Diversification Strategy and Competitive Advantage of Commercial Banks in Kenya

Abstract

Strategy has been a game which has been put forth by banks to ensure they are ahead of the pack. Diversification as a strategy has meant that organizations make use of existing resources to expand the business into new frontiers and expand the profitability of the organization in leaps and bounds. This study sought to investigate the use of diversification strategy by commercial banks in Kenya as a means of gaining sustainable competitive advantage. The study utilized theoretical approaches from three theories mainly resource based theory, game throaty and industrial organizational theory. The study adopted cross sectional survey design and census survey. The study targeted 42 commercial banks in Kenya The study also used a questionnaire to collect data and descriptive and inferential statistics to analysis collected data. The paper established that achieving competitive advantage is possible whenever banks roll out new products and services. However, sustaining competitive advantage called for the banks to ensure their diversified products were well thought out. The study further revealed that the decisions made and resources employed to arrive at these products and services were unique, rare and are not easily replicated by competition. The study further revealed that innovative ventures arrived at by banks through the use of technology especially when building key alternate channels of business would last and were likely to result into better and more guaranteed return on investments. This study concluded that charging lower interest rates led to an increase in the number of customer and that the downscoping of services improved profitability in areas of focus. Also, the study concluded that strategic alliances played a vital role in the gaining of a competitive advantage. The study inferred that there was an influence in the use of diversification strategy on the competitive advantage of commercial banks in Kenya. Therefore, the study recommended that there’s needed continuous technological innovation in order to enhance their service delivery and utilize diversification strategy through technology inclusions on existing products.