The Effect of business growth strategies on organizational performance: a case of tier III commercial banks in Nairobi City County, Kenya

Abstract

Industry statistics have shown that continuously Tier-III commercial banks in Kenya have suffered from intense competition within the industry. This has resulted in a drop in the performance of the firms and the placement of several institutions under receivership. Further, most of the Tier III banks have failed to meet the prudential requirements as advanced by the regulator. It is from this backdrop that this research sought to determine if business growth strategies do influence the performance of the banks. The research specifically focused on product development strategies, diversification strategies, market penetration strategies, and market development strategies. The organization performance of the banks was measured using the balance scorecard perspective. The study used both the Ansoff Growth Matrix and the resource-based view to inform how business growth strategies can be leveraged to foster competitiveness and performance within the industry. The research implemented a descriptive cross-sectional design in the conduct of the study. This allowed for the examination of the study variables within a particular period. The population of the study was the 22 operational Tier III banks with 5 senior managers being considered for the study. The sample size for this study was 105 participants drawn from the banks. Structured questionnaires were applied in the data collection. The study analyzed the data using a quantitative approach; descriptive, correlation and regression analysis. The findings were presented using charts and tables. The research obtained a 75% response rate from the selected participants. The correlation tests showed there was positive relation between product development strategies, diversification strategies, market penetration strategies, market development strategies, and organization performance of Tier III commercial banks. Overall, the regression established that 78.5% of changes in the organization performance of Tier III commercial banks in Kenya are determined by the business growth strategies. The coefficient findings showed that market penetration and diversification strategies did have a significant positive influence on organization performance while market development and product development did not significantly impact the banks' performance. The research concluded that business growth strategies have significant positive effects on the organizational performance of Tier III commercial banks in Kenya. Findings also supported the conclusion that only market penetration and diversification strategies had a significant positive effect on the performance of the banks. The study recommends that the bank management constantly review existing products, develop new products, and align product decisions with expected earnings and wealth maximization objectives. The study recommends that the banks adapt digital marketing strategies and strategic partnerships with fintech firms as this would allow them to market services at lower costs and leverage newly developed fintech products. With market development and product development strategies exhibiting insignificant effects on organizational performance, this study calls on Tier III banks to establish unique channels where they can strategically cooperate with customers and industry players in the development of products and services that would cater to market needs.