Effect of generic strategy on the performance of insurance companies in Kenya

Abstract

Generic strategies are employed by companies to pursue competitive advantage across the market scope of choice. Generic strategy can be in the form of cost leadership, product differentiation, and focus- the scope can be broad (industry-wide) or narrow (market segment). Generic strategies are vital in ensuring the competitive advantage and hence the performance of insurance firms in Kenya. Insurance firms are currently facing major challenges in the current highly vibrant industry, simply because there are increased levels of competition. The main objective of the study was to determine the effects of generic strategy on the performance of insurance companies in Kenya. The specific objectives were; to determine the effects of cost leadership strategy on firm’s performance, to establish the effect of differentiation strategy on firm’s performance and to find out the effects of focus strategy on the firms performance. The generic strategy theory was used as the theoretical foundation of the study, however it was backed by other theories that is; competitive advantage theory, resource based theory and balance score card theory. The study adopted an explanatory research design and was guided by the generic strategy theory. The study targeted a population of 239 employees of insurance companies in Kenya and Sloven’s formula was deployed to arrive at a sample size of 150 senior and middle level managers. Both stratified and simple random sampling methods were deployed. Primary data was collected using structured questionnaires. Reliability and validity was tested to ensure the research instrument measures what its intended to measure. The study used descriptive and inferential statistics. The data collected was analysed using SPSS which generated descriptive and inferential statistics. Correlation results indicated that cost leadership strategy (r=-.110,p=.220) had a negative and insignificant correlation with performance while differentiation strategy (r=.358,p=.000) and market focus strategy (r.395,p=.000) both had positive significant correlation with performance. Multiple regression results indicated that cost leadership strategy (β=-.107,p=.024) had a negative significant effect on performance. Differentiation strategy (β=.187,p=.000) and market focus strategy (β=.282,p=.000) had a positive significant effect on firm performance. The study concluded Cost Leadership strategy, differentiation strategy and focus strategy had a significant effect on performance of insurance companies. The study recommends that firms should invest in cost leadership strategy, differentiation strategy and focus strategy in order to increase performance of insurance companies.