The Role of organizational capabilities on organizational performance in the financial services sector in Kenya: the mediating role of effective leadership

Abstract

Organizational capability, the unique and inimitable process and resources in an organization, contributes significantly to organizational success globally. For firms to gain a competitive advantage over competitors in an arena filled with turbulence, it is crucial that organizational capability be borne in mind. Specifically, organizational processes, resources and values are foundational to the success of an organization, and more so for the financial services sector as they contribute to economic growth and progress of nations. The overall aim of this study was to examine the mediating role of leadership effectiveness on the role of organizational capabilities on organizational performance in the financial services sector in Kenya. Specifically, the study set out to: determine the effect of organization capabilities on organizational performance in the financial services sector in Kenya; find out the effect of leadership effectiveness on the organizational performance in the financial services sector in Kenya; and, establish the mediating role of leadership effectiveness on the role of organizational capabilities on performance in the financial services sector in Kenya. To attain the objectives of this study, these theories were used to anchor the study: Resources Process and Values (RPV) model, Resources Based View, Dynamic Capabilities Theory and Situational Leadership Theory. A pragmatic research approach was utilized in this study, which incorporated a mix of quantitative and qualitative techniques, and employed a mixed methods research design. In the study, 39 commercial banks, 13 microfinance institutions, 55 insurance companies, 23 investment banks and 175 deposit taking SACCOs were included in this study. Data collection in the study involved the use of questionnaires and in-depth interviews. Data analysis was carried out using descriptive and inferential statistics for quantitative data and thematic analysis for qualitative data. Findings from the study showed that there was positive and statistically significant effect of organization capabilities (resources, values and processes) on the performance of the financial services sector in Kenya; there was a positive and statistically significant effect of leadership effectiveness on organizational performance of financial institutions in Kenya and that leadership effectiveness has statistically significant mediating role on the effect of organizational capabilities on organizational performance. The study concluded that organizational capabilities, mediated by leadership effectiveness, indeed have an effect on financial and non-financial services sector in Kenya. From the study, with regards to theoretical implication, further, study needs to investigate how to improve leadership effectiveness in the financial services sector in order to enhance organization capabilities and organizational performance. One practical implication is the need to invest in leadership development in order to improve corporate leadership in Kenya. Keywords: organizational capability; resources; processes; values; leadership effectiveness; financial and non-financial performance; financial services sector; resource-based view; dynamic capabilities theory; situational leadership theory.