Competitive Strategies and Performance of Commercial Banks in Kenya

Abstract

Strategic management ensures organisational performance by creating and shaping effective strategy to outwit competition. The primary objective of banks is to maximize the performance overtime leading to profitability. Superior performance can be achieved in a competitive industry through pursuit of a generic strategy. The banking industry has witnessed the rise of many banks which are all competing for the same market. This has demanded that banks formulate and implement competitive strategies to be able to cope with the competitive pressures. Following the changes in the environment, banks have been forced to come up with competitive strategies that will deal with the forces in the environment in order to gain a competitive advantage in terms of performance. This study therefore aimed at determining the influence of competitive strategies to the firm’s performance. Despite the challenges and changes in the environment facing the banking sector, banks have continued to be among the formidable firms in the financial sector operating profitably. This is as a result of the various strategies the banks have been putting in place in order to attain superior performance. The choice of strategies by commercial banks have determined the direction of the bank and the performance. The study used a survey study to assist in achieving the objectives of the study. The study involved a collection of both primary and secondary data. Primary data was collected by use of a structured questionnaire which was distributed to corporate strategy managers or operations managers of the banks who’s positions and roles gives them the ability to respond effectively to most of the questions. To achieve this objective, respondents were issued with a number of competitive strategies and were required to score on 5 point likert scale the extent to which the strategies were adopted by their respective banks. The population of the study consisted of all the 43 commercial banks operating in Kenya as at 31st December 2010. Out of the 43 banks targeted, 30 responded by returning filled questionnaires. This formed 70% response rate. Secondary data in form of various performance measures was obtained from the respective banks financial and management statements of banking institutions operating in Kenya as well as from the Central Bank of Kenya’s Website on performance and strategies being adopted. Measures of central tendency and measures of dispersion, proportions and percentages were used to describe the data. Pearson correlation analysis was used to examine the relationship between independent variables (low - cost leadership, differentiation and focus) and the dependent variable (Firm Performance). The study was able to establish that despite the challenges faced by banks in implementing competitive strategies, they are very important since they enable the remain competitive. In the banking industry, understanding the market structure is a key determinant for successful implementation of competitive strategies. Banks following differentiation strategy statistically achieved significant superior performance compared to those that pursued cost leadership and focus strategies. The cost leadership strategy has since been employed by close to all commercial banks hence cannot be sufficient in itself to deal with competition. Commercial banks have to keep differentiating their services from those of other banks to achieve competitive advantage. The researcher highly recommends that banks shift their focus to differentiation strategy to enable them achieve superior performance.