Organizational Configuration, Stage of Development and Performance of Commercial Banks in Kenya

Abstract

The concept of organizational configuration has been increasingly used in publications on performance of companies, gaining high recognition in organizational research but even more specific in strategic management. This link has become a central and somewhat controversial focus of research due to the mixed empirical findings with both support and failure. These conflicting results could be attributed to configuration theory tenet whereby organizations are viewed as complex and interdependent in nature such that fit and competitive advantage rest, not on a single attribute but instead on relationship and complimentarity among multiple characteristics. The heightened debate on the relevance of organizational configuration theory development has resulted in two groups of scholars; those calling for its disbursement and the proponents. This study sought to contribute to knowledge by assessing the effect of organizational configuration on organizational performance. The study took into recognition that an organization's stage of development and the context have an effect on the outcomes of this relationship. The overall objective of the study was to determine the moderating role of organizational stage of development on the relationship between organizational configuration and organizational performance in commercial banks in Kenya. The specific objectives of this research were to determine the influence of strategy and structure linkage, explore the influence of structure and environmental linkage and establish the influence of strategy and environment linkage on three different performance measures. The other specific objective was to establish and assess the relationship between organizational configuration and organizational performance. The population of the study consisted of all the forty-three (43) banks licensed by Central Bank of Kenya as banking institutions as at 31st December, 2010. The study adopted a cross-sectional survey design whereby both primary and secondary data were collected from 30 banks out of the 43 targeted (represented 75% response rate) and subjected to statistical analysis. Organizational performance was measured using both the financial and non-financial indicators. Analytical and predictive models utilizing simple statistics descriptors, multivariate and classical regression analysis, correlation analysis, cross tabulations and cluster analysis techniques were used to test the study hypotheses. The findings of the study partially supported three (3) of the hypotheses and rejected two (2). The study findings indicated that the influence of strategy-structure configuration on RoA was statistically not significant whereas the same influence was statistically significant for both market share and non-financial performance measures. The findings further showed that the influence of structure-environment configuration on RoA was also statistically not significant but same was statistically significant on market share and non-financial indicators. With respect to influence of strategy-environment configuration, both RoA and market share reported statistically not findings while that on non-financial indicators was statistically significant. Further results on the overall influence of organizational configuration (strategy- structure-environment) influence on RoA were also statistically not significant whereas the influence was statistically significant with respect to market share and non-financial indicators. Finally the study findings indicated that with respect to the influence of the moderating effect of organizational stage of development, their seemed to be an impact only on the non-financial indicators with RoA and market share statistically not significant results. Results on individual constructs exhibited mixed relationship in significance and direction with the three organizational performances. Both positive and negative associations were reported from the study findings. The study was able to draw an expression of inter relationships between variables, offer generalization, understanding and the meaning of the relationships. It has therefore extended the understanding of configuration and performance on diversity of operationalization related to content or general characteristics of strategy, structure and external environment concentrating on the match or lack of it amongst these attributes. Major conclusions in this study were that top managers in the Kenyan banking industry did not perceive the environment which was one of the parameters constituting organizational configuration in this study as an important factor contributing to their banks' performance and that stage of development was not perceived to moderate the banks' configuration and performance relationship.