Effect of outsourcing on organizational performance in Rwanda

Abstract: Many organizations have started using outsourcing strategy over the years but still many organizations didn’t realize the full benefit of it. Some have experienced low productivity, their they failed to attain expected cost saving and their profitability have not been balanced or stable. The present research investigated the effect of outsourcing on the organizational performance (cost efficiency, productivity and profitability) in Rwanda. Three sample companies have been selected from Telecom and manufacturing Industry of Rwanda. The results of study were based on a sample of 111 staffs selected by using convenient and purposive sampling; source of data was obtained using primary and secondary source of data and collected using questionnaire and documentation. Data has been treated with Statistical Package for the Social Sciences (SPSS)’s software and presented in tables. The findings of the study were presented and analyzed in detail following the objectives of the study.The specific objectives of this study was to identify activities or services outsourced by organizations in Rwanda, to find out the main reasons of outsourcing for organizations in Rwanda; to assess the level of their performance as a result of outsourcing strategy and finally, to establish the relationship between outsourcing activities and organizational performance. Three hypotheses were formulatedto measure the relationship between outsourcing and performance. The findings of this research have shown that all organizations part of this research outsource some of their core activities ( such as operation management, service management, advertisement and sales) and non-core activities (such as information system, maintenance, human resources activities, distribution, logistics, security, cleaning, man power). The results have shown that organizations in Rwanda outsource in order to access special expertise as shown by all respondents at rate of 100% and to reduce costs as shown by respondents at rate of 96%. Furthermore, the findings shown that outsourcing activities contributed to the organizational performance as revealed by respondents regarding their views on effect of outsourcing on cost efficiency, productivity and profitability. Moreover, the findings show that there is a weak positive and significant relationship between outsourcing activities and cost efficiencywhile it shows a weak and moderate positive insignificant relationship between outsourcing activities with productivity and profitability respectively. This study therefore recommended that organizations in Rwanda should continue to improve how they manage their outsourcing activities by emphasizing on non-core activities instead of outsourcing their core activities. This will help the organizations to produce better quality which will lead to the increase of product demand and profitability by reducing competitiveness. Furthermore, organizations should never allow external service provider to perform all the responsibility because this can lead to the loss of control over certain production or operation activities. Therefore, service provider should only manage particular risks that can’t affect or damage the entire organization performance.