Influence of Strategic Management Practices on Performance of Industrial Development Bank Ltd, Kenya

Abstract

Improving organizational performance and efficiency in service delivery of public institutions has seen the implementation of performance management system through performance contracting throughout the public sector. Based on this framework, public institutions are subjected to annual performance evaluation. However, the evaluation tool used does not isolate or attribute the performance of these institutions to any specific management practices. Although there exists studies on the relationship between strategic management practices and organizational performance, most of these studies focus on private sector organizations whose characteristics differ from those of state owned institutions and thus their findings may not be applicable to the state owned entities. The study sought to examine the influence of strategic management practices on performance of state owned banks in Kenya, with specific reference to Industrial Development Bank Limited. The specific objectives of the study were to examine the influence of strategy formulation on profitability of Industrial Development Bank Limited; to establish the influence of strategy implementation on profitability of Industrial Development Bank Limited; and to examine the influence of strategy evaluation and control on profitability of Industrial Development Bank Limited. The study employed the use of both descriptive and correlation research design to establish the nature of the relationships. A sample of 35 employees from the target institution was taken. Primary data was collected using closed and open ended questionnaires. Regression analysis was used to establish the influence of strategic management practices on organizational performance as measured by profitability. The reliability of the questionnaire was tested using a pilot often questionnaires administered to individuals working in banking institutions other than Industrial Development Bank Limited. Reliability was computed using Cronbach's alpha with the value of alpha being 0.73 for performance, 0.78 for strategy formulation, 0.76 for strategy implementation and 0.90 for strategy monitoring and control which is regarded as good. The regression output based on the strategic management practices as regressors and organizational performance as the dependent variable had a correlation coefficient of 0.74 meaning that there was a positive relationship between the variables. The coefficient of determination R 2 was equal to 0.56 meaning that 56% of the variations in organizational performance can be explained by the strategic management practices. The regression coefficients were -4.66 for strategy formulation, 17.42 for implementation and 8.85 for monitoring and control. The P values for the three variables were less than the critical value of alpha. The findings show that strategy implementation is critical for improvement of organizational performance. Hence the study recommends further analysis of the elements of strategy implementation and their relationship to organizational performance in Development Finance Institutions.