Effect of Lean Six Sigma Implementation on Operational Performance of Micro-finance Institutions in Kenya

Abstract

Lean Six Sigma is means by which organizations achieve efficiency and effectiveness. The impact of these practices influences the sustainability of operational performance. The study aims to establish the impact of Lean Six Sigma on operational performance of microfinance institutions in Kenya and the challenges of implementing Lean Six Sigma Practices. Lean Six Sigma practices under study are Customer focus, Organizational flexibility, Organizational leadership and Organizational culture. The study is anchored on three theories namely theory of constraints, Resource dependency theory and Organizational learning theory. The population under study was 51 registered microfinance institutions in Kenya. A census survey was used to determine the relationship between Lean Six Sigma and operational performance of microfinance institutions in Kenya. Original data which was collected through a questionnaire was used. 53.8% of the response rate was achieved. Diagnostic test was done on study variables which included the test of normality and reliability test. The test of normality showed that data was a little skewed and kurtotic and did not differ significantly from normality. Cronbach alpha test was used to measure reliability and showed that there was internal consistency of the study components. Descriptive statistics was used to determine Lean Six Sigma Practices adopted by Microfinance Institutions in Kenya. Pearson correlation coefficient was used to test the strength of the relationship between variables. There was a positive relationship between operational performance and customer focus, organizational flexibility, leadership and culture. Multiple regression model of the study variables revealed that independent variables are the key determinants of Operational performance among microfinance institutions. Analysis of variance of the study variables pattern indicated that the assumption was that the residuals are normally distributed at each level of operational performance and constant in variance across levels of operational performance. The results of the study also indicate that that organizational flexibility as a Lean Six Sigma practice has a lot of impact with the highest mean of 14.4 imply that the microfinance institutions are easily adaptable to practices that improve operational performance. The challenges of the study were that much microfinance is that a lot of resources especially technology is required to implement the lean six sigma practices. The study commends that more studies to be done on the topic so as to establish unknown factors that influence the performance of microfinance institutions in Kenya. Out that all the independent variables (Customer focus, leadership, organizational flexibility and organizational culture) the study found out they have a positive correlation with the dependent variable. The study concluded that implementation of Lean Six Sigma affected operational performance of microfinance institutions in Kenya, the effect was 53.8 percent of the total variation. The study recommends adoption and implementation of Lean Six Sigma practices as a continuous process of creating, acquiring and transferring knowledge as one or two practices may not yield the desired results. The study also recommends that Microfinance institutions in Kenya should embrace technology so as to enhance effectiveness and efficiency.