EFFECT OF OUTSOURCING ON PERFORMANCE OF FEDERAL GOVERNMENT OWNED HOSPITALS IN ENUGU, NIGERIA

ABSTRACT

This study aimed at examining the effect of outsourcing on performance of Federal Government owned hospitals in Enugu, Nigeria by finding out whether outsourcing has reduced cost, improve quality of services rendered, increased labour productivity as well as built capacity in Federal Government owned hospitals in Enugu, Nigeria. Survey  research  design  was  used  for  the  study.  Data  were  collected  from  both primary  and  secondary  sources.  The  sample  size  was  determined  using  Taro Yamene’s method of sample size determination. 370 questionnaire were administered to respondents. Structured questionnaire and personal interview were used for data collection. Tables and simple percentages were used in data presentation and analysis. Hypotheses were tested using T-test of paired samples statistic at 5% level of significance. Findings revealed that outsourcing has standardized quality of services in Federal Government owned hospitals in Enugu, Nigeria, but costs of outsourced services is on the high side. The researcher suggested that outsourcer should have some element of cost control over the outsourced services to achieve efficient performance.

CHAPTER ONE INTRODUCTION

1.1       BACKGROUND OF STUDY

Outsourcing is a business strategy that occurs when a business purchase services or products from a foreign manufacturer (or supplier), or when a business pays another company to provide services that the business might otherwise have employed its own staff to perform (Fiona, 2006:1). Outsourcing stemmed from attempts to reduce guild controls in Europe in 13th century. They used abundant and cheap female and child labour force available in the countryside to achieve a lower cost of production. This process was termed ‘putting-out’ (Jones and kierzkowski, 2004: 4).  About this time also, merchants hire cottage workers  to  perform  some tedious,  less  skilled  tasks  in their production process.  A major instance was in the textile manufacturing sector where peasant women did  the  spinning  on  a  putting–out  basis.  The  merchant  gave  out  (put-out)  the  raw materials such as the raw wool, flax and cotton and collected the finished yarn.

In the late 1960s, however, outsourcing took a major leap forward when firms began to use data transfers technology to outsource their payroll administration, that is, the tasks of calculating workers’ wages and deductions and carrying out checks.   Nowadays most business farm out their operations to external entities that specialized in the management of that operation. Some of the operations that are being outsourced include maintenance functions, catering, payroll, personnel management and so on. Currently, outsourcing is gaining momentum  globally as  a potential  strategy for enhancing business  activities particularly in the developing economies. Outsourcing of operations or jobs from internal handling to an external entity is changing the landscape of business. In every developed economy, companies are taking the advantage of readily available expertise in other markets to strengthen their competitive advantage in local markets.   India, China and other South East Asian economies have made outsourcing an important emerging and key sector in the development of their economy.

The Nigerian economy which is one of the most vibrant in Africa provides a good condition for outsourcing and it is playing a leading role in outsourcing particularly with the Government interest in promoting the strategy. Government established the National Outsourcing Policy and Institutional Framework in 2007 as well as the Guideline for Public Service Reform of Parastatals of  2006 for the country.  Outsourcing was officially implemented by Federal Government in some of its parastatals in January, 2007. The expectation was that outsourcing would enable the nation enjoy the benefits of free trade such as lower cost, higher labour productivity and efficiency that was usually associated with outsourcing.

1.2       STATEMENT OF PROBLEM

Outsourcing was introduced into the Nigerian Federal Government Parastatals in 2007 with the intention that it will benefit and improve the Parastatal’s performance in terms of lower cost, higher labour productivity and efficiency that flows through outsourcing activities.  Whereas this is an obvious generalisation, it is not certain whether such cost saving, higher labour productivity and efficient flows of activities have actually occurred in Federal Government parastatals in Nigeria. This uncertainty in terms of cost saving through outsourcing is due to level of costs shown in the financial reports of the Federal Government parastatals. Outsourcing which is expected to bring about higher labour productivity seems not to be giving the expected result. Moreover, there is an uncertainty about the efficiency or quality of services being rendered in the Federal Government parastatals in Nigeria.

These uncertainties turned out to be a source of worry to parastatals/organisations that outsourced their services. As a result of this situation, the researcher deemed it necessary to  study  the  effect  of  outsourcing  on  performance  of  Federal  Government  owned hospitals in Enugu, Nigeria, using University of Nigeria Teaching Hospital Enugu (UNTH) and National Orthopaedic Hospital Enugu (NOHE) as organisations for the study.

1.3       OBJECTIVES OF THE STUDY

This dissertation will examine the effect of outsourcing on performance of Federal Government owned hospitals in Enugu, Nigeria by finding out whether outsourcing has reduced cost, improved quality of services, increased labour productivity as well as built capacity in Federal Government owned hospitals in Enugu, Nigeria.

Specifically, objectives of the study are summarized as follows:

1.         To   determine   whether      there   is   significant   difference   between   laundry services cost without outsourcing and laundry services cost with outsourcing in UNTH and NOHE.

2.         To determine whether there is significant difference between cleaning services cost without outsourcing and cleaning services cost with outsourcing in UNTH and NOHE.

3.        To determine whether there is significant difference between security services cost without outsourcing and security services cost   with outsourcing in UNTH and NOHE.

4.          To  determine  whether  outsourcing  has  improved  the  quality  of  services rendered in UNTH and NOHE.

5.        To determine whether outsourcing has improved labour productivity in UNTH and NOHE.

6.        To determine whether outsourcing has improved capacity building in UNTH and NOHE.

1.4       RESEARCH QUESTIONS

To facilitate the investigation of this study, the following research questions will be addressed:

1.         To what extent has outsourcing reduced  the cost of laundry services in UNTH and NOHE?

2.         To what extent has outsourcing reduced  the cost of cleaning services in UNTH and    NOHE?

3.         To what extent has outsourcing reduced the cost of security services   in UNTH and NOHE?

4.         To what extent has outsourcing improved  the quality of services rendered in UNTH and NOHE?

5.         To what extent has outsourcing improved labour productivity in UNTH and NOHE?

6.         To what extent has outsourcing improved capacity building in UNTH and NOHE?

1.5       RESEARCH HYPOTHESES

The following null hypotheses are formulated for this study:

1.          There  is  no  significant  difference  between  laundry  services  cost  without outsourcing and laundry services cost with outsourcing  in UNTH and NOHE.

2.         There  is  no  significant  difference  between  cleaning  services  cost  without outsourcing and cleaning services cost with outsourcing in UNTH and NOHE.

3.            There  is  no  significant  difference  between  security  services  cost  without outsourcing and security services cost with  outsourcing in UNTH and  NOHE.

4.         There is no significant difference between improvement in the quality of  services rendered with outsourcing and improvement in the quality of  services rendered without outsourcing in UNTH and NOHE.

5.          There is no significant difference between improvement in labour productivity with outsourcing and improvement in labour productivity without outsourcing in UNTH and NOHE.

6.         There is no significant difference between improvement in capacity building with outsourcing and improvement in capacity building without  outsourcing in UNTH and NOHE.

1.6         SIGNIFICANCE OF THE STUDY

This study shall be relevant to the extent that Federal Government of Nigeria will know the effects of outsourcing on performance of the Federal Government owned hospitals in Enugu, Nigeria. They will also be able to take decision on how to handle costs and other elements of outsourced services in Government parastatals. Management of the Federal Government parastatals shall know the effective and efficient ways to handle outsourcing activities for higher capacity building and achievement of organizational goal.

This  study  shall  immensely  help  management  and  employees  to  understand  and appreciate the positive effects of outsourcing on services rendered by their organisation. Students as well as researchers shall find this work very useful in their quest to know outsourcing benefits in Government owned hospitals in Enugu, Nigeria.

1.7        SCOPE OF THE STUDY

This  study  covered  University  of  Nigeria  Teaching  Hospital  (UNTH)  Enugu,  and National Orthopaedic Hospital Enugu (NOHE), Nigeria. The study looked at the effect of outsourcing on performance of Federal Government owned hospitals in Enugu, Nigeria.

1.8         LIMITATIONS OF THE STUDY

This study is limited to the Head of Departments (HODs), members of the Senior and Junior staff of UNTH and NOHE. This is because HODs and Senior staff directly partake in determining outsourcing strategies to be employed by the organisation. Moreover, HODs, Senior and Junior staff partake in the execution of organization’s policies for achievement of organizational goals.

The study was limited to the laundry,  cleaning and security services in UNTH and NOHE. This is because catering services are not fully outsourced in UNTH. Also, due to time constraints, sample size was limited in order to complete the study within the period available.

1.9                    PROFILE OF ORGANIZATION

1.9.1    UNIVERSITY OF NIGERIA TEACHING HOSPITAL (UNTH), ENUGU

The University of Nigeria Teaching Hospital (UNTH) has come a long way. The hospital began early in the 20th  century as a Standard General Hospital for Africans built by the colonial administrators. It later metamorphosed into a General Hospital on the attainment of Nigeria’s independence in the 1960s. However, at the end of the Nigerian Civil War in 1970, the then government of East Central State transformed it into a specialist Hospital with effect from July 1, 1970 by decree number 23 of 1974, the Federal Military Government took over the hospital, but left the management in the hands of the council of  the  University of  Nigeria,  Nsukka.  The  University of  Nigeria  Teaching  Hospital (UNTH)  became  independent  in  July  1976  with  the  appointment  of  autonomous Management Board.

Currently, UNTH has its main hospital in Ituku-Ozalla, Enugu and     three out posts – Comprehensive  Health  Centres  at  Obukpa  near  Nsukka,  Enugu  State;  Abagana  in Njikoka Local Government Area of Anambra State; and Isuochi in Abia State. It has numerous departments such as medicine, accounts, personnel, audit, and so on. The main objective of the University of Nigeria Teaching Hospital is to provide standard health services to its patients.

Furthermore, following the Guidelines for Public Service Reform of Parastatals of 2006, Section 5(1a) which states that staff in jobs which services are monetized, outsourced or abolished (cleaners, drivers, cooks, security men, messengers, etc) should be exited, staff in catering, cleaning, laundry and security in UNTH were laid off in December, 2006. From January 2007, the sub-contractors started providing the services in UNTH at a fee which  depends  on  the  nature  of  services  they  rendered.  Currently,  UNTH  have outsourced catering services to Cosy Hotels Ltd. and M/S Woodland Hill Ltd. (but yet to be made permanent); cleaning services to M/S Strazbourg Investment Nig. Ltd; laundry services to M/S Pixely Services Nigeria and security services to Hi -Tech Security Ltd. These external entities are usually referred to as Sub-Contractors or Outsourcee, while the organisation that outsourced their services to them is called Outsourcer.

1.9.2    NATIONAL ORTHOPAEDIC HOSPITAL, ENUGU (NOHE)

The East Central State Government of Nigeria led by Mr. Ukpabi Asika, as administrator (Chief Executive) at the end of Nigerian civil war (1967 – 1970), established a hospital for maimed war victims. The hospital was to offer services in Orthopaedic, plastic and ophthalmic surgery. The foundation plague of the hospital was unveiled In January 1972, by Emperor Haile Selassie of Ethiopia after whom it was named, for his mediating role in the  Nigerian  civil  war.  The  then  Nigerian  head  of  state,  Gen.  Yakubu  Gowon accompanied him to Enugu for the ceremony. The Eastern Nigeria Governors’ lodge was converted  to  the  Haile  Selassie  1  institute  for  Orthopaedic,  plastic  and  ophthalmic surgery.

The hospital was opened to the public with the first intake of patients on 17th  January 1975. The formal opening by Mrs. Victoria Gowon took place on 4th  April 1975. The Haile Selassie 1 institute was re-named State Orthopaedic Hospital in July 1975, by Col. Anthony  Ochefu,  the  then  military  governor  of  East  Central  State.  The  ophthalmic surgery part of the hospital was shelved then. The federal take-over of the hospital took place in 1976, retrospective from 1st October 1975, during which the two sister hospitals in    Dalla – kano and igbobi – lagos were also included. The three hospitals acquired the uniformity of name; National Orthopaedic Hospital about 1977 and subsequently came under the control of the orthopaedic hospital management. The main objective of the National  Orthopaedic  Hospital,  Enugu  is  to  provide  standard  health  services  to  its patients.

Furthermore, following the Guidelines for Public Service Reform of Parastatals of 2006, Section 5(1a) which states that staff in jobs which services are monetized, outsourced or abolished (cleaners, drivers, cooks, security men, messengers, etc) should be exited, staff in catering, cleaning, laundry and security in NOHE were laid off in December, 2006. From January 2007, the sub-contractors started  providing the services in NOHE at a fee which depends on the nature of services they rendered. Currently, NOHE have outsourced catering services to Cosy Hotels Ltd and Foodland catering services; cleaning services to Greenearth Environment Consult and Total Facility Management; laundry services to REMS Dry Cleaners, and security services to JUAL Concepts Services. These external entities are usually referred to as Sub-Contractors or Outsourcee, while the Organisation that outsourced their services to them is called Outsourcer.

1.10     DEFINITION OF TERMS Outsourcing:

Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally (Ansah, 2006:9). It is also a handing over of package of functions to another organization for better quality of product or service delivery, or to reduce financial burden and other encumbrances of an organization and to make it more focused.

Performance:

In the context of this study, performance refers to the progress towards achieving the organizational goals and objectives.

Personnel Cost:

This is the cost incurred by an organization in relation to its staff. In the context of this study, it consists of salary/wages, hazard allowance, shift allowance, and accommodation.

Material Cost:

In the context of this study, material cost refers to the cost of all the working materials (excluding fixed assets) purchased by the organization for effective and efficient service delivery.

Business Process Outsourcing:

Business process outsourcing is a form of outsourcing that involves the contracting out of operations (or processes) of a business to the third-party service provider (Tas & sunder, 2004:24).

Information Technology (IT) Outsourcing:

This focused on hiring a third-party company or service provider to perform IT related activities, such as application development, application management, data center operations or testing, and quality assurance on an organization’s behalf.

Strategic Outsourcing:

Strategic outsourcing is the organized arrangement that emerges when firms rely on intermediate markets to provide specialized capabilities that supplement existing capabilities deployed along a firm’s value chain (Holcomb & Hitt, 2007:464). Such an arrangement produces value within firms’ business chains beyond those benefits achieved through cost economies.

Outsourcee:

The third party or outside organization that performs business activities (functions) on behalf of an organization.

Insourcing:

Insourcing can be defined as the delegation of operation or job within a business to an internal (but ‘stand-alone’) entity that specializes in that operation. This can be done by building a facility within the organization. It can also be referred to as a business strategy used to maintain the control of critical productions or competencies and to reduce costs. It is opposite of outsourcing.

Offshore Outsourcing:

This is hiring of a company based in another country to do the work that should have been done by the employees of that company.

Core Competency:

Core competency is a particular strength an organization has better than the other organizations in the industry which provide the fundamental basis for the provision of added value. It can take various forms, including technical / subject matter know-how, a reliable process, product development or culture, such as employee dedication. It should meet the following three conditions:

1.         It provides consumer benefits

2.         It is not easy for competitors to imitate

3.         It can be leveraged widely to many products and markets.

Downsizing:

This is the reduction of the number of employees in an organization.

Rightsizing:

Rightsizing is referred to as the corporate restructuring or rationalization with the aims to focus the business activities better, in other to improve efficiency and effectiveness.

Comparative Advantage:

This is the capability to specialize in the production of a product better relative to other organizations in the same field.

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