Effect of Organizational Structure on Firm Performance of Insurance Companies in Kenya

Abstract

The organizational structure of a firm is a fundamental factor influencing its performance. A well-designed structure supports effective communication, aligns with strategic objectives, facilitates decision-making processes, and fosters employee motivation. A well-defined structure establishes clear reporting relationships and delineates the flow of information within the organization. The objective of this research study was to determine the influence of organizational structure on firm performance of insurance companies in Kenya. This investigation was based on two theories, namely; Systems theory and Wernerfelt’s resource-based theory. This study used a descriptive research design to examine the impact of organizational structure on performance of insurance businesses in Kenya. The purpose of the research was to gather extensive data from each of the 56 insurance companies in order to investigate the relationship between organizational structure and business success. The unit of analysis was 56 insurance companies while the respondents were the human resource managers in the insurance companies. Data was gathered via the use of a questionnaire for the research. Both closed and open-ended questions were included in the survey. The descriptive statistical analysis of the data was carried out on the research study. The purpose of this study was to examine the connection between company structure and performance by means of a correlation analysis. The study concludes that there exists a substantial association between centralization and the firm performance of insurance companies as established by the research. This relationship was found to be positive and strong. Furthermore, a noteworthy and robust positive association was found to exist1between1formalization and the firm performance of insurance companies, as shown by the correlation coefficient. In addition, the results of the research demonstrated a noteworthy and robust positive link between1the1complexity and their firm performance. The results of the research demonstrated that there1exists a1noteworthy and robust positive link between the departmentalization and firm performance of insurance companies. As per the study findings, departmentalization had strong influence on performance of insurance companies followed by formalization, then centralization and finally complexity. Insurance companies should consider strategically decentralizing certain functions or decision-making processes. While formalization has been associated with firm performance, it's crucial for insurance companies to find the optimal level that aligns with their specific operational needs. Striking the right balance is essential to avoid excessive bureaucracy, which could impede agility and responsiveness. To mitigate the negative impact of excessive complexity, insurance companies should prioritize simplifying their operational processes. To enhance firm performance, insurance companies should strategically align their departmental structures with overall organizational goals. This involves regularly reviewing the functions and responsibilities of each department to ensure they contribute directly to the company's strategic objectives