Effect of differentiation and focus strategies on the financial performance of Small and Medium Enterprises

Abstract

Strategy is the key determinant of an organization sustainability in the current competitive business environment. Most strategies are replicated by competitors and thus a company must position itself in the minds of the consumer in order to remain competitive. Small and medium sized enterprises (SMEs) plays a significant role to the world economies and Kenya in particular. They make up the largest business sector in every economy. Despite the great role which the SMESs play, major benefits have remained a mirage due to lack of proper strategic managements practices by the owners and total failure by the regulatory authorities in properly playing their part. The study endeavored to determine how differentiation and focus strategies affected the performance of SMEs in Nairobi County Kenya. Explanatory research design was used in the study. The target population of the study was made up of 7384 SMEs and a sample of 95 SMEs was picked using systematic random sampling. Structured questionnaires were used to collect data, which was then analyzed using descriptive and inferential statistic. Findings indicated that differentiation strategy and market focus strategy were positively and significantly related to financial performance. The study concluded that that differentiation strategy and market focus strategy had positive and significant effect on the financial performance of SMEs. The study recommended that to accomplish the mission and objectives of SMEs with consideration on growth and profitability, management need to have a positive rethink towards the use of strategic management.