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Abstract:
Commercial banks are the life blood of the economic well-being of any nation and their performance is critical. However, the banking industry globally has been struggling to bounce bank to sustainable performance since the 2007-2008 global economic meltdown despite appropriation of different strategies. In Kenya, for example, commercial banks have resorted to cost rationalization measures such as staff lay-offs and closure of redundant branches. Moreover, some commercial banks have been put under receivership, acquisitions or liquidation due to liquidity problems. To mitigate the performance challenges, commercial banks continue to apply different strategies. This study sought to establish the effect of outsourcing information technology (ITO) on performance of commercial banks in Kenya. The study employed cross-sectional explanatory and descriptive research designs. The target population was thirty two commercial banks. Primary data were collected using self-administered questionnaires based on the 5-point Likert scale. Descriptive statistics were computed to describe the characteristics of the study variables while linear regression analysis was used to establish the nature and magnitude of the relationship between the independent and dependent variables. Statistical tests were subjected to 95 per cent level of significance (p=?0.05). The study established that outsourcing information technology had a marginal positive effect on performance of commercial banks in Kenya (?=0.017; p=0.004). In addition, the study established that commercial banks employ ITO strategy in order to manage costs and to benefit from vendor's innovation capabilities and flexibility in responding to the demands of a dynamic business environment. Owing to the findings, the study recommends that commercial banks should develop policies that support mainstreaming ITO strategy in their operations with greater focus on areas leading to product innovation, service provision, and data security as they were deemed to highly affect bank performance. However, the study also found that ITO can lead to cyber-crimes like phishing, theft of customer data, hacking banking systems, among others, and recommends that due diligence should be exercised when selecting IT vendors to avoid threats relating to adherence of ethical imperatives.
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