Influence of Strategy in the Relationship Between the Operating Environment and Performance of Commercial Banks in Kenya

Abstract

The ability of organizations to survive and perform well in a turbulent business environment depends on their ability to formulate and implement good strategies. Competition in the commercial banking industry has intensified with strategic shifts in the industry resulting from various external factors including changing economic environment, restrictive legal and regulatory framework and changes in technology among other factors. Commercial Banks in Kenya have to therefore constantly adapt strategies that will help them perform well and overcome negative changes in the environment. The objective of this study was to determine the influence of strategy in the relationship between the operating environment and performance of commercial banks in Kenya. The population of the study consisted of all the Commercial banks in Kenya. Primary data was collected using structured questionnaires. Analysis of data was done using descriptive statistics which looks at measures of frequency such as percentages, measures of central tendency such as mean and measures of dispersion such as range. Data was presented in the form of tables, charts and narratives. The findings of this study indicate that today’s business environment is characterized by dynamic variables leading to unique business challenges and opportunities. The findings show that government regulation is the most dominant challenge facing commercial banks in Kenya. The findings also indicate that innovation, market share and financial performance are the most frequently used measures of performance by commercial banks in Kenya with financial performance being used to a great extent as compared to other measures of performance. Majority of the respondents agreed that strategy plays an active role compared to a passive one in the performance of commercial banks and that strategy has a positive influence in mitigating challenges faced by banks in their environment and in improving performance. This satisfies our research objective and supports the fact that organizations which have a precise strategy outperform those without one. To further evidence the adoption of strategy and strategic concepts by commercial banks in Kenya, the findings suggest that the threat of substitutes and barriers to entry are the competitive forces that affect the commercial banking industry the most. Strategic Analysis tools commonly used by the banks are SWOT analysis and the balanced scorecard and research and development followed by marketing strategies are the dominant strategy used by commercial banks in improving performance.Various conclusions, recommendations for policy, practice and further studies have been made based on the findings of the study.