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PROJECT TOPIC: OUTSOURCING AS A STRATEGY FOR REDUCING OVERHEAD COSTS

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 CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

The banking industry in Nigeria has become a jungle of sorts where the rules of the game are not so clear cut any longer. Some call it a battle arena where gladiators are expected to fight according to laid down rules created and implemented by the bias arbitrator. Others call it a battlefield where it is only the strong and highly competitive banks can survive. However, a state of anarchy ensues in the search by all to be the best and be appreciated by all stake holders. (Osekita, 2002).

Profit is a function of revenue minus cost; however, most business conscious people believe that for you to make profit you should make more sales. This principle is not far fetching from banking business, as pressure on deposit mobilization targets are emphasis.

The most interesting thing in the banking industry is that all banks market the same customers; chase the same money in circulation and use the same personnel. Another interesting thing to note is that all banks are branding the same products using different style, logo and slogan.

The issue is that how do we survive this war, since we know according to Charles Darwin [1801] that “it is not the strongest species that survive nor the most intelligent but the ones that are most responsive to change”. The concept of change cannot be thrown aside in this heat intense banking industry. Therefore, in search of what change that can assist to compete in the banking environment is the concept of synergy which states 1+1=3. That is the total been more than the sum of parts.

The concept of synergy is then introduce into “cost reduction” strategy where it is expected that 1+0 = 2  that is, at same equilibrium level of revenue and a reduction in cost produces increase in profitability and still maintain same quality of service delivery thus giving the organization unbeatable “competitive niche”.

One of the ways of reducing overhead cost in the bank is to introduceoutsourcing. Cost reduction is not the only target of outsourcing. Outsourcing is instrumental in increasing the business productivity. It also allows organization to have access to best-of-breed talent and technology. This means outsourcing creates values.

The answer to why outsourcing should be more than cutting costs include creating value – value for the company through re-engineered processes, value for customers through better service and value for shareholders because the markets reward companies that focus on their core business. Although valuecan mean different things to different people for instance, in outsourcing, value can mean long-term cost-effectiveness. It can mean increased revenues, profits and rewards for shareholders. It can also mean greater competitive advantage, the result of more responsive processes and improved levels of service. At its best, value should mean all of these and more. In fact, there aredegrees of value that an outsourced process will have on the larger organization. For example, a company that out sources its finance and accounting (F & A) function could expect to obtain immediate demand for value.

The dynamic and volatile global economy which fueled the ideas of “globalization” have forced several banks to seek ways of establishing an effective and efficient match-using strategies to find or facilitate connection with their competences, opportunities and risks resulting from environmental change.

One of the strategies employed by few Nigerian banks since the ingredients of their services delivery had been the same or recycled personnel, products, branding, customers and even ideas, it thus become necessary to change profit formulae.

This formula concentrates on cost reduction strategy and still maintains same quality of service delivery. Two banks were studied, Zenith bank and Gtbank. Annual reports and other privileged information of these banks indicate the unreserved interest of management to make profit and be on top especially through the use of cost minimization strategy which outsourcing is predominately used.


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