Diversification Strategy and Financial Performance of Kenya National Police Deposit Taking Sacco

Abstract

Diversification strategy remains a critical corporate strategy in the business world today for purposes of building a sustainable competitive advantage, growth of market share, spreading business risks, resource utilization efficiency, promote and promoting profitability and the overall financial performance. The purpose of the study was to determine the influence of diversification strategy on the financial performance of Kenya National Police Deposit Taking SACCO. This study was anchored on three theories including Ansoff Product Matrix on the four main growth strategies by Igor Ansoff in 1957, the Modern Portfolio Theory (MPT) by Henry Markowitz (1952) which emphasizes the need for firms to invest in a range of portfolios with different correlations as a way of spreading risks and the Resource Based Theory (RBT) by Birger Wernerfelt (1984) which allows firms to leverage upon their rare and inimitable inward capabilities to gain competitive advantage. This research adopted a case study research design and involved collection of primary data gathered using face to face or virtual interviews conducted to all nine functional managers and three senior managers for the three divisions of the SACCO. The collected data was analyzed through content analysis approach. The research findings revealed that the SACCO has adopted four main diversifications strategies including membership diversification involving opening of the common bond to allow recruitment of members outside the original sources; product and service diversification characterized with introduction of innovative products and services customized to meet the needs of members; geographical diversification or robust branch network with eight physical branches and a virtual branch supported by technology; and investment portfolio diversification where investments are spread across a range of investment classes as a way of managing risks and enhancing profitability. As revenue from diversification increases, the gross revenue have also significantly increased thus diversification strategy has positively affected financial performance of the SACCO. The study made four recommendations including membership recruitment and retention from all corporate segments across the country; continued branch network enhancement; introduction of innovative products and services for the members and enhanced investment portfolio diversification.