Dynamic capabilities, leadership behaviour and performance of manufacturing firms in Nairobi, Kenya

Abstract

Globalization of the world economy has brought with it drastic changes to the landscape of manufacturing firms. In many economies, the performance of manufacturing firms has been of great concern. Firms in the manufacturing sector are predominantly small, lack in effective policies and face a high attrition rate. The unstable operating environment has led to their low survival rate. In order to catch up with the turbulent environment, firms have to continuously re-engineer their business models and processes. In unstable environments, ordinary capabilities become unsuitable. The deployment of dynamic capabilities in place of ordinary capabilities becomes a necessary step, to enhance the ̳catch-up‘ efforts by firms. This deployment depends on strategic choices and decisions of the top leadership of the firms. A firm‘s strategic direction is influenced by the cognitive behaviour of the top leadership, particularly the CEO. However limited empirical evidence exists to show not only the effect of dynamic capabilities on firm performance, but also the role that leadership behaviour plays in this relationship. The general objective of the study was to examine the moderating effect of leadership behaviour on the relationship between dynamic capabilities and firm performance. The study was guided by the Resource-based view theory. A cross-sectional survey was undertaken using explanatory research design. Data was collected from 271 firms, out of a sample of 369. From each of the sampled firms, the CEO and three of his/her direct reports were the respondents. Validity was determined by the use of factor analysis. Reliability test showed that the instrument can be used in future to replicate the study results. Moderated multiple regression analysis was applied to examine the effect of leadership behaviour on the relationship between dynamic capabilities and firm performance. The results of the study revealed that sensing capabilities (B=0.215), seizing capabilities (B=0.194) and reconfiguration capabilities (B=0.182), which are the 3 dimensions of dynamic capabilities, have significant direct effects on firm performance, p<0.001. It was established that transformational leadership behaviour has significant effect on the relationship between firm performance and two of the dimensions of dynamic capabilities, namely: - sensing capabilities (B=-0.061; p<0.05) and seizing capabilities (B=-0.068; p<0.05). It was also established that the interraction of transactional leadership behaviour with seizing capabilities (B=0.088; p<0.001) and reconfiguration capabilities (B=-0.070; p<0.05) has significant effect on firm performance. Laissez faire leadership behaviour has significant effect on the relationship between sensing capabilities and firm performance, B=-0.097; p<0.001. A conclusion was reached that dynamic cpabilities influence firm performance and that leadership behaviour has a significant effect on the relationship between dynamic capabilities and firm performance. The study provides new theoretical insight into the moderating effect of leadership behaviour and recommends that managers and industry practitioners should put more emphasis on, and appreciate the role of, leadership behaviour in the deployment of dynamic capabilities so as to achieve optimal firm performance in the ever changing contemporary operating environment.