strategic orientation, top managers’ ownership status and firm performance in small and medium enterprises in the hospitality industry in kenya’s north rift region

Abstract

Performance of Small and Medium Enterprises (SMEs) is considered one of the most important factors behind economic success of both developed and developing nations. Strategic orientation is one of the critical success factors for business firms. However, empirical studies have shown varied results under different conditions. Furthermore most of the studies have focused on the effect of a single strategic orientation at a time and most have been done in developed countries. The purpose of this study therefore was to establish the effect of top managers’ ownership status in the relationship between strategic orientation and firm performance in SME firms in a developing economy. The main objective of this study was to empirically test the moderating role of top managers’ ownership status in the relationship between strategic orientation and firm performance in SME firms. The specific objectives of the study were; to establish the effects of futurity, pro-activeness, and analysis, aggressiveness, and defensiveness dimensions of strategic orientation on firm performance in SMEs and to determine the moderating effect of top managers’ ownership status on the relationship between the various dimensions of strategic orientation and firm performance in SMEs. The Resource Based View (RBV) and the Upper Echelon theory grounded the study. Data was collected from a sample of hotel and food service SMEs in the North Rift region of Kenya. The study employed explanatory research design and sampled 390 SMEs from a target population of 902 firms listed in seven counties of the region. Stratified proportionate random sampling was used. Data was analyzed using descriptive statistics including means, standard deviations, skewness and kurtosis, which revealed that data was normally distributed. The study also used inferential statistics including Pearson Correlation to test the linear relationship between independent and dependent variables. Multiple regression models were used to test the research hypotheses. The study findings indicated that Analysis (β 5 =0.596, ρ<0.05) and Defensiveness (β 6 =0.829, ρ<0.001) dimensions had statistically significant and positive effect on firm performance while Aggressiveness (β 4 = -0.492, ρ<0.001) had significant but negative effect. The effect of three dimensions was not statistically significant; Futurity (β 1 =-0.111, ρ>0.05), Proactiveness (β 2 =0.194, ρ>0.001), and Riskiness (β 3 =0.041, ρ>0.001). Further, the study findings indicated that top managers’ ownership status in the firm moderated the relationship between two dimensions of strategic orientation and firm performance namely, Aggressiveness (β 10 =0.179, ρ<0.05), and Defensiveness (β 12 =0.829, ρ<0.001). There was no statistically significant moderating effect on four dimensions: Futurity (β 7 =0.067, ρ>0.001), Proactiveness (β 8 =0.014, ρ>0.001) and Riskiness (β 9 =0.192, ρ>0.01) and Analysis (β 11 =0.105, ρ>0.05). The study concluded that strategic orientation is a significant determinant of performance and that, its’ various dimensions influence firm performance differently. Specifically, three dimensions namely; Aggressiveness, Analysis and Defensiveness were found to significantly affect firm performance in SMEs. Further, the ownership status of top managers moderated the effect of aggressiveness and defensiveness dimensions on firm performance. The study recommends that SMEs should establish and focus on the most suitable strategic orientation dimensions and ownership status of their top managers, for improvement of firm performance. The study contributes to theory, by developing a model that relates strategic orientation as a concept with several dimensions, with top managers’ ownership status and firm performance in SMEs.