Effect of Business Process Outsourcing on the Profitability of Manufacturing Companies Listed On the Nairobi Stock Exchange

A Research Project Report Submitted to the School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)The study investigated the effect of business process outsourcing on the profitability of manufacturing companies listed on the Nairobi Stock Exchange. The study aimed at answering three research questions; what are the effects of outsourcing back office transactions on profitability of manufacturing firms in Kenya? To what extent does an outsourcing customer interaction service affect the profitability of manufacturing firms in Kenya? And what are the effect of outsourcing IT and software operations on the profitability of manufacturing firms in Kenya? This study adopted a descriptive survey research design. The target population consisted of management staff of ten 10 manufacturing firms listed in the NSE. There was 3,118 management staff in the listed manufacturing companies. The researcher used stratified random sampling technique to come up with the required sample. The strata were based on top, middle and low level management staff in selected firms. The sample size of the study was established at 155 respondents was constituted the sample population for the study. The study used both primary and secondary data sources in gathering data for analysis. The primary data source was collected from a questionnaire consisting of both open and close-ended questions. Secondary data was collected from published annual reports of the listed manufacturing firms available at the Capital Markets Authority (CMA) website. Quantitative data from the questionnaire was coded and entered into the computer for computation of descriptive statistics. The researcher used SPSS Version 20.0 to run descriptive statistics (frequency, percentages, mean and standard deviation). Multiple regression was also used to test the influence of independent variables on dependent variables. The quantitative data was presented in tables and graphs based on the study research questions. The findings revealed that all the independent variables depicted a positive relationship with firm profitability. This means that units increase in each of the independent variables results in an increase in firm profitability in NSE listed manufacturing firms. The researcher therefore concludes that outsourcing back office transaction does not have an effect on firm profitability of manufacturing firms listed in the Nairobi Securities Exchange; that there is a positive and significance effect of outsourcing customer interaction service on firm profitability of manufacturing firms listed in the Nairobi Stock Exchange and that there is a positive and significant effect of IT and software operations on firm profitability of manufacturing firms listed in the Nairobi Securities Exchange. The study recommends that manufacturing firms should conduct a needs assessment of outsourcing back office transactions. This needs assessment would enable the organisation to identify the cost-benefit analysis for adopting this form of outsourcing strategy. This would allow the manufacturing firms to increase their level of productivity. The study recommends that manufacturing firms should practice outsourcing customer interaction services to enhance their customer base and enhance customer loyalty which will increase their rate of customer retention. This form of customer service management can lead to customer satisfaction, customer retention hence expedite and enhance re-buy of firm products; that manufacturing firms should outsource IT and software operations of their businesses process; that manufacturing firms rely on information technology and outsourcing these services allows them to concentrate on their core business while enjoying best practices and professionalism in supporting their IT based business processes