| dc.description.abstract | A fundamental question in corporate strategy is the choice of horizontal scope – the set of industries and market segments in which a firm competes. Governing this choice is a trade-off between the threat of losing focus and the opportunity to grow and exploit synergies. This trade-off raises the question of whether and when diversification is profitable. Though diversification has been inconclusively linked to organizational performance, diversification strategy alone cannot influence performance. The top management team is in control of any strategy from formulation to implementation. Different strategies pose different management challenges that, in turn, require systematically different management skills and experiences to be implemented successfully. Designing viable strategies for a firm requires a thorough understanding of the firm‘s competitive environment. The relationship between diversification and performance is complex and is affected by intervening and contingent variables such as type of relatedness, the capability of top managers, industry structure and the mode of diversification. The study sought to establish the effect of top management team diversity and competitive environment on the relationship between diversification strategy and performance of companies listed at the Nairobi Securities Exchange in Kenya. Specifically, the study sought to establish the influence of diversification strategy on performance as moderated by top management team diversity and competitive environment. A census survey was carried out on all the 59 publicly quoted companies out of which 35 responded. The study reveals statistically significant results for the influence of diversification strategy on non-financial measures of firm performance and statistically not significant results on financial performance. Specifically, diversification relatedness had a statistically significant effect on organizational performance whereas mode of entry into diversification did not have a statistically significant effect. The findings revealed statistically not significant results for the individual and combined moderating influence of TMT diversity and competitive environment on the relationship between diversification strategy and organizational performance. This study has contributed to the general body of knowledge by providing empirical findings for the context of companies listed at the NSE a context which is largely unexplored in literature with regard to diversification strategies. The introduction of TMTD and CE as moderating variables is unique and the statistically not significant results imply that there could be other factors that influence this relationship other than TMTD and CE. For policy makers, the study implies that diversification is an effective strategy for improving firm performance. The results of this study can be used in policy development in the areas of business growth strategies and priority diversification areas for business firms. Managers can use the findings of this study to identify performance drivers in their respective organizations. More importantly, they should establish which DS will lead to a sustainable competitive advantage. One of the main drawbacks of this study was that the financial performance indicators (EPS and PBT) yielded statistically not significant results when they were regressed with the various study variables. The study therefore considered only non-financial measures of firm performance. Secondly, the study employed a cross sectional approach whereas a longitudinal approach would provide for a longer time of study to observe relationships among study variables. Future research studies can use other organizational characteristics as moderators to gain further insights into the relationship between diversification strategy and firm performance | en_US |
