EFFECT OF BUSINESS PROCESS OUTSOURCING AS A STRATEGIC TOOL ON FINANCIAL PERFORMANCE OF SELECTED FIRMS IN NAKURU COUNTY

Abstract

Firms have always sought ways to gain a competitive advantage over their competitors; one avenue that firms have pursued to improve their competitive position in this new business environment is to increase the role of outsourcing in their operations, which has been found to provide a competitive advantage and heightened performance to these firms. The study therefore sought to establish the relationship between BPO and financial performance. The study drew objectives to test the nature of the relationship between BPO and firm`s financial performance. The specific objectives were; to establish the effects of outsourcing of legal services on financial performance of selected firms, to find out the effect of outsourcing fumigation services on financial performance of selected firms, to assess the effect of outsourcing fire safety services on financial performance of selected firms and lastly to find out the effects of outsourcing security services on financial performance of selected firms. It was a survey focusing on 83 hotels and 14 manufacturing firms in Nakuru County that outsource the combination of services listed in the objectives of the study. The study had a response rate of 79.4%. Primary data obtained from the information in the questionnaires distributed to the hotels and manufacturing firms was used for analysis. Data was analyzed for descriptive and inferential statistics with the aid of Statistical Packages for Social Sciences (SPSS) software version 20. The correlation analysis revealed that all variables had a positive correlation relationship on the dependent variable. Outsourcing legal services (β = 0.804; p = 0.000), outsourcing fumigation services (β = -0.686; p = 0.004), outsourcing fire safety services (β = 1.006; p= 0.000) proved significance, while outsourcing security services turned out insignificant (β = 0.215; p = 0.234). These variables combined in a linear multiple regression equation explained 65.2% of the changes in financial performance. Data was presented using tables and figures. This study is expected to form a useful guide to the government as it implements the vision 2030 and especially on policies governing BPO. Being one of the six key sectors of the economic pillar, the findings of this study will make a substantive contribution with regard to how the benefits of BPO can be maximized. For those institutions already involved in outsourcing, the findings of this study may form an important benchmarking tool. Having clearly demonstrating the crucial factors BPO has towards financial success, decision makers in both public and private bodies will be guided on the need to put in place adequately skilled and capable manpower as well as the need to re-evaluate their approaches to BPO to ensure they are strategic.