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.