Outsourcing as a Means of Improving Organisational Performance in the Banking Industry

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Financial service organizations are aimed at making maximum profit through an effective management of its key available resources: man, machine, material, money and method. Among these keys resources, human resource, which involved the mental and physical effort of man put in production process, is the most critical. This is because it is the human resource that coordinates other resources toward the achievement of the organizational goal (Kelly, 2001).

Outsourcing has been defined as work done for a company by people other than the company’s full-time employees. In the modern setting, outsourcing turns out to be highly complex and organizations use outsourcing vendors for a variety of reasons. According to analysts, companies usually cite cost reduction as the most crucial reason for outsourcing. As companies consider how to cut costs in the face of an economic downturn, many look at outsourcing as a good option.

There are a number of reasons, at both the strategic and operational level on why firms want to outsource human resource activities. The demands for increased productivity, profitability, and growth have forced organizations to examine their internal human resource processes, resulting in a move towards strategic outsourcing services and away from discrete services. As Greer, Youngblood, and Gray (1999) observe, outsourcing decisions are frequently a response to an overwhelming demand for reduced costs for human resource services. Downsizing and tougher competition mean that the human resource functions is under increasing pressure to demonstrate value, both in terms of efficiency and effectiveness (Roberts, 2001).

Although some elements of the human resource functions may have always been performed by external service providers, Brewster (2000) observes that a new dimension “is this finance-driven idea connecting outsourcing to human resource management – the idea that you can save a lot...