Management Consulting And The Competitiveness Of Commercial Banks In Kenya

Abstract

Management consulting is a service performed by external individuals or organisations that possess the appropriate professional skills, and carried out independently. Managers and organisations have sought for external support and advice on a myriad of issues from ostensibly procedural matters such as taxation and accounting to critical aspects such as organisational strategy. By on boarding of consulting firms and independent consultants, organisations have been able to achieve various objectives. While the practice of management consulting is commonplace, there is a dearth of literature in the field . The global banking industry offers a multiplicity of services to diverse populations, relies heavily on management consulting in its operations. This situation is mirrored in Kenya where management consultancy firms have and continue to set up shop to offer services to players in various industries including banking. The aim of this study was to examine the effect of management consultancy services on business competitiveness in Kenya’s banking sector. Specifically, the study sought to assess the services offered by management consultants to the banks, investigate the various management consultancies responsible for the differentiation in banks; delineate the role played by management consultants in the operational efficiency of commercial banks in Kenya and determine the significance of management consultancy in the profitability of the commercial banks. A cross-section descriptive study design was used. The study population comprised employees of the 11 banks that were purposively sampled on the basis of being listed on the Nairobi Securities Exchange as of 2017: CFC Stanbic Holdings, NIC Bank, Diamond Trust Bank, Barclays Bank, Standard Chartered, Housing Finance, National Bank of Kenya, Kenya Commercial Bank, Equity Bank, Co-op Bank of Kenya and I&M Holdings Ltd. A semi-structured questionnaire arranged according to the objectives was used for data collection. Profitability analysis was carried out using the 2016 financial reports of the selected banks. Spearman’s rank-sum correlation coefficient (ρ) was used to assess bivariate relationships while binary logistic regression was used at the multivariate level. From an ethical standpoint all the respondents were consented prior to taking part in the survey and the study was approved by the University of Nairobi School of Business. A total of 120 surveys were sent out and 101 were received. This gives a response rate of 84.2%. The study findings show that the most common services offered by management consultancy firms were Financial and Audit Tasks (78.2%) and Optimization of Operation Processes (58.4%). The results indicate that the most popular management consultancy firms used by Kenyan banks were Mckinsey and Company (36.6%), KPMG (25.8%), PwC (12.9%), Deloitte (7.5%) and EY (4.3%). These consultancy firms were involved in helping banks to differentiate various products and operational areas including Audit, Human Resource, Branding and Strategic Planning. More than 90% of respondents agreed that management consultancy firms had been instrumental in the differentiation of products and services within their banks. The role played by management consultants on the operational efficiency of the banks was assessed, giving an average operational efficiency index of 21.8 (SD=4.0; Min=4, Max=28). This was related to adopting strategy for continuous improvement, optimization of service performance, regular monitoring and evaluation, identification of risks and setting mitigation measures in place. Respondents indicated that management consultancy firms had contributed to competitiveness to a large extent. The results of the correlation analysis indicated that management consultancy services around operational efficiency (ρ=-0.209, p=0.036) and differentiation (ρ=-0.263, p=0.008), were statistically viii significantly correlated with profitability in the banks sampled. This suggested that provision of these services was linked to higher profitability. The results of the logistic regression indicate that only differentiation services remain statistically significantly linked to profitability at the multivariate analysis (AOR=1.362, CI: 1.013-1.832; p=0.041). This means that banks that received differentiation services from management consultancy firms had 1.362 higher odds of being profitable than those who didn’t receive differentiation services. The finding that product and process differentiation can be achieved through engagement of management consultants is supported by other literature. Management consultancy is critical in the banking sector as shown in this study. Appropriate use of management consultancy services is greatly linked to competitive advantage as shown by the profitability analysis and management consultancy assessment of the commercial banks in this study. While other factors are involved, it has been shown that the involvement of management consultancy especially for other services other than just auditing functions leads to high performance indices among the banks.