strategic outsourcing at airtel kenya alice wangari king'ori a research project submitted in partial

84 Pages·2013·1.04 MB·English

STRATEGIC OUTSOURCING AT AIRTEL KENYA

ALICE WANGARI KING’ORI

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF
NAIROBI

NOVEMBER 2013
DECLARATION

This research project is my own original work and has not been submitted to any other
university for examination purposes.

Signed: ______________________________ Date: ______________________
Alice Wangari King’ori
Registration Number: D61/P/8085/ 2002

This proposal has been submitted for presentation with my approval as the University
supervisor.

Signed: _______________________________ Date: _______________________

Professor Evans Aosa,
School of Business
University of Nairobi
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ACKNOWLEDGEMENT
I acknowledge God’s steady help in helping me complete this project. I also acknowledge
the help of Jane Murungi in providing me with access to journals that aided my research.

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DEDICATION
This work is dedicated to my beloved husband, Charles Kariuki, whose loving and
persistent pressure led me to start and finish this project. I love you and thank God for
you.

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LIST OF TABLES

Table 1: Macro Environmental Factors that influenced Outsourcing………………...….23
Table 2: Competitive Forces that Influenced Outsourcing ……………………………...25
Table 3: Other Factors that Influenced Outsourcing …………………………………….28
Table 4: Benefits of Outsourcing………………………………………………………...39

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ABSTRACT
Outsourcing is the practice of hiring outside professional services to meet in-house needs
of an organization. Outsourcing by a firm may be either tactical or strategic.
Outsourcing is considered tactical when it is implemented in order to solve specific
problems being experienced by the firm. Strategic outsourcing on the other hand is
concerned with building long term value for the firm through long term relationships.
The firm seeking to outsource works with best in class service providers whom it
integrates into its operations. The outsourcing firm considers the vendors offering
services as business partners and the emphasis is on mutual benefit. The purpose of this
project is to establish the factors that influenced Airtel Kenya’s decision to outsource
some of its functions to external vendors, to establish what process was followed and to
also establish the effects of strategic outsourcing on the business of Airtel Kenya. The
research design was that of a case study and senior members of the Airtel Kenya,
Executive Committee were interviewed. The decision to outsource at Airtel Kenya was
largely driven by the parent company Bharti Airtel of India which had extensive
outsourcing experience in India. However, forces in the macro environment and the
competitive environment provided justification for the implementation of the decision.
Because of the top down nature of the decision, formal steps necessary to evaluate
whether outsourcing was needed by the Company were omitted. The local teams were
also not given adequate time to prepare for the transition to the outsource partners. As a
result the implementation faced a number of challenges which could have been avoided
by ownership of the process by local teams and providing adequate time to plan for the
outsourcing. The study found that the Company nonetheless, experienced a raft of
benefits such as the ability to focus on the core business of the Company and become
more customer-centric; the Company gained access to superior services of the vendors;
gained efficiency; helped the Company to manage the vendors’ ability to constrain the
Company’s profitability; enabled the Company to manage technological risks; attain cost
control; attain standardization across many related operations and to a limited extent save
costs. The study findings recommend that the success of strategic outsourcing is
dependent on governance structures in place to manage the vendors output. Water tight
contracts are needed to manage the roles and responsibilities of the Company and the
vendor and provide for consequence management. Adequate time also needs to be given
to the senior management of the Company for them to transition the services to the
outsource vendor as well as manage the impact of the transition on staff. The study was
limited by the unavailability of financial and transactional cost information by reason of
confidentiality. As a result the study does not establish the actual cost benefit of
outsourcing that the Company attained or hoped to attain or how outsourcing contributed
to the financial performance of the Company. The study suggests that further studies
should be carried out to determine how widespread is the practice of outsourcing in
Kenya and what is the effect of outsourcing on the Kenyan economy? Such further
studies would help the government develop appropriate policies on outsourcing.

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TABLE OF CONTENTS
Declaration ……………………………………………………………………………...ii
Acknowledgement ……………………………..………………………………………. iii
Dedication ……………………...………………………………………………………. iv
List of Tables…………………………………………………………………………. …v
Abstract ………..……………………………………………………………………… ..vi
CHAPTER 1: INTRODUCTION….………….…………………………………….….1
1.1Background of the Study………………………..…………………………………….1
1.1.1 Strategic Outsourcing………………………………………………………..2
1.1.2 Telecommunications Sector in Kenya……………………………………...3
1.1.3 Airtel Kenya…………………………………………...…………………….5
1.2 Research Problem……………………………………..…………………………..…..6
1.3 Research Objectives………………………………..………………………………....8
1.4 Value of the Study…………………………………….……………………………...8
CHAPTER 2: LITERATURE REVIEW……………..…..…………………………..9
2.1 Introduction………………………………………..…………………………………9
2.2 Theoretical Foundations ………………..……………………..………………………9
2.3 Types of Outsourcing ……………………….……………………………………….13
2.4 Outsourcing as a Strategic Choice……………………..…………………………….14
CHAPTER 3: RESEARCH METHODOLOGY..........................................................19
3.1 Introduction ….............................................................................................................19
3.2 Research Design...........................................................................................................19
3.3 Data Collection............................................................................................................20
3.4 Data Analysis...............................................................................................................20
CHAPTER 4: DATA ANALYSIS, RESULTS AND DISCUSSION...........................22
4.1 Introduction…………………………………………………………………………..22
4.2 Factors that Influenced Strategic Outsourcing at Airtel Kenya………………..…....22
4.3 How Strategic Outsourcing has been Implemented at Airtel Kenya……………….31
4.4 The Effect of Strategic Outsourcing on the Business of Airtel Kenya……………...38
4.5 Discussion ……………….……………………………………………………….....48
CHAPTER 5: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS........53
5.1 Introduction ………………………………………………………………………….53
5.2 Summary ………………………………………….…………..……………………..53
5.3 Conclusions.……………………………………..…………………………………...59
5.4 Recommendations …...………………………………………………………………62
5.5 Limitations of the Study……………………………………………………………..64
5.6 Suggestions for Further Research……………………………………………………65

REFERENCES.................................................................................................................66

APPENDIX: INTERVIEW GUIDE ………………..…………………………….…..71
CHAPTER 1: INTRODUCTION
1.1 Background of the Study
Outsourcing is the practice of hiring outside professional services to meet in-house needs
of an organization (Gupta and Gupta, 1992). Outsourcing has been a business practice
since the Industrial Revolution and has helped thousands of companies achieve
profitability. Today in the United States of America and Western Europe, almost every
company outsources some part of their business (Brown and Wilson, 2005). According to
Brown and Wilson (2005) Companies in the United States and in Western Europe rarely
build manufacturing plants in their country. Instead China, Eastern Europe, India, the
Philippines, South Korea and Taiwan are the locations of choice for this purpose because
labour costs in these destinations are a fraction of the costs in the West.
Brown and Wilson (2005) further state that powerful trends in the global business
environment have made outsourcing a growing phenomenon. Some of these global trends
include: the shift from domestic to global economy; the shift from manpower to techno-
power; the shift from company –led to consumer driven market forces and the shift from
industrial economies to knowledge based economies. The global nature of business
encourages outsourcing because global firms are pursuing the lowest cost source on a
global scale making firms with a global footprint more competitive than their locally
limited counterpart as they can source labour from the cheapest sources in the world. In
pursuit of efficiency businesses are increasingly relying on technology as opposed to
manpower. Firms that are heavily dependent on technology may decide to outsource in
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order to mitigate the risk of technology obsolescence. For most businesses, consumers are
becoming more demanding of superior services. Firms therefore will tend to outsource
aspects of their business to experts who are able to customize products more efficiently
than the firm can achieve. Lastly in knowledge economies the outsourcing of business
processes is crucial as it allows firms to focus on their core competence; allows business
to achieve greater efficiency without having to invest in people and technology (Brown
and Wilson).
1.1.1 Strategic Outsourcing
Outsourcing by a firm may be either tactical or strategic (Brown and Wilson, 2005).
Outsourcing is considered tactical when it is implemented in order to solve specific
problems being experienced by the firm. For example a firm that lacks financial resources
to make the requisite capital investment or lacking adequate managerial competence may
outsource to a firm that has already made the investment or has the requisite managerial
competence. Other situations under which a firm may engage in tactical outsourcing are
where the firm wishes to generate immediate cost savings; realize a cash infusion from
the sale of assets or find relief from the burden of staffing. The focus of tactical
outsourcing is the contract and the relationship between the firm and the vendor of the
services is one of purchaser and seller.
Strategic outsourcing on the other hand is concerned with building long term value for
the firm through long term relationships with vendors. The firm seeking to outsource
works with best in class service providers whom it integrates into its operations. The
outsourcing firm considers the vendors offering services as business partners and the
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