outsourcing decision this was clearly expressed in cases where the community is contacted for

provision of care for the terminally ill patients especially those suffering from HIV & AIDS who

needs assurance and love during their last days and with the use of services from the community it

gives such patients comfort and the feeling of belongingness from the company they get from

those taking care of the yet the people are hired from the community and as a result jobs are

created.

CHAPTER FIVE

5.0 Summary, conclusions and recommendation

5.1 Summary

This research paper purposed to find out the effects of outsourcing to organizational performance

in The Mater Hospital. From the study it was quite evidence that outsourcing led to improved

performance to organizations depending on how the outsourcing is structured and the

competencies of the firm from which outsourcing has been contracted from.

It was indeed evident that the decision to outsource can lead to competitive advantages for

businesses and for outsourcing to be successful the decision needs to be an informed one. Good,

hard, detailed information in the hands of strong management can help avoid a costly step, one that

is not easily reversed. Ultimately, for outsourcing in any form to be successful, quick responsetimes to strategic opportunities and threats are essential. Effective management of the outsourcing

relationships is an organizational imperative.

The top reasons for undertaking outsourcing projects identified by the survey results were to

reduce costs, improve quality, improve delivery and reliability, gain access to materials only


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available abroad, establish a presence in foreign market, use resources not available internally,

reduce the overall amount of specialized skills and knowledge needed for operations, make capital

funds available for more profitable operations, and focus on core competencies of the corporation.

These findings complement previous studies (Bowersox 1990; Crane 1999; and Quinn 2000) and

suggest that outsourcing is undertaken for purposes that have a large impact on the organizations

bottom line, although more tangential purposes such as strategy, profitability, and competitive

advantage may have been the rationale for the more direct reasons.

This study was guided by the following research questions:

1 To what extent has outsourcing led to financial performance improvement?

2 What impact did outsourcing revenue cycle functions have on the hospital employees?

3 To what extent has outsourcing improved patient service and satisfaction?

4 To what extent has outsourcing benefited the wider community?

The study employed descriptive research. It targeted all employees of the Mater Hospital. The

researched used Stratified Sampling and Simple Random Sampling to select a sample of 60. Only

53 employees returned the filled in questionnaire. To obtain information from the respondents the

researcher used questionnaires. Data were collected by the researcher and summarized into

frequencies, percentages and narrative reports.

5.2 Conclusions

Based on the findings, the following are the conclusions:

1) Based on the researchers knowledge of outsourcing, the respondents showed that The Mater

Hospital outsourcing decision was well informed, and has led to a significance change on how the

Hospital operates.

2) The respondents possessed concepts; perspectives and conviction that they need to be moreinvolved in the outsourcing decisions by the Hospital to ensure that they have all information to

enable them monitor the operations of the outsourced company.

3) The researcher clearly deduced from the responses that respondents knew that outsourcing has a

great impact to the Hospital performance and delivery of its services.


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4) The Employees expressed their willingness to improve their relationship with the management

if they were more involved in decision making in those areas which touched on them and were

critical.

5.3 Recommendations

Based on the findings the researcher made the following recommendations:

1) The Mater Hospital should establish a department or centre to coordinate employees and to

collect their views on the operations of the Hospital.

2) The Hospital needed to invite tenders for the services currently being outsourced to be assured

that they are getting the best services at the lowest costs.

5.4 Suggestions for Further Studies

1) Similar research studies should be carried out in all organization to ensure that the true effects of

outsourcing are experienced.

2) A study need conducted to establish whether the outsourced companies are equipped with the

right skills and competencies to tackle the assigned activities

3) A study should be carried out to find out the extent to which the employees of the outsourced

company are utilized to attain the desired objectives.

4) A study should be carried out to establish the challenges that are facing the decision to

outsource some activities which are usually seen as key to the organization.

REFERENCES

1. Quinn, B.J. 2000. Outsourcing innovation: The new engine of growth. Sloan Management

review 41 (14)

2. (Ella Venus 2009

3. Barney, J.B. 1999. How a firms capabilities affect boundery decisions. Sloan Management

review, (40: 3)

4. Coase R. H (1937). The nature of the form. Cited in: J Barney, W Ouchi (Eds). Organizational

economics san Francisco: Jossey Bass, 1986

5. Williamson, 1981).

6. 2030 vision. In 2007

7. Medical Device Daily February 28 2008).


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8. (Maltz and Ellram 2000;)

9. (Lewis and Talalayevsky 2000)

10. ( Mahnke, Overby, and Vang 2005).

11. (Murphy and Poist 2000)

12. ( Knemeyer, Corsi, and Murphy 2003).

13.Sharpe, M. 1997. Outsourcing gains speed in outsourcing world. Journal of labour research

(Fall): 535 - 549

14.Bowers, D. J. 1990. The strategic benefits of logistics alliances. Harvard Business Review 68

(4): 6 45.

15.Greer, C. R., S. A. Youngblood and D. A. Gray. 1999. Human resource management

outsourcing: The make or buy decision. Academy management Executive 13(3): 85 96.

(Alexander and Young, 1996).

QUESTIONNAIRE

Dear Respondent: My name is Kiptoo Maritim Bernard, am a Bachelor of Business management

Student at the Moi University, Nairobi Sattetlite Campus. Am conducting my Academic research,

which is a partial fulfillment of the requirement of this course. The Mater Hospital has permitted

me to conduct this research. I will treat your opinions confidentially. You honesty is both critical

and paramount when you respond to the questionnaire.

Please tick() as appropriate.

Section A: Background Information

1. Gender of Respondent

2. Male Female

3. How long have your worked for this organization (in terms of years)

0-5 6-10 11-15 over 15

4. Management level of respondent

Management Level Supervisory Level Subordinate Staff


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5. Your department: _______________________________________

6. Which services are currently being outsourced?

____________________________________________________________________________

____________________________________________________________________________

_________________________________________________________________________

Section B: Effects of outsourcing

6 In this statement kindly indicate your level of agreement

1 Strongly agree 2 Agree 3 Neutral 4 Disagree 5 Strongly disagree

Factor 1 2 3 4 5

Financial performance improvement in terms of cost reduction was the major

reason why the outsourcing decision was taken

The hospital outsourced in order to increase employee performance and ensure

greater job satisfaction resulting from better training and more efficient work

processes

Improving patient service or satisfaction by reducing waiting times to receive

care or expediting claims processing and payment was the driving force for

outsourcing in the hospital

The Hospital outsourced due to lack of access to qualified personnel to handle

the outsourced services

Insufficient capital in invest in the needed resources was a cause for

outsourcing

The hospital resulted into outsourcing since internal processes, tools and

technology were insufficient to handle revenue cycles activities efficiently and

effectively

The Hospital outsourced in order to focus on it core competencies

The Hospital outsourced in order to make capital funds available for more

profitable operations

The Hospital outsourced in order to improve delivery and reliability of its

services

7 What are the other reasons that contributed to the decision of outsourcing by the management

oftheHospital:_________________________________________________________________


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____________________________________________________________________________

________________________________________________________________________

8 Does the outsourcing opportunity match the organizations business needs?

Yes No Not Sure

9 Has the outsourcing helped the Hospital to reduce and control costs?

Yes No Not Sure

10 Has the outsourcing led to improved cash flow of the organization?

Yes No Not Sure

11 How often do you carry out performance evaluation on the outsourced services?

Weekly Monthly Quarterly

Semi - Annually Annually Never

12 Did outsourcing provide Hospital employees with additional benefits such as new skills from

employees of the outsourced Companies?

Yes No Not Sure

13 Did outsourcing bring change in organizational practices and culture?

Yes No Not Sure

14 Did outsourcing boost the morale of the employees?

Yes No Not Sure

15 Did outsourcing enhance the relationships between the employees and the management?

Yes No Not Sure

16 Are the employees more efficient as a result of outsourcing?

Yes No Not Sure


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17 Has outsourcing led to higher staff turnover?

Yes No Not Sure

18 Comment of the reaction of the staff union (if any) on the outsourcing decision:

____________________________________________________________________________

____________________________________________________________________________

_________________________________________________________________________

19 In the following statements, please indicate the level of agreement as follows:

1 Strongly agree 2 Agree 3 Neutral 4 Disagree 5 Strongly disagree

Factor 1 2 3 4 5

Patients are now much more satisfied by the services offered by the

Hospital the before

There are fewer patient complaints as a result of outsourcing

As a result of satisfaction derived from the outsourced services patients

would always prefer seeking medical attention from the Hospital

Patients always refer other patients to this Hospital since the get more

satisfied

20 Comment on the overall perception of the patients towards the service delivery of the Hospital:

____________________________________________________________________________

____________________________________________________________________________

________________________________________________________________________

21 How does the community in general perceive the Hospitals decision to outsource?

____________________________________________________________________________

____________________________________________________________________________

________________________________________________________________________

Maritim Project

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