Relationship between Business Level Strategy and Performance of Commercial Banks in Kisumu City,Kenya

Abstract

The service sectors which include the banking sector makes 58% contribution to Kenya's GDP as per the World Bank Statistics 2010. Commercial bank branches in Kisumu city are facing stiff competition from other branches as well as microfinance institutions that offer substitute services and products. In addition to mobile banking and promotions the bank branches in Kisumu city need to find alternatives to gain competitive advantage. Past studies have focused on the various techniques of business level strategies adopted by firms but have not indicated the relationship between these strategies and the performance of commercial banks. The purpose of this study was to establish the relationship between business level strategy and performance of banks in Kisumu city. The objectives of this study were; to identify the relationship between cost leadership strategy and banks performance in Kisumu city, to understand relationship between focus strategy and banks performance in Kisumu city and to analyse relationship between differentiation strategy and banks performance in Kisumu city. The study was guided by descriptive survey research design. The study's target population was 35 commercial bank branches within Kisumu city. A sample of 32 banks was selected using simple random sampling method. Primary data was collected through structured and unstructured self-administered questionnaires, while .secondary data was collected by the use of relevant publications and reports. Cronbach's reliability statistics was computed giving an alpha coefficient of 0.701 for the dependent variable and 0.817 for the independent variable. The data was analyzed by use of Spearman's correlation model to establish the relationship between the variables. The findings were as follows: correlation between cost leadership strategy and banks performance was found to be a significant positive correlation coefficient thus: r =.805, p<O.Ol, Correlation between focus strategy and banks performance was also found to be a significant positive correlation, thus r =.788, p<O.Ol, Correlation between differential strategy and bank performance was also found to be a significant positive correlation, thus r = .878, p<O.Ol, and correlation between business strategic level and performance of commercial banks in Kisumu city was found to be a significant positive correlation of r =.778, p<O.Ol. Collectively these fmdings indicate that there is a positive relationship between business strategic level and performance of commercial banks in Kisumu city, therefore business strategy levels should be embraced in order to enhance the overall performance of organizations. The study may help in understanding the types of business level strategies used by banks; hence help in understanding their effect on banks performance in Kisumu. This would help in understanding the dynamics of business strategies that work and those that don't, especially in the western section of the country.