Organizational structure, generic competitive strategies and performance among commercial banks in Nairobi county

Abstract

Commercial banks performance can be measured on various scales just like other firms. These include profitability which comprises of return on assets, return on equity, and profit margins among others. On average the banking sector in Kenya has in the recent past performed dismally. Consequently, they have been forced to adopt strategies that would ensure they maximize returns to their shareholders, attract investors and sustain its development amidst tremendous challenges of stiff competition, substitute products and industry globalization. This study sought to analyze the effect of organizational structure on the relationship between generic competitive strategies and firm performance of Commercial banks in Kenya. The specific objectives were to establish the effect of cost leadership, differentiation and focus strategies on bank performance, as well as to analyze the moderating role of organizational structure on relationship between cost leadership, differentiation and focus strategies and the performance of Commercial banks in Kenya. The theories underpinning this study were: Porter’s Theory of competitive advantage, Institutional theory, and Resource Based View theory. The study adopted explanatory research design and the target population comprised of 242 top management employees working in all 45 commercial banks operating in Nairobi. By using purposive sampling and census, the researcher had the entire population of 242 employees serving at the top management level provide information for the study. Quantitative data was collected using a questionnaire and Hierarchical multiple regression analysis was done to test the hypotheses of the study. The findings revealed that differentiation strategy (β = 0.276, p< 0.05) and focus strategy (β = 0.364, p< 0.05) had positive significant effect on the performance of commercial banks. However, cost leadership strategy (β = 0.22, p> 0.05) was statistically insignificant. This study also found that organizational structure has a significant moderating effect on the relationship between cost leadership strategy and firm performance (β = 0.784, p< 0.05). This implies that organizational structure important when applying cost leadership improving performance of commercial banks. This study recommended that commercial banks should focus on cost leadership, differentiation and focus strategies in order to maximize their performance. Specifically, they need to adopt effective organizational structures to be able to maximize cost leadership and focus strategies to achieve competitive edge. The study contributes to the existing literature and affirms Porter’s theoretical view that cost leadership, differentiation and focus strategies are important components of a successful commercial banking strategy.