The Effect of Diversification Strategies on the Performance of Commercial Banks in Kenya.

Abstract

Diversification has been a key strategy employed by organizations in an attempt to improve their attractiveness and performance. In the banking industry, diversification boosts the performance as it helps in initiating actions which leverage in the existing internal as well as external resources which in turn support other venture hence complement the overall performance of the organization. This research therefore sought to find the effect of diversification strategies on the commercial banks performance in Kenya. The study specific objectives were to evaluate the effect of product diversification strategies, to assess the effect of market diversification strategies and finally, to assess the effect of internal growth diversification strategies on the performance of commercial banks in Kenya. The target population was the 42 registered commercial banks in Kenya and a census method was used to obtain the sample size. Both primary and secondary data were used. Primary data was collected through questionnaires from the managerial staff. The data was coded, tabulated and analyzed using Statistical Package for Social Science (SPSS) software and Excel. Descriptive statistics like frequencies, percentages, means and standard deviation were used to analyze the data. Inferential statistics which included linear regression and ANOVA were also carried out. The study established that Mobile and Internet banking is highly employed as a product diversification strategy. Further, addition of new product features to the existing product (pricing) and branding /rebranded most of the existing products and re-launching them into the market are key marketing strategies commercial banks in Kenya can use to enhance their performance. Additionally, using retained earnings for the bank expansions, giving dividends to the stakeholders and paying bank‟s debts is a significant internal growth diversification strategy. Results further indicated that the independent variables studied explain 53.7% of the effects of diversification strategies on the performance of Commercial Banks of Kenya. The ANOVA report indicated that the regression model was significant. Among the three variables studied, the strongest relationship was exhibited between bank performance and internal growth diversification strategies. The study recommends application of the diversification strategies highlighted in expending the scope of markets and operations of their entities in a bid to ensure sustainable competitive advantage in the banking industry.