THE EFFECT OF BUSINESS GROWTH STRATEGIES ON ORGANIZATIONAL 

PERFORMANCE:  A CASE OF TIER III COMMERCIAL BANKS IN NAIROBI 

CITY COUNTY, KENYA 

 

 

 

 

 

 

OLIVIA ONG’ELE 

MBA/136506 

 

 

 

 

 

A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE 

REQUIREMENTS FOR MASTER IN BUSINESS ADMINISTRATION, 

STRATHMORE BUSINESS SCHOOL, STRATHMORE UNIVERSITY 

 

 

 

 

 

2024 



ii 

 

 

DECLARATION  

This dissertation my original work and has not been submitted for examination in any other 

institution. 

© No part of this dissertation may be reproduced without the permission of the author and 

Strathmore University 

Olivia Ong’ele 

MBA 

 

Sign:       Date: 22nd January 2024 

 

 

 

 

 

Approval 

  

This dissertation has been submitted for examination with my approval as the university 

supervisor 

 

Dr. Olgha Adede (PhD) 

Lecturer, Strathmore University 

 

Sign: …… ……  Date: 22nd January 2024 

 

 



iii 

 

 

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. 

 

 

 

 

TABLE OF CONTENTS 

DECLARATION...................................................................................................................... ii 



iv 

 

 

ABSTRACT ............................................................................................................................ iii 

TABLE OF CONTENTS ...................................................................................................... iii 

LIST OF TABLES ............................................................................................................... viii 

LIST OF FIGURES ................................................................................................................. x 

ABBREVIATIONS AND ACRONYMS ............................................................................... xi 

DEFINITION OF TERMS.................................................................................................... xii 

CHAPTER ONE ...................................................................................................................... 1 

INTRODUCTION.................................................................................................................... 1 

1.1 Background to the Study .................................................................................................. 1 

1.1.1 Business Growth Strategies ...................................................................................... 3 

1.1.2 Organizational Performance ..................................................................................... 6 

1.1.3 Tier III Commercial Banks in Kenya........................................................................ 7 

1.2 Statement of the Problem ................................................................................................. 8 

1.3 Objective of the Study ................................................................................................... 10 

1.3.1 Main Objective of the Study ................................................................................... 10 

1.3.2 Specific Objectives ................................................................................................. 10 

1.4 Research Questions ........................................................................................................ 10 

1.5 Scope of the Study ......................................................................................................... 11 

1.6 Significance of the Study ............................................................................................... 11 

1.7 Chapter Summary .......................................................................................................... 12 

CHAPTER TWO ................................................................................................................... 13 

LITERATURE REVIEW ..................................................................................................... 13 

2.1 Introduction .................................................................................................................... 13 

2.2 Theoretical Foundation of the Study.............................................................................. 13 

2.2.1 Resource-Based View ............................................................................................. 13 

2.2.2 The Dynamic Capabilities Theory .......................................................................... 14 



v 

 

 

2.2.3 The Ansoff Growth Model...................................................................................... 15 

2.3 Empirical Review........................................................................................................... 16 

2.3.1 Market penetration strategies and Organization Performance ................................ 16 

2.3.2 Market development strategies and Organization Performance ............................. 18 

2.3.3 Product Development Strategies and Organization Performance ........................... 20 

2.3.4 Diversification Strategies and Organization Performance ...................................... 23 

2.4 Summary of Research Gaps ........................................................................................... 25 

2.5 Conceptual Framework .................................................................................................. 27 

2.6 Operationalization of the Study Variables ..................................................................... 28 

2.6 Chapter Summary .......................................................................................................... 31 

CHAPTER THREE ............................................................................................................... 32 

RESEARCH METHODOLOGY ......................................................................................... 32 

3.1 Introduction .................................................................................................................... 32 

3.2 Research Philosophy ...................................................................................................... 32 

3.2.1 Research Design...................................................................................................... 32 

3.3 Population of Study........................................................................................................ 33 

3.4 Sampling Design ............................................................................................................ 33 

3.5 Data Collection .............................................................................................................. 34 

3.6 Research Quality ............................................................................................................ 34 

3.6.1 Validity Test............................................................................................................ 35 

3.6.2 Reliability Test ........................................................................................................ 35 

3.7 Diagnostic Tests ............................................................................................................. 36 

3.7.1 Multicollinearity Tests ............................................................................................ 36 

3.7.2 Normality Tests ....................................................................................................... 36 

3.7.3 Autocorrelation Tests .............................................................................................. 37 

3.7.4 Heteroscedasticity Tests.......................................................................................... 38 



vi 

 

 

3.8 Data Analysis and Presentation ..................................................................................... 38 

3.9 Ethical Considerations ................................................................................................... 39 

3.10 Chapter Summary ........................................................................................................ 39 

CHAPTER FOUR .................................................................................................................. 40 

PRESENTATION OF RESEARCH FINDINGS ................................................................ 40 

4.1 Introduction .................................................................................................................... 40 

4.2 Response Rate ................................................................................................................ 40 

4.3 Demographic Characteristics ..................................................................................... 40 

4.3.1 Work Position and Experience Level ..................................................................... 41 

4.4 Descriptive Analysis ...................................................................................................... 42 

4.4.1 Market Development in Tier III Commercial Banks .............................................. 43 

4.4.2 Market Penetration in Tier III Commercial Banks ................................................. 44 

4.4.3 Product Development in Tier III Commercial Banks ............................................. 45 

4.4.4 Diversification Strategies in Tier III Commercial Banks ....................................... 46 

4.4.5 Organization Performance of Tier III Commercial Banks ..................................... 47 

4.5 Correlation Analysis ...................................................................................................... 49 

4.6 Regression Analysis ....................................................................................................... 50 

4.6.1 Effect of Market Development on Organization Performance of Tier III Banks ... 50 

4.6.2 Effect of Market Penetration Strategies on Organization Performance of Tier III 

Banks................................................................................................................................ 51 

4.6.3 Effect of Product Development Strategies on Organization Performance of Tier III 

Banks................................................................................................................................ 52 

4.6.4 Effect of Diversification Strategies on Organization Performance of Tier III Banks

.......................................................................................................................................... 53 

4.7 Business Growth Strategies and Organization Performance of Tier III Banks ............. 54 

4.8 Chapter Summary .......................................................................................................... 56 



vii 

 

 

CHAPTER FIVE ................................................................................................................... 57 

DISCUSSION, CONCLUSION AND RECOMMENDATION ......................................... 57 

5.1 Introduction .................................................................................................................... 57 

5.2 Summary of the Study ................................................................................................... 57 

5.3 Discussion of Results ..................................................................................................... 58 

5.3.1 Market Development Strategies and Organization Performance of Tier III Banks 58 

5.3.2 Market Penetration Strategies and Organization Performance of Tier III Banks ... 59 

5.3.3 Product Development Strategies and Organization Performance of Tier III Banks

.......................................................................................................................................... 60 

5.3.4 Differentiation Strategies and Organization Performance of Tier III Banks .......... 61 

5.4 Conclusions .................................................................................................................... 62 

5.5 Recommendations .......................................................................................................... 64 

5.6 Limitations of the study ................................................................................................. 65 

5.7 Area for Further Research .............................................................................................. 65 

REFERENCES ....................................................................................................................... 67 

APPENDICES ........................................................................................................................ 78 

Appendix I: Introduction Letter ........................................................................................... 78 

Appendix II: Research Questionnaire .................................................................................. 79 

Appendix III: List of Tier III Commercial Banks ................................................................ 85 

Appendix IV: NACOSTI Research Permit .......................................................................... 86 

 

  



viii 

 

 

LIST OF TABLES  

Table 2.1 Summary of Research Gap .................................................................................. 25 

Table 2.2 Operationalization of the Study Variables ........................................................... 29 

Table 3.1 Target Population ................................................................................................. 33 

Table 3.2 Reliability Results ................................................................................................ 35 

Table 3.3 Collinearity Results .............................................................................................. 36 

Table 3.4 Autocorrelation Result ......................................................................................... 37 

Table 3.5 Heteroscedasticity Result ..................................................................................... 38 

Table 4.1 Demographic Results ........................................................................................... 41 

Table 4.2 Respondent Work Position and Experience......................................................... 42 

Table 4.3 Results on Market Development Strategies ......................................................... 43 

Table 4.4 Results on Market Penetration Strategies ............................................................ 44 

Table 4.5 Results on Product Development Strategies ........................................................ 45 

Table 4.6 Results on Diversification Strategies ................................................................... 46 

Table 4.7 Results on Organization Performance ................................................................. 47 

Table 4.8 Results of Correlation Analysis ........................................................................... 49 

Table 4.9 Regression between Market Development on Organization Performance .......... 50 

Table 4.10 Regression between Market Penetration Strategies and Organization 

Performance ......................................................................................................................... 51 

Table 4.11 Regression between Product Development Strategies and Organization 

Performance ......................................................................................................................... 52 

Table 4.12 Regression between Diversification Strategies and Organization Performance 53 

Table 4.13 Regression Model for Business Growth Strategies and Organization Performance

.............................................................................................................................................. 54 

Table 4.14 ANOVA Summary for Business Growth Strategies and Organization 

Performance ......................................................................................................................... 55 



ix 

 

 

Table 4.15 Regression Coefficients for Business Growth Strategies and Organization 

Performance ......................................................................................................................... 55 

 

  



x 

 

 

LIST OF FIGURES 

Figure 2.1 Conceptual Framework ...................................................................................... 27 

Figure 3.1 Normality Plot .................................................................................................... 37 

Figure 4.1 Response Rate .................................................................................................... 40 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



xi 

 

 

ABBREVIATIONS AND ACRONYMS 

ATM Automatic Teller Machine 

CBK Central Bank of Kenya 

GDP Gross Domestic Product 

KBA Kenya Bankers’ Association 

RBV Resource-Based View 

SME Small and Medium Enterprises 

SPSS Statistical Package for Social Sciences 

UBA United Bank of Africa 

TBL Triple Bottom Line 

BSC Balance Score Card 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



xii 

 

 

DEFINITION OF TERMS 

Innovation  This is defined as the production of products and services 

by significantly improving functionality using technology 

(Forcadell, Aracil, & Úbeda, 2019). 

Market development strategy  This is the approach used by organization to achieve its 

objective to increase in size, volume, and turnover (Egberi 

& Osio, 2019). 

Market penetration strategies The process of entering new markets (Ansoff,1957) 

Organization capabilities Rehman, Mohamed, and Ayoup (2019) define 

organizational capabilities as an organization’s capacity to 

deploy strategic assets to improve performance and enable 

the firm to develop new products, innovate or offer 

exceptional customer service 

Organizational Performance This relates to a company's performance in relation to its 

strategic orientation towards its objectives (Kaplan R. S., 

2009). 

Product Development This is the combined process of introducing new products 

or enhancing the quality of existing products with a view 

of enhancing firm growth (Kariuki, 2012). 

 

 

 

 

 

 

 

 

 

 

 



xiii 

 

 

 

ACKNOWLEDGEMENT 

I recognize the Almighty God for His grace in seeing me through the challenges and limitations 

of the process of developing this dissertation. 

I am immensely grateful to my supervisor Dr Olgah Adede for her invaluable guidance, 

expertise and unwavering support throughout this research journey. Her insightful feedback 

and constructive criticism and mentorship; was truly instrumental in shaping the quality of this 

dissertation. 

I express my gratitude to the employees of various organizations who took part in this study 

and the research assistants, without whom this research would not have been possible. 

Lastly, I wish to express my gratitude to my employers, colleagues, fellow students and many 

close friends for their support and encouragement. To the Strathmore Research office, thank 

you for your continuous support throughout the entire process. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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DEDICATION 

I dedicate this Dissertation to God Almighty, my pillar and source of inspiration, wisdom and 

inspiration. I also dedicate this dissertation to my family, my husband Jeff and children Giselle, 

JB and Jasmine and my house manager. Thank you for your support and encouragement 

throughout my academic journey. 

I also dedicate this dissertation to my father and my mother who have loved me, encouraged 

me and believed in my capabilities. To my siblings, I truly thank you for your support and 

encouragement. 

 

 

 

 

 

 



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CHAPTER ONE 

INTRODUCTION  

This section introduces the study’s concepts. It includes the background to the study, presents 

a conceptualization of the study’s variables, the statement of the problem, the research 

objective and questions, and concludes by providing the scope and significance of the study.  

 

1.1 Background to the Study  

The dynamic business environment, changing customer needs and technological development 

are forcing firms to evaluate and experiment on the various ways they can stimulate growth in 

their business operations. Growth is exciting and according to Mwania (2017), an indicator of 

success. Mwania (2017) confirmed that growth presents an opportunity to attain economies of 

scale, expand their market share, and gain influence, power, and survivability. Organizations 

are crafting and implementing strategies to improve their annual revenue generation, number 

of customers, and operational capability (Danisman, 2018). In the financial sector, banks are 

having to contend with the needs of both Gen Z and Gen X customers as Zhao, Noman, and 

Hassan (2023) report, currently, up to 32 percent of bank customers are open to switching their 

primary bank. High fees, poor rates on deposits and loans, negative reputation, and poor 

customer experience were among the main sources of disgruntlement. To grow and become 

competitive, they must adapt appropriate strategies that would ensure they strengthen their 

product and service offering even when faced with challenges (Daihani & Kristaung, 2018). 

Khaing (2023) considers growth to be the quantitative and qualitative development of a 

business, improving in terms of product and service quality, as well as in current output, sales 

revenue, product range, and resource productivity. Growth strategies aim to ensure firms create 

an edge above their competitors and win a larger market share through product and market 

development, diversification, and market penetration, even if they sacrifice short-term earnings 

(Gacanja, 2023). However, while important, Zheng and Escalante (2020) contend, and provide 

evidence linking aggressive growth strategies to bank failure. In the study, it was ascertained 

that it is important that banks adopt a conservative business growth stance which requires that 

banks carry out regular assessments of their business and operating environment and identify 

opportunities to exploit. Khaing (2023) asserts that good growth strategies ensure banks 



2 

 

 

capitalize on economies of scale, achieve higher profits, grow faster, and improve the 

perception of their brand.  

Stambaugh et al. (2020) confirm that there exist multiple growth strategies that businesses can 

implement to grow and expand their operations and assert that all growth strategies are not 

appropriate for every business. In the study, Stambaugh et al. (2020) asserted that adopting the 

wrong strategy would have significant negative effects on business operations and affirmed 

that it is paramount that management match the strategy to the specific operating environment 

and business need. Banks use different types of strategies too (Benmelech, Yang, & Zator, 

2023). In the United States and China, Benmelech, Yang, and Zator (2023) report that 

JPMorgan Chase Bank and the Industrial and Commercial Bank of China have achieved faster 

deposit growth through an aggressive strategy of new branch expansion alongside the 

enrolment of digital products at an accelerated pace. In Saudi Arabia where competition is 

fierce, strategic positioning of products and services was reported by Rabbani (2020) to have a 

significant impact on banks’ competitiveness. 

Ahmad et al. (2019) in their research highlighted the impact of the use of digital tools on firms’ 

ability to improve communication, create real customer value, and generate financial returns. 

Candy, et al. (2022) concede that digital technology became especially valuable during the 

COVID-19 pandemic when business interruptions caused significant negative hiccups in 

business operations. Another strategy linked to bank performance was new product and design 

innovation which increased banks’ product portfolio (Ameraldo, Saiful & Husaini, 2019). The 

study that evaluated Islamic banks confirmed that banks must continually innovate as they 

design and improve existing products to meet the needs of different types of customers. Indeed, 

Tarazi and Abedifar’s (2020) research on Islamic banking affirmed that Internet and banking 

applications have emerged as important tools to enhance service delivery and expand the 

customer base. In the study by El-Massah (2020), gender-specific marketing strategies were 

shown to attract female customers in the UAE. 

The banking industry is also becoming more concentrated in developing economies in Africa 

and according to Mmanyi (2020), smaller-rated firms in these regions are likely to struggle to 

expand their scope through branch expansion. Nevertheless, In Africa, the banking industry is 

fast-growing despite increased competition from foreign banks, tight laws, and institutional 

deficiencies (Asongu & Biekpe, 2018). Currently, retail banking in Africa has only a 38 percent 

penetration rate of the Gross Domestic Product (GDP); half of the worldwide average for 



3 

 

 

emerging markets (Chironga, Cunha, De Grandis, & Kuyoro, 2018). Banks in this region, 

however, encounter blocks such as low income and revenue rates, extensive money utilization 

in most economies, and limited credit bureau coverage (Rouse, 2017). Some banks are already 

exploiting the possibilities intrinsic to these problems, and the key is to harness the extensive 

emerging technologies in Africa to generate low-price products and creative distribution 

models (Rouse & Verhoef, 2016). Obi (2022) avers that in Nigeria, banks were leveraging 

financial inclusion strategies such as segmentation, product pricing, branch expansion, and the 

use of agents as well as ATMs to grow. According to Chironga et al. (2018), increased 

investment in financial innovations and expansion through branch networks significantly 

improves banks’ profitability. 

In Kenya’s present banking scenario, barriers such as high operating costs and political 

interference have fragmented markets, and reduced profits due to non-performing loans, 

shifting regulatory frameworks, customer expectations, and rapid technological changes 

(Waithaka & Kimencu, 2018). According to the Central Bank of Kenya (2021), Kenya’s 

banking sector is in the recovery phase after the 2020-2021 Covid-19 pandemic. The CBK 

(2021) report indicates that the sector is responding positively with the asset base growing by 

11 percent, the capital adequacy ratio increasing from 19.0 percent to 19.5 percent in 2021, and 

profitability increasing by 75.7 percent to Ks.197.0 billion from Ksh.112.1 billion in 2020. 

However, most of these positives were for larger banks as during the same period, large banks 

increased their combined market share to 74.76 percent, to the detriment of medium and small 

banks. Moreover, large banks accounted for 86.9 percent of the sector’s profits and 74.2 percent 

of total deposits as small banks only made 0.8 percent in pre-tax profits and accounted for 8.6 

percent of total deposits (CBK, 2021). 

1.1.1 Business Growth Strategies 

Reynolds and Yetton (2015) define growth strategies as those plans that companies institute to 

increase in size, turnover, and market presence. The researchers opine that growth and 

expansion can be used interchangeably since they both mean an increase in business activities. 

Spacey (2018) defines a business development strategy as a systematic plan focused on 

growing the business through the adoption of a new strategic direction. This is executed within 

a firm to find new growth opportunities and manage competitive threats within the market. Lee 

(2020) defines business growth as all the processes that are utilized in identifying, nurturing, 

and acquiring new clients and business opportunities that will stimulate growth and 



4 

 

 

profitability within the firm. Growth is a vital indicator of a healthy business, and researchers 

use factors such as market position, product quality, and consumer goodwill are among the 

indicators of a growing business (Khan & Wang, 2021). Capital adequacy, sales turnovers, 

profitability, assets growth, dividend payments, business earnings, and liquidity are among the 

parameters used to measure growth (El-Massah, 2020). 

Burvill, Jones-Evans and Rowlands (2018) opined that businesses grow by increasing sales of 

existing products or services, introducing new products to existing markets and by entering 

new markets with new products. Spacey (2018) identified attracting new talent, improving the 

business and operating model, improving facilities and infrastructure, fostering firm 

capabilities, innovation, improving customer experience, and adopting new distribution, sales, 

promotional and branding channels as growth strategies. Akotch (2018) delineated internal 

from external growth strategies while Muchele (2019) identified new product development, 

market penetration, market development, and diversification as important growth strategies 

that enhance organizational performance. According to Khan and Wang (2021), 

diversification, product innovation, market penetration, and development strategy are the main 

strategies impacting the performance of Kenyan telecommunication firms. Muriuki and Kiiru 

(2019) also identified innovative product, price, service, and market development strategies as 

the most adopted strategies by Kenyan firms.  

Primary theories examining business growth include Barney’s (2002) resource-based view 

(RBV), the knowledge-based theory, the dynamic capabilities theory, and the upper echelon 

theory. The RBV looks at resource utilization capacity to generate uniqueness in product and 

service delivery while Porter’s (1980) generic strategies of cost leadership, differentiation, and 

focus have been linked to organizational competitiveness. Dynamic capabilities theory helps 

in the identification and the development of strategies that companies can use to adapt to radical 

discontinuous change by integrating, building, and reconfiguring internal and external 

competencies to compete in rapidly changing environments (Ali, Hussin, Haddad, Alkhodary, 

& Marei, 2021). According to Ali et al. (2021), in the banking sector, the RBV and Dynamic 

Capability Strategy can assist in the selection of appropriate strategies to implement in their 

business as they show how companies can leverage tangible and intangible resources to achieve 

growth. They call for internal and external innovation to achieve growth and as per 

Kankkunen’s (2022), assertations, among banks, product, service, and market innovation are 

among the most important growth strategies. Therefore, this study will focus on product 



5 

 

 

development, market penetration, market development, and diversification strategies and 

assess their influence on the performance of Tier III banks.  

Market penetration rests on growth of current markets of operation, whereby firms improve 

profitability by increasing the volume of sales to existing customers, or by increasing the 

volume of their customer base in the existing market. Tien, Dana, Jose, Van Dat and Duc (2020) 

opine that market penetration strategies such as product strategy, promotion strategy and price 

strategy significantly influenced the entry of Mc Donald’s into the Vietnam fast food industry. 

However, according to (Umashankar, Bahadir, & Bharadwaj, 2022), while mergers improve 

efficiency, in India, they reduce firm value by hurting customer satisfaction.  

Market development leverages the entry of existing products into new markets, and from this 

perspective, existing products and services are made available to new markets. Lan (2023) 

opines that companies use development strategies to identify and develop opportunities to 

increase their product presence in markets that were previously unexplored. The study 

identified company communication, strategic advertising and dynamic pricing as the market-

development strategies. Khatami, Asgarimehr and Mortaz-Hejri (2018) showed how banks 

leverage digital channels in marketing and communication to improve performance outcomes.  

Product development rests on the development of new products for existing markets, and 

companies develop new products to serve the existing market. Product development is an 

innovative strategy whereby firms seek to understand their customer’s needs and develop 

products that will meet their desires. The study by Fairooz and Wickramasinghe (2019) 

highlights innovative development of digital finance products as key to the competitiveness of 

Sri Lankan banks. In Ghana, (YuSheng, 2019) revealed that service innovation improves 

service delivery and loyalty among bank customers. Lee, Li, Yu, and Zhao (2021) show how 

fintech innovation increased the efficiency of Chinese banks.  

Diversification, on the other hand, rests on the development of completely new products for 

entirely new markets (Kankkunen, 2022). Diversification is the act of increasing business 

diversity, whereby, businesses enlarge or vary the range of their products or field of operation. 

Diversification strategies calls for a business to identify and place products for specific 

markets. Firms seek diversity when they identify a niche market or when they want to mitigate 

risk and maximize returns by allocating investment funds across a variety of investments. 

Diversity promises new income-generating opportunities as well as a reduction in over-reliance 

of existing markets. The study by Luu, Nguyen, Vu and Tuan (2020) revealed a positive 



6 

 

 

relationship between income diversification and bank performance; Ripain and Ahmad (2018) 

agreed that service and product diversification were key to the outcome of the financial 

institution while (Ndungu & Muturi, 2019) found a positive effect of income, geographical and 

product diversification on bank performance in Kenya. Muriuki and Kiiru (2019) established a 

link between product, process, market, service and organization diversification with 

performance of Sacco institutions.  

Banks are always looking to expand their market share, in addition to trying to grow the size 

of the total market by appealing to larger demographics or by reducing operating costs 

(Khatami, Asgarimehr, & Mortaz-Hejri, 2018). This research borrowed from Ansoff’s (1965) 

matrix to investigate business growth strategies in the banking industry. The study focused on 

establishing the effect of market penetration, product development, market development and 

diversification strategies on the performance of Tier III commercial banks in Kenya. 

1.1.2 Organizational Performance 

Organizational performance (OP) has many interpretations in the literature such as George, 

Walker and Monster (2019) who defined OP as an organization’s ability to attain its goals 

through efficient resource utilization while according to Abubakar, et al., (2019), 

organizational performance is simply the organization’s ability to achieve its goals and 

objectives. Akpa, Asikhia and Nneji (2021) opine that OP is the degree to which organizational 

goals are attained and can be measured in terms of work outcome, intangible assets, customer 

link, and service quality. According to Plouffe (2018), organizational performance relates to 

the realization of core objectives, arguing that organizational performance is the interplay of 

the organization's attributes, actions, and environment that eventually results in an economic 

outcome. Hamann, Schiemann, and Bellora (2013) opined that organization performance 

corresponds to measurements such as organization's market effectiveness, growth in market 

share, quality products, filing of patents, or effectiveness in the market. Al Khajeh (2018) 

argues that organizational performance measurement has to focus on the financial aspects, 

shareholder aspects and product or service market performance.  

The above definitions spur various ways of looking at organizational performance, but the 

primary elements remain the realization of business goals while having a minimum impact on 

the environment, with Tate and Bals (2018) arguing that companies must ensure they play a 

role in conserving the environment. Thus, two models emerged: the Triple Bottom line (TBL) 

by Elkington (1994) and the Balanced Scorecard (BSC) by Kaplan and Norton (2007). The 



7 

 

 

TBL is focused on assessing the performance of an organization from a non-traditional 

standpoint focusing on social, environmental, and financial measurements (Elkington, 2013). 

Specifically, it focuses on the planet, people, and profits (Elkington, 1994). From the planet's 

point of view, the theory implores firms to operate sustainably and have a positive impact on 

the planet. It then calls for the firms to recognize their responsibility to people. 

Kaplan and Norton’s (2007) Balanced Scorecard is a useful performance-measuring tool that 

identifies the financial metric (profits and overheads), customer metric (customer lifetime 

value, acquisitions, and satisfaction), internal process (efficiency and effectiveness of 

operations), and people metrics (learning and growth) as vital key performance measurements 

that determine a firm’s utility and desirability of its functions in complex and dynamic 

environments. Kaplan and Norton (2007) argue that a high-performing organization is 

characterized by employee empowerment, involvement, participation, and a sound learning 

environment. Researchers label this a more holistic model since it provides a balance between 

financial performance aspects and all other stakeholder perspectives on performance (Yadav 

& Bhojanna, 2020; Alemayehu, 2020; Moges, 2021). 

The Balanced Scorecard framework is widely used to measure the performance of 

organizations, including banks (Yadav & Bhojanna, 2020). The use of a Balanced Scorecard 

urges managers to have a better understanding of how to respond to the shareholders (financial 

perspective), how customers view the firm (customer perspective), what internal operations to 

adopt for competitive advantage (internal perspective), and what it can continue to improve 

and create value to grow (learning and growth perspective).  

This study assessed the performance of Tier III commercial banks using financial, customer, 

and internal processes, and learning and growth perspectives based on the Balanced Scorecard 

approach developed by Kaplan and Norton (2007). 

1.1.3 Tier III Commercial Banks in Kenya  

The Central Bank of Kenya (CBK) groups commercial banks into three different tiers based on 

their market share, asset base, deposits, customer base, and financial strength (Kimathi & 

Mungai, 2018). Currently, CBK oversees the activities of 43 banks, with large banks having a 

different structural requirement to smaller banks. Fourteen of these banks are foreign-owned 

and provide sufficient competition to the local operators (Maingi, 2019). Tier I commercial 

banks comprise the 8 largest banks in Kenya (8) that control at least 65.99% of the market 

share, 66.7% of the total deposits, and 66% of the total assets. Tier II commercial banks are 



8 

 

 

medium size banks (11) banks control 26.1% of the market share and 26.01% of the total 

deposits, while Tier III banks (22) control 7.91% of the market share, 8.2% of total deposits, 

1.8% of deposit accounts, and 1.8% of loan accounts (Central Bank of Kenya, 2020). To qualify 

as Tier III, capital assets must be limited to 250% of a bank’s tier 1 capital, be unsecured, 

subordinated, and have a minimum maturity of two years (CBK, 2020).  

Kenya’s banking sector has witnessed robust growth in recent years. However, when 

categorized by tier classification, Kimathi and Mungai (2018) report that tier III banks' profit-

generating ability was rapidly declining, with the banks reporting a loss of profit by 2.2% 

between 2015 and 2017. The CBK (2016; 2017) reports that more than five banks in this 

category have reported significant losses, including Jamii Bora bank, which reported a Ksh. 

490 million loss, Consolidated Bank which reported a Kshs. 277.0 million loss and First 

Community bank which reported a Ksh 44 million loss. Dubai bank and Imperial bank were 

both placed under receivership for failing to meet capital and liquidity ratios, large non-

performing loans and weak corporate governance structures. Further, the total assets of tier 

three banks reduced by 20.2% from Ksh 2.01 trillion in 2014 to 1.68 trillion by 2016 (Kamau, 

2016).  

CBK (2022) reports that 80% of tier III banks are struggling to sustain themselves in the 

increasingly competitive environment. While between 2015 and 2020 the banking sector 

exhibited strong growth, tier III commercial banks' pre-tax earnings declined by 2.2 percent as 

five banks in the category reported negative earnings (Gacanja, 2023). Currently, they account 

for 8.9 percent of the market share, 8.2 percent of reserves, 1.8 percent of savings accounts, 

and 1.8 percent of consumer loans. Gacanja (2023) asserts that their struggles have made them 

targets of mergers and acquisitions with Jamii Bora Bank, Spire Bank, Spire Bank, Trans 

National Bank, and MayFair Bank being recently acquired. This highlights the necessity of 

adopting appropriate business growth strategies to ensure that these banks can compete and 

remain operational in an increasingly competitive business environment. This study, therefore, 

focused on the 22 tier III commercial banks in Kenya in its analysis of how the growth 

strategies adopted by these banks influence their performance. 

1.2 Statement of the Problem  

Central Bank of Kenya (2018) report indicated that Tier III commercial banks had seen a dip 

in their profitability by 2.2% between 2015 and 2016. Further, banks within the tier, such as 

First Community Bank and Jamii Bora Bank, had posted losses running into 500 million 



9 

 

 

shillings. Furthermore, Consolidated Bank had posted a loss of 277 million, with both Dubai 

Islamic Bank, Chase Bank, and Imperial Bank being put under receivership. Maingi (2019) 

reveals that the growth in profit before tax of these banks was less than 20%, signifying a 

worrying decline. The industry reports further showed that most of the banks within Tier III 

have been facing problems in meeting their capital requirements, liquidity and non-performing 

benchmarks, poor corporate governance structures, and customer retention, which has resulted 

in persistent performance problems (Kimathi & Mungai, 2018). Amollo (2016) reports that bad 

returns within the banking sector have seen firms lose their value. 

For banks to survive, improve performance, and become competitive in this environment, they 

must design, adopt, and successfully implement appropriate strategies (Chironga, Cunha, De 

Grandis, & Kuyoro, 2018). However, the Kenya Bankers’ Association (2017) concludes that 

as much as 37% of formulated strategies, these banks never achieve their predetermined 

objectives. This is further supported by Muriuki (2016), who reviewed the adoption of cost 

leadership, differentiation, and focus and found out that most banks were not successful in the 

implementation process, and this resulted in poor performance. This is evidenced by some 

banks that have experienced unsatisfactory performance, with others such as Chase Bank and 

Imperial Bank ending up in receivership.   

Research shows that growth strategies may influence operational performance. Luu, Nguyen, 

and Vu (2019), for instance, aver that although income diversification improves larger banks’ 

performance in Vietnam, smaller regional banks did not realize significant benefits from 

diversifying their income portfolio. Al-Dmour, Asfour, Al-Dmour, and Al-Dmour (2020) 

determined that Jordanian banks were using marketing knowledge as assets and capabilities for 

developing expansion strategies that had seen the banks increase their market share. Haabazoka 

(2018) affirms that Zambian banks are adopting emerging technological innovations such as 

Internet Banking, Mobile Banking, and Automated Teller Machines (ATMs) to increase their 

profit-generating ability while according to Agolla, Makara, and Monametsi (2018), aver that 

commercial banks in Botswana leverage product and service innovation as customer retention 

strategies. A Tanzanian study collaborated with these findings and reported that electronic 

banking strategies have a significant impact on banks’ customer attraction, market penetration, 

and financial outcomes (Ntyama & Maziku, 2020). Muthaura and Kinyua (2021) revealed a 

significant effect of technology integration on service delivery and customer satisfaction 

among in commercial banks.  



10 

 

 

The above studies show that different factors affect banks’ performance in different ways, from 

customer attraction, retention, market development and penetration to financial growth. 

However, research focused on lower ranked banks is scarce. In the reviewed studies, Luu, 

Nguyen, and Vu (2019) only looked at one diversification strategy, Haabazoka (2018) specified 

financial performance metrics and Agolla, et al., (2018), only assessed innovation as a 

competitive strategy rather than a growth strategy. Thus, there is a need to address the gap and 

improve on available results that can be applied in both policy and practical solutions for 

commercial banks. Further, with the current Covid-19 pandemic continuing to impact various 

industries, it is expected that Tier III commercial banks faced a strenuous period. The study 

sought to address the gaps and establish the effect of business growth strategies on the 

performance of Tier III Commercial Banks in Kenya. 

1.3 Objective of the Study 

The study was guided by both main objective and specific objectives as follows. 

 

1.3.1 Main Objective of the Study  

The main purpose of the study was to establish the effect of business growth strategies on the 

performance of Tier III Commercial Banks in Kenya 

1.3.2 Specific Objectives 

i. To determine the effect of market penetration strategies on the performance of Tier III 

Commercial Banks in Kenya 

ii. To determine the influence of market development strategies on the performance of 

Tier III Commercial Banks in Kenya. 

iii. To determine the influence of product development strategies on the performance of 

Tier III Commercial Banks in Kenya. 

iv. To establish the influence of diversification strategies on the performance of Tier III 

Commercial Banks in Kenya. 

 

1.4 Research Questions 

i. What is the effect of market penetration strategies on the performance of Tier III 

Commercial Banks in Kenya? 

ii. What is the effect of market development strategies on the performance of Tier III 

Commercial Banks in Kenya? 



11 

 

 

iii. What is the effect of product development strategies on the performance of Tier III 

Commercial Banks in Kenya? 

iv. What is the effect of diversification strategies on the performance of Tier III 

Commercial Banks in Kenya? 

 

1.5 Scope of the Study  

The study scope focused on the organizational performance of Tier III banks in Kenya and its 

relationship to business growth strategies. The conceptual scope of the study reviewed market 

penetration, market development, product development and diversification strategies. The 

theoretical scope of the research was limited to the resource-based view and the dynamic 

capabilities theory. The study adopted a quantitative approach to establish the relationship 

between the research variables. It will target managers from various departments within the 

banks. The study used a descriptive cross-sectional approach in its analysis and was conducted 

between March 2023 and January 2024.  

 

1.6 Significance of the Study 

The study was significant to policymakers, practitioners and researchers.  The study results 

were beneficial to the regulator as the findings of the study can be adopted in developing new 

policies that can be utilized to stimulate performance within Tier III banks in the country. 

Through the analysis, this study will contribute to policy development by providing evidence 

that the government will use in developing a benchmark of standards that will enable the 

smaller Tier III to improve their performance.  

The findings were beneficial to the management of Tier III commercial banks in developing 

new strategies that can help in expanding their position within the market. This was quite 

critical within the current period when most firms are suffering from a downturn in economic 

activity because of the global pandemic. Hence, business growth strategies can be critical to 

improving business resilience within commercial banks in the country. The findings will also 

be of importance to managers responsible for strategy who may use the findings of this study 

to formulate effective monitoring and control systems to mitigate against the challenges while 

formulating and adopting business growth strategies that enhance market share growth and 

organization performance. 



12 

 

 

The study will further be beneficial in expanding the available empirical evidence on the 

performance of commercial banks in Kenya; as source material for future research work. The 

study is significant as it will build an understanding of the best strategies that commercial banks 

can employ to realize better performance outcomes. The study will also identify existing gaps 

that may interest future researchers. Scholars will also benefit as this study will provide 

theoretical development by incorporating the Resource-Based View and the Balanced 

Scorecard to explain the relationship between business growth strategies and organizational 

performance.   

1.7 Chapter Summary 

This was the study’s introduction. It includes the background, a brief about the study variables, 

which include business growth strategies, organizational performance, and tier III banks. It 

then presents the statement of the problem, main and specific objectives, the research questions, 

and the study’s scope. It concludes with a brief discussion about the study’s significance to 

various stakeholders.  

 



13 

 

 

CHAPTER TWO 

LITERATURE REVIEW 

2.1 Introduction  

This chapter detailed the study literature related to the connection between business growth 

strategies and commercial banks’ performance. A theoretical review, review of previous 

empirical studies and conceptual framework were also outlined in this chapter. 

2.2 Theoretical Foundation of the Study 

This section presents the theories that underpin this study. This study was guided by the 

Resource-based view theory and the dynamic capabilities theory.  

2.2.1 Resource-Based View  

The resource-based view was postulated by Wernerfelt (1984) and according to Wernerfelt 

(1984), the way a firm allocates its resources determines performance. Adequate resources can 

be a source of competitive advantage (Taher, 2012). Resources are important in setting pace 

and improving ways of doing business (Kraaijenbrink, Spender & Groen, 2010). Resource-

Based View involves the prudent and efficient use of the available resources to achieve 

organizational goals and objectives. Organizational resources include financial and human 

resources (Foss & Stieglitz, 2010). An organization that can allocate and use its resources 

efficiently can perform well and create value when they implements strategies by exploiting 

their internal resources and capabilities. The analysis of an organizations internal strengths and 

weaknesses is critical in attaining competitive advantage (Williams, 1992). 

Resource-based theory is developed from the principle that the source of an organization’s 

competitive advantage lies in their general internal resources, as opposed to their positioning 

in the external market (Hitt, Xu & Carnes, 2016). This means that rather than evaluating 

environmental opportunities in carrying out business, competitive advantage and growth 

depends on the unique resources and capabilities that an organization possesses (Barney & 

Arikan, 2005). This theory predicts that certain types of resources owned and controlled by 

organizations are necessary for the development and selection of strategies that can generate 

competitive advantage (Gallego‐Álvarez, Prado‐Lorenzo & García‐Sánchez, 2011). In 

dynamic environments, tier III banks’ ability to strategically deploy resources to gain more 

customers is essential to competitiveness. This study informs the importance of strategies that 

can lead to growth such as diversification strategies which focus on allocating resources to 

realize specific objectives. It emphasizes that the unique ability to manipulate resources is key 



14 

 

 

to growth and relates to this study since it explains the relationship between the ability to 

develop business growth strategies and sustained competitiveness. 

2.2.2 The Dynamic Capabilities Theory  

The dynamic capabilities theory was articulated by Teece, Pisano, and Shuen (1997) and is a 

strategic management framework that emphasizes that an organization’s ability to adapt, 

integrate, and reconfigure internal and external competencies in response to rapidly changing 

environments is essential to competitiveness. The theory contrasts traditional opinions of the 

sources of competitive advantage which highlight the value of static resources and market 

positions (Singh & Rao, 2017). It instead asserts that dynamic capabilities are a critical source 

of long-term competitive advantage and suggests that competitive organizations have to 

continually develop new skills and capabilities to sense, and shape opportunities and threats, 

seize opportunities, and maintain competitiveness through efficient asset reconfiguration 

(Lawrence, 2015). According to Daihani and Kristaung (2018), dynamic capabilities strategies 

explain how the banking sectors can embark on different strategies to adapt to changes in their 

business environments while achieving sustainable competitive advantage. 

According to Teece et al. (1997) competitive businesses strive to innovate and create new 

products and services, as well as markets as they recognise that this would increase their 

competitiveness and ability to satisfy their stakeholders’ demands. In supporting this assertion, 

Valdez-Juárez and Castillo-Vergara (2021) call on firms to develop the ability to design and 

develop new processes and products, develop, utilize, and deploy knowledge and human capital 

towards growth, and transform knowledge into valuable products and services to increase 

organizational performances. The theory calls on banks to develop new innovative and 

sustainable business strategies and was used in the study by Lawrence (2015) to examine how 

the National Commercial Bank Jamaica sensed threats, mobilized resources to seize the 

opportunity, and transformed for corporate turnaround. The theory was used by Akram and 

Hilman (2018) to highlight how knowledge management, innovation, and diversification 

influence competitiveness in the banking sector. Locally, Kiarie (2019) used the theory in 

analysis of how organizational culture and DCs influence the performance of the State Bank of 

Mauritius. 

Despite its value, the dynamic capabilities theory has been criticized for lacking clarity in its 

main constructs, resulting in challenges to operationalization and measurement. Bleady, Ali 

and Ibrahim (2018) argue that its focus on firm-specific capabilities may overlook industry 



15 

 

 

structure and external forces which can also influence firm performance. Furthermore, the 

theory has been criticized for failing to address how firms can sustain long-term competitive 

advantage in rapidly changing business environments. Kamau, Senaji, Eng, and Nzioki (2019) 

responded by confirming that dynamic capabilities highlight the value of continuous 

redevelopment of internal capabilities and resources to achieve specific goals. The key 

principle of the theory is that firms’ unique capability to create and provide structures that 

improve creativity and innovation is the source of competitiveness (Teece, Pisano, & Shuen, 

1997). Thus, dynamic capabilities are suited to dynamic markets. As per Teece et al. (1997), 

market, product, process, and service innovations are the main determinants of continued 

competitiveness. This theory, therefore, supports the role of market development, and product 

and service innovation and will anchor these growth strategies in examination of their impact 

on the performance of tier III commercial banks in Kenya. 

2.2.3 The Ansoff Growth Model  

Ansoff Matrix (Ansoff Growth Model) traces its roots from Igor Ansoff’s (1957) article 

“Strategies for Diversification,” and it has since been used extensively to study expansion 

strategies for multiple businesses. It is a strategic planning tool that provides a framework that 

improves executives, senior managers, and marketers’ ability to devise growth strategies 

(Ansoff, 1987). Loredana (2016) confers that Ansoff identified two growth approaches; 

diversifying products and targeting new customers, noting that business managers determine 

growth by how they market new or existing products in new or existing markets. From this 

expanded definition, the Ansoff matrix, with four strategic options, emerged, each with its own 

associated risks. The model identifies market penetration strategies, product development, 

diversification, market development, and penetration strategies (Muriithi & Waithaka, 2020) 

Market penetration is the first strategy and entails the entry of products, whether new or old, to 

a new market. Companies seek to capture customers with products that are entirely new to the 

market (Faith, 2019). This strategy aims to increase market share and has the lowest risks since 

these products can be developed to meet the taste of the new market. Market penetration rate 

informs product reception. A low market penetration rate represents significant growth 

opportunities (Sande, 2019). Market development is the next strategy which involves the use 

of existing resources and competencies or expanding product offerings into other markets. 

Expansion can be through opening new branches in different regions, establishing new 

customer bases, or targeting different parts of the market (Seelos & Mair, 2007).  



16 

 

 

New product development/ innovation involves the creation of new products and services and 

introducing them into the market. This strategy involves firms creating a new product that may 

or may not already exist in the market (Loredana, 2016). It extends a product’s range (Nath, 

Nachiappan, & Ramanathan, 2010). Firms develop new products through research and 

development, acquisition of manufacturing/production rights, and strategic mergers and 

acquisitions (Hussain, Rizwan, & Latif, 2013). Product diversification, on the other hand, is 

the concept of developing new products and introducing them to new markets. Diversification 

also involves incremental improvements in existing products or services carried out to increase 

product value and customer satisfaction. Innovation is essential when firms must replace 

existing products or expand the product range (Loredana, 2017).  

All organizations seek growth, although the approach to growth varies significantly. Ansoff’s 

growth model has received worldwide recognition due to its influence on strategic growth, both 

in literature and practice (Boone, 2013). The model has been used to examine business 

expansion (Sande, 2019), the creative industry (Prasetyo & Rahman, 2018), in the food 

processing industry (Soltani-Fesaghandis & Pooya, 2018), among others. Typically, 

organizations start with their products and in specific markets. Business managers must choose 

whether to expand by developing new products, increasing the quality of existing products, 

increasing concentration in a single market, or moving into new markets. They can also 

introduce new products in new markets, the riskiest and most rewarding strategy. The Ansoff 

matrix explicitly explores growth options (Ansoff, 1965), making it essential in this paper 

which explore banks’ business growth strategies. This study used it to examine the effect of 

product development strategies, diversification strategies, market penetration strategies, and 

market development strategies on the performance of Tier III banks in Kenya. 

 

2.3 Empirical Review 

The empirical section reviewed how the previous researcher have examined business growth 

strategies and their effect on performance. The section was guided by the objectives of the 

research. 

2.3.1 Market penetration strategies and Organization Performance 

Market penetration strategies are those approaches that companies use to sell existing products 

into existing markets. Market penetration strategies enable firms to target underserved 



17 

 

 

customer segments and increase their market presence. Companies use market mix elements 

such as discounts and promotions as penetration strategies. Asiedu (2016), in a study of 

commercial banks in Colombia, examined the impact of market segmentation practices on bank 

performance. The research employed an exploratory research design with both primary and 

secondary data being collected. The statistical tests adopted in the study were both descriptive 

and inferential in nature. The study showed that segmentation practices had a significant effect 

on the performance of selected commercial banks. The study indicated that reliance on 

psychographic, geographic, socio-cultural behavior, and demographic segmentation in the 

marketing practices of the bank are critical to driving bank performance. The study was, 

however, not conducted locally, thus creating an empirical gap that was studied.  

Ejoor, Okechukwu, and Iroegbu (2018) carried out a study with similar goals. The researchers 

adopted an ex-post facto research design and focused on three banks. The study used data 

reported between 2007- 2016. Multiple regression analyses were applied to the data revealing 

that mergers and acquisitions were effective strategies that banks had employed as a growth 

strategy. Mergers and acquisitions improved bank performance through increasing income, 

improving the value of the banks’ securities, associated synergies (elimination of unnecessary 

facilities and runs), and increasing economies of scale, which is associated with increased 

efficiency. The study asserted that banks should have a strategically integrated acquisition 

program that would ensure successful mergers/acquisitions.  

Nyoike (2015) reviewed the expansion strategies used by Standard Chartered Bank to enhance 

competitive advantage in the East African market. The study employed a case study research 

design with interviews conducted among senior managers within the bank. The research 

utilized content analysis, and findings showed that banks mainly created a competitive edge 

through improving their subsidiary network, enhancing their branch outreach, reliance on 

emerging technologies, and forming a strategic alliance with local banks. The study focuses on 

competitive advantage, while current research studied the performance of Tier III banks in 

Kenya. 

Muthengi (2015) explored the effects of marketing strategies on the sales performance of 

commercial banks in Kenya. The target population was the 43 commercial banks registered by 

the Central Bank of Kenya. The researcher collected data using semi-structured questionnaires. 

The study indicated that increased competition in the industry has resulted in commercial banks 

increasing their investments in marketing activities. The findings showed there is a significant 



18 

 

 

effect of marketing strategies on the sales performance within banks. The study showed that an 

increase in promotional activities, increased branch network, internet marketing, pricing 

strategies, relationship marketing, and market segmentation are vital to improved sales 

performance. The current study however, reviewed the organization's performance within Tier 

III commercial banks in Kenya. 

Faith (2019) studied the effect of expansion strategies on the performance of the insurance 

industry in Kenya. The study was based on the resource-based view and porter’s competitive 

strategy theory. The research applied a correlation research design with a census of the 52 

insurance firms in the country being adopted. The study applied both correlation and regression 

analysis. The findings established there is a significant influence of diversification strategy, 

market development strategy, and penetration strategy on the performance of insurance firms 

in Kenya. The research is centered on the insurance industry, while the current examination 

reviews the performance of Tier III banks in Kenya.  

 

2.3.2 Market development strategies and Organization Performance 

Market development strategies refer to those strategies that businesses use when introducing 

existing products to new markets. Market development strategies call on firms to identify 

previously unexplored territory and introduce their products as solutions. 

Klus, Lohwasser, Holotiuk, and Moormann (2019) sought after the effect of strategic alliances 

between FinTech firms and financial institutions. The study also sought to shed light on the 

motivations of such alliances. The study involved 19 banks that had recently undertaken 

alliances with 29 FinTech firms within Germany’s financial services industry. The study 

collected data from various institutions' management through interviews. The Gioia 

methodology was employed in analyzing the qualitative data. The study results showed that 

the bank-fintech alliance benefits both firms. Banks, primarily financial institutions, benefit 

from the technical expertise in technology development offered by financial technology firms, 

while these benefit from the financial assurances offered by financial institutions.  The 

researchers assert that such alliances are essential in the modern environment characterized by 

digitalization. The study focused on fintech-bank relationships and did not explore other 

business growth strategies. The study also used primary data. The current study’s use of 

secondary data provided a clearer relationship between the two variables. 



19 

 

 

In China and India, Reddy, Qamar and Yahanpath (2019) examined the influence of M&As on 

bank value with specific focus on the post-M&A performance period. The study collected data 

from banks that had engaged in mergers and used ordinary least squares adjusted return models 

in analysis. Findings were that M&A announcements have insignificant effects on the value of 

Chinese and Indian banks. However, in China, it was observed that mergers had positive effects 

on the performance of state-owned firms. This was an exploration into cross-country mergers 

while the current study focused on local banks’ strategies.  

Hameed and Anwar (2018) looked into the relationship between intellectual capital and private 

banks’ organizational performance in Erbil. The study specified determining whether human 

capital, structural capital, and relational capital have any impact on Indonesian banks’ 

performance. Random sampling was used in the selection of 144 respondents from the various 

banks. Correlation and regression analysis demonstrated that the relationship between 

intellectual capital and selected private banks' performance is strong, positive, and significant. 

The study asserts that banks can improve their performance by ensuring that they acquire 

highly qualified personnel, adopt effective information and communication systems and 

employ customer-oriented strategies. These three elements of intellectual capital were 

determined to improve banks’ customer attraction and retention ability.    

Anderibom and Obute (2015) examined the effects of mergers and acquisitions on the 

performance of commercial banks in Nigeria. The study adopted a case study review of the 

United Bank for Africa (UBA) plc with panel data being utilized for the period 2000-2010. The 

study findings showed that mergers and acquisitions had positive, significant effects on the 

performance of commercial banks in Nigeria. The study showed that improving banking 

standards, increasing employee training, improving marketing promotions will lead to better 

firm performance. The study relied on panel data, while the current study studied the 

performance of Kenyan banks using cross-sectional research data. 

Musah, Abdulai and Baffour (2020) researched on the effect of mergers and acquisitions on 

bank performance in Ghana. The study specified the influence of M&A on banks’ net profit 

margin, return on assets and return on equity. The study used secondary data and relied on 

regression analysis which revealed that while mergers and acquisitions have significant 

negative effects on net profit margin, they have insignificant effects on ROA and ROE. This 

study measured bank performance in financial terms presenting a conceptual gap as the current 

study focuses on growth aspects of performance.  



20 

 

 

Ndiege (2019) researched on marketing channels and their effect on the strategic positioning 

of small and medium‐sized enterprises in Kenya. The study used an exploratory research design 

that collected data from small business owners and upon analysis, it was revealed that 

technologies are having significant impacts on expansion and strategic positioning of small 

businesses. The study, however, reports that firms were adopting social media marketing due 

to customer and competitor pressure, rather than internally driven. This study informed of the 

importance of social media in small businesses while these findings was questioned in the 

context of banks which are highly service-oriented.  

Ndegwa (2021) specified electronic marketing strategies adopted by Equity Bank and their 

impact on the bank’s performance using a descriptive cross sectional census survey. The study 

utilized comparative analysis which revealed that bank performance is significantly influenced 

by the type of electronic marketing strategy selected. Kisa, Mwaura and Tanui (2021) specified 

the influence of market mix strategies on bank performance in Kwale, Kenya with specific 

focus on product, pricing, placement and promotion on sales performance. The study used a 

descriptive design and regressions in analysis. Findings were that cumulatively, promotion 

strategies have more impact on performance than the other strategies. Placement strategy was 

singled out as having minimal impacts on bank sales. Despite the insights from the study, it 

only looked at sales volume as an indicator of organizational performance.  

 

2.3.3 Product Development Strategies and Organization Performance 

Product development entails the approaches used to bring new or tweaked products to existing 

or new markets. Product development builds on rigorous research and development, testing, 

launching and marketing. Product development strategies rely on user satisfaction to influence 

organizational performance.  

Saghi-Zedek (2016) examined product diversification and bank performance in 710 European 

commercial banks. The study relied on panel data and cross-sectional data that was collected 

from senior staff within the banks. The findings showed that product diversification was critical 

to enhancing the performance of commercial banks. The study also showed that ownership 

structure positively mediated the relationship between product diversification and 

performance. The research revealed that enhancing the skills of personnel to manage diverse 

products was key to improved profitability and minimal earnings volatility. The current study, 

however, examined the performance of smaller (Tier III) commercial banks in Kenya. 



21 

 

 

Yang, Li, Ma, and Chen (2018) explored the impact of e-banking adoption on Chinese banks’ 

performance in terms of profitability and cost-efficiency. The study sourced data from financial 

statements of five large banks in China. Bank performance was measured in terms of ROA, 

ROE, net interest margin (NIM), operating margin (OM), and efficiency ratio. The study sought 

to examine how performance evolved before, during, and after full e-banking systems adoption. 

It was affirmed that ROA, ROE, and OM all improved. However, with respect to NIM and 

efficiency ratio, there was minimal influence. The cost of acquiring and implementing e-

banking technologies and other associated risks such as organizational incompatibility resulted 

in higher costs to banks, especially smaller banks that had to dedicate a large portion of their 

income to ensure successful integration. Further, the constant emergence of new e-banking 

technologies, underqualified IT staff, and employees also increased the cost of acquiring e-

banking systems. However, this relationship becomes profitable in the long run, assuring bank 

managers that effective e-banking implementation through strategic integration is key to 

successful e-banking adoption.  

Narteh (2018) carried out a study in the Ghanaian banking industry to establish whether brand 

equity has an impact on banks’ financial performance. The study also sought whether brand 

likability moderated the relationship between the above variables. The survey methodology 

was adopted, and respondents were chosen randomly from the bank customers. Structuring 

equation modeling using AMOS was used to analyze the data that was collected. Analysis 

revealed that service quality, brand association, brand loyalty, and brand relevance all 

improved performance of the country’s retail banks. The study also determined that it is 

essential that banks manage customer and supplier relationships to maintain a positive and 

likable brand image which ultimately results in improved financial performance. Branding was 

noted to increase product differentiation, profitability, customer loyalty, and competitive 

advantage. The study also determined that developing a system for employee and customer 

loyalty rewards would strengthen the image of the banks’ brand. This study explored brand 

recognition strategies; the current study explored market, development, penetration and 

diversification strategies using secondary data.  

Orji, Andah, Chima, and Abba's (2017) research sought to determine the impact of new product 

development on the profitability of Nigerian Deposit Money Banks. The study applied a mixed 

research methodology with both primary and secondary data being utilized in the study. The 

research employed both descriptive and inferential analysis. The results showed that new 



22 

 

 

product development had a significant effect on the profitability of the banks. The study 

showed that product innovation, development of customer-centric, product pricing, product 

testing, and improving customer knowledge on new products are key to increased profitability. 

The current study, however, did not review the financial profitability of Kenyan commercial 

banks. 

Tukundane, Kibuuka, and Sunday (2020) examined the relationship between new product 

development practices and the growth of small and medium enterprises in the Greater Kampala 

Metropolitan Area, Uganda. The study applied a cross-sectional research design with 226 top 

administrators selected to participate in the study. The research employed both primary and 

secondary research data. The findings showed that new product development practices 

explained 31.92% of the growth within small and medium enterprises. The study showed that 

screening new product ideas, improving existing product lines, allocating funds for product 

development, and obtaining client feedback on product range are key to growth in sales, 

customer base, and profitability within the firms. The study focuses on SMEs, while the current 

study studied the performance of commercial banks in Kenya. 

Kariuki (2012) conducted a study to determine the effect of product development on the 

financial performance of commercial banks in Kenya. This study categorized determinants of 

commercial banks' financial performance into two categories, namely internal and external 

factors where internal determinants of profitability, which are within the control of bank 

management, and external factors are those factors that are considered to be beyond the control 

of the management of a bank. The study found out that new product development impacted 

positively on the financial performance of commercial banks in Kenya. The study, however, 

does not focus explicitly on Tier-III banks in Kenya, which have faced performance challenges 

in the recent past.  

Ngure, Kimani, and Kariuki (2017) research examined the association between product 

innovations and financial performance of savings and credit co-operatives societies in 

Kirinyaga County, Kenya. The study adopted stratified sampling in selecting 60 Saccos in the 

study population. The study relied on both questionnaires and panel data, with quantitative 

analysis being used. The results showed product innovations were positively correlated to 

financial performance. The study indicated that the introduction of new deposit accounts, 

offering a wider product range, and introducing electronic funds transfer can be key to revenue 

growth and profitability of the institutions. The current study studied the organizational 



23 

 

 

performance of Tier III commercial banks, which was not taken into consideration in the earlier 

study.  

2.3.4 Diversification Strategies and Organization Performance 

Diversification involves the practice of introducing new products into a new market or industry. 

Diversification as a strategy aims to create unique products specific to certain market segments 

and businesses using these strategies aim to generate revenue from the sales of 

new/differentiated products. 

Forcadell, Aracil, and Úbeda (2019) studied the influence of innovation on corporate 

sustainability in the international banking industry. The study considered large banks across 

the globe, with panel data being reviewed for the period 2003-2016. The study adopted 

quantitative analysis techniques, and findings showed that service innovation performance was 

a significant predictor of corporate sustainability of the commercial banks. The study showed 

that the development of technologically-centered financial services, sustainable banking 

practices, and the provision of customer-driven digital services was key to improving 

sustainability within the banks. The study focuses on corporate sustainability while this 

research reviews the organizational performance of Kenyan banks. 

Ripain and Ahmad (2018) carried out a literature review to examine the relationship between 

financial innovation and bank performance. The study extracted previous researchers’ 

literature from online resources such as Google Scholar, Google, Emerald Insight, and Science 

Direct. These studies were limited to the period 2004 - 2018. The study found comprehensive 

evidence that innovations in the financial sector were having a significant impact on 

organizations in the finance sector. FinTech innovations such as mobile banking, Blockchain 

banking, electronic fund transfer at the point-of-sale, internet banking, Bitcoin wallet, 

international electronic fund transfer, Electronic Data Interchange (EDI), and crowd funding 

were some of the identified innovations that had a positive influence on bank’s marketing 

capability and service provision. These technologies were determined to increase efficiency 

and ease of carrying out financial transactions, thereby increasing customer satisfaction and 

financial generation.  

Lisin et al. (2021) examined the impact of digital trading applications on bank profitability. 

The study sought to determine whether brokers with mobile trading applications performed 

better than banks with no mobile applications. Hence, the study explored the effectiveness of 

brokers compared to banks. T-tests and linear and polynomial regression analysis were applied 



24 

 

 

to the collected data. The analysis showed that brokers with trading applications reported 

higher returns than banks without trading applications. The study also determined that financial 

institutions should develop applications that would enable customers to access credit services, 

deposit funds, as well as invest in the stock market or securities. The study also showed how 

digital trading apps could be used in Robo advising, smart contracts, simplifying the 

international money transfer system, and personal insurance. Brokers’ digital trading 

applications were also successful in increasing transparency, discouraging fraud, accelerating 

and simplifying business processes. Due to the multiple applications possible, the researcher 

specified the necessity of ensuring proper industry alignment.  

Theogene, Musa, and Grace's (2017) survey focussed on the effect of the innovation process 

on the performance of the banking sector in East Africa Region Perspectives. The study 

employed a descriptive correlational research design with 324 employees from KCB Bank 

Rwanda Ltd, forming the study population. The study relied on primary research data with 

descriptive and regression analysis being applied. The study found out that innovation explains 

87.9% of the performance of commercial banks. The study revealed that financial innovation, 

product innovation, and process innovation are significant predictors of bank performance. The 

study adopted a case study review of a single commercial bank, while current research 

examined the link between business growth strategies and the performance of Tier III banks in 

Kenya. 

Mutoni (2018) sought to establish the effect of digital marketing diversification on the 

performance of commercial banks in Rwanda. The study utilized a cross-sectional research 

design with responses being obtained from bank customers and staff. The study illustrated that 

commercial banks were utilizing Google ads, Facebook, Instagram, Twitter, and emails as the 

main digital marketing tools. The findings indicated that the utilization of digital marketing 

tools helped in reducing marketing costs, improving customer satisfaction, customer 

convenience, and service provision. The study found a significant effect of digital marketing 

on the performance of commercial banks in Rwanda. The current study studied the impact of 

diversification e strategies on the performance of commercial banks in Kenya. 

Muriuki and Kiiru (2019) examined the effect of diversification strategies on the performance 

of savings and credit co-operatives in Nyeri County, Kenya. The research applied a descriptive 

research design with six licensed Saccos forming the unit of analysis. The study utilized 

structured questionnaires in the data collection, and the findings showed a positive effect of 



25 

 

 

product innovation, organizational innovation, process innovation, and marketing innovation 

on the performance of Saccos. The study indicated that firms should improve their creativeness, 

enhance product innovation, improve employee innovativeness, and meet customer needs in 

order to foster performance attainment. The study is only limited to diversification strategies, 

while the current study sought to review the influence of various business growth strategies on 

the performance of commercial banks. 

Ahmed and Wamugo (2019) studied the effect of financial diversification and the performance 

of commercial banks in Kenya. The study employed a quantitative approach focusing on 16 

commercial banks selectively chosen for the study. The research utilized both primary and 

secondary research data. The study showed that agency banking, mobile banking, internet 

banking, as well as utilization ATM (Auto-Teller Machine) had a positive and statistically 

significant effect on the performance of commercial banks in Kenya.  The findings indicated 

that financial innovations could be key to improving profitability, service access, reducing 

banking costs, enhancing efficiency and productivity, improving customer outreach, and 

relationship management within banks. The study only focuses on financial innovation, while 

this study expanded to cover more diversification strategies in Kenyan Tier III banks. 

 

2.4 Summary of Research Gaps 

The studies reviewed provide insights into how different growth strategies influence firm 

performance. However, they fail to establish a direct link between growth strategies and 

organizational performance. Klus, Lohwasser, Holotiuk, and Moormann (2019), for instance 

only addressed one market penetration strategy- alliances. These findings were enhanced 

through an analysis of multiple growth strategies. The studies by Anderibom and Obute’s 

(2015), and Nyoike (2015) were all case studies that examined the growth strategies unique to 

UBA bank and Standard Chartered bank. This study expounds on these factors through an 

analysis of the general industry.  

Ejoor, Okechukwu, and Iroegbu (2018), who focused on multiple bank alliances, employed an 

ex-post facto research design, presenting a methodological gap as the current study used a 

descriptive design. Further, this study only presented evidence from three banks that had 

undergone successful mergers. The same gap emerges in Ndiege’s (2019) study which used an 

exploratory design. Muriuki and Kiiru (2019) provided insights into the diversification-

performance link but used data from cooperatives.  



26 

 

 

These studies did not investigate other business growth strategies that banks can employ, such 

as product development. It is essential no note that most of these studies explore strategies 

employed by banks of all sizes. These gaps in literature motivated the researcher to investigate 

how business growth strategies impact the performance of tier III commercial banks in Kenya.



25 

 

 

Table 2.1 Summary of Research Gap 

Study Focus of Study Findings Research Gap The focus of current 

Research 

Saghi-Zedek (2016) The Influence of product 

diversification on bank 

performance 

Product diversification 

improved firm 

performance 

This study relied on panel 

data in its analysis 

The study relied on 

primary data 

Yang, Li, Ma, and 

Chen (2018) 

The influence of e-

banking adoption on 

Chinese banks’ 

performance in terms of 

profitability and cost-

efficiency. 

e-banking adoption 

improves banks’ 

profitability and 

efficiency  

This study involved five of 

the largest banks in China  

This study investigated 

third-tier banks in Kenya 

and considers more 

business growth strategies 

Tukundane, Kibuuka, 

and Sunday (2020) 

The relationship between 

new product development 

and SME growth 

SMEs grow at a faster 

rate if they can develop 

new products  

The study investigated 

SMEs and used a cross-

sectional design 

This study focused on 

commercial banks  

Ripain and Ahmad’s 

(2018) 

The relationship between 

financial innovation and 

bank performance 

 

Financial innovations 

have a significant positive 

impact on bank 

performance 

The study carried out a 

literature review 

The study did not consider 

cross-sectional 

observation in determining 

how business growth 

strategies affect bank 

performance. This was 

applied in this research. 

Asiedu (2016) The impact of 

segmentation practices on 

bank performance 

Market segmentation 

improves banks’ 

customer outreach 

This study was based in 

Colombia 

The current study 

investigated the same 

within the local context 

Orji, Andah, Chima, 

and Abba's (2017) 

The impact of new 

product development on 

bank profitability 

Banks report higher 

returns after introducing 

new products and 

services 

The study used only 

financial measures of 

performance 

The current study 

incorporated multiple 

measures of bank 

performance 



26 

 

 

Anderibom and Obute 

(2015) 

The effects of mergers and 

acquisitions on the 

performance of 

commercial banks 

Mergers and Acquisitions 

improved banks’ market 

share, operational 

capacity, and overall 

knowledge 

This was a case study 

focusing on a single bank 

The current study was not 

focused on a case study 

research design. 

Faith (2019) Effect of expansion 

strategies on performance 

of insurance Industry in 

Kenya. 

Diversification and 

product development 

improve market outreach 

within insurance firms.  

This study investigated the 

insurance industry and not 

the banking industry 

This study investigated 

Tier III banks 

Muthengi (2015) The effects of marketing 

strategies on the sales 

performance of 

commercial banks in 

Kenya. 

Increased digital 

promotional activities 

improve bank 

performance 

This study did not explore 

how product development 

strategies impact bank 

performance 

This study included other 

tenets of Ansoff’s model 

Hameed and Anwar 

(2018) 

Analyzing the 

Relationship between 

Intellectual Capital and 

Organizational 

Performance: A Study of 

Selected Private Banks in 

Kurdistan. 

Intellectual capital 

significantly improves 

bank performance 

This study did not specify 

banks business growth 

strategies.  

This study was specific to 

business growth strategies 

in commercial banks 

Source: Researcher (2023)



27 

 

 

2.5 Conceptual Framework 

The below conceptual framework identifies the hypothesized effect of business growth 

strategies and organizational performance. The framework identifies the abstract concepts for 

each of the research variables as captured in previous studies.  

Figure 2.1 Conceptual Framework 

Independent Variables 

Business Growth Strategies    Dependent Variable 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Researcher (2023) 

 

Market development strategies: 

New geographical markets  

New marketing channels 

Differentiated pricing 

21. Promotional strategies 

 

Market penetration strategies: 

Strategic alliance 

Mergers and acquisition  

Differentiated pricing 

22. Franchising 

 

 

Organization Performance: 

Financial Perspective 

Customer Perspective 

Internal Perspective 

Learning & Growth Perspective  

 Product development strategies: 

Digital products 

Product design  

Customer-centric products 

23. Product quality 

Diversification strategies: 

Service diversification  

Product diversification 

Market diversification 

Process diversification  

 



28 

 

 

The above conceptualization shows the hypothesized interaction between business growth 

strategies, product development, diversification strategies, market development and 

penetration strategies and the organization performance of Tier III banks measured by 

customer, learning, growth, and internal perspectives. The organization's capabilities was 

assessed by the coordination and resource capabilities within the firm. 

2.6 Operationalization of the Study Variables 

The table of operationalization depicts an indication of the variables, conceptual definitions, 

operational definitions, dimensions, indicators, and the measurement scale of the study’s main 

variables. the independent variables will be the four main business growth strategies and the 

dependent variable will be organizational performance. The constructs, operational definitions, 

the measurements, and indicators that this study will use will be provided in this section.    

 

 

 

 

 



29 

 

 

Table 2.2 Operationalization of the Study Variables 

 

Variable Construct Operational 

Definition 

Measureme

nt Scale 

Indicators Source(

s) 

Independent 

Business 

Growth 

Strategies 

Product 

Developmen

t 

The process of 

delivering and 

commercializi

ng new bank 

products and 

services such 

as green  

business loans 

5-point 

Likert scale 

● Digital 

products 

● Brand 

image  

● Customer-

centric 

products 

● Product 

quality 

 

Ansoff 

(1957) 

Diversificati

on strategies 

The product 

and systems 

re-engineering 

process results 

in improved 

products and 

services such 

as online 

payment 

services 

5-point 

Likert scale 

● Service 

diversificati

on  

● Product 

diversificati

on 

● Market 

diversificati

on 

● Process 

diversificati

on  

 

Ansoff 

(1957) 

Market 

penetration 

strategies 

The process of 

entering into 

new markets  

5-point 

Likert scale 

● Strategic 

alliance 

● Mergers 

and 

acquisition  

● Differentiat

ed pricing 

● Franchising 

 

Ansoff 

(1957) 

Market 

development 

strategies 

business 

growth 

strategy that 

focuses on 

introducing 

5-point 

Likert scale 

● New 

geographica

l markets  

● New 

marketing 

channels 

Ansoff 

(1957) 



30 

 

 

existing 

products to 

new markets. 

● Differentiat

ed pricing 

● Promotional 

strategies 

Dependent 

Variable 

Organization

al 

Performance 

Financial 

Perspective 

Banks’ 

financial 

performance 

in terms of 

ROA, ROE, or 

NIM.  

5-point 

Likert scale 

● ROA 

● ROE 

● NIM 

 

(Kaplan 

R. S., 

2009) 

Customer  Banks’ 

performance 

form the 

perspective of 

the customer 

5-point 

Likert scale 

● Quality 

services 

● Customer 

satisfaction 

● Feedback 

(Kaplan 

R. S., 

2009) 

Internal 

Perspective 

Banks’ 

performance 

in terms of 

efficiency, 

reflected in 

the quality of 

its products 

and services 

5-point 

Likert scale 

● Efficiency 

● Effectivene

ss of 

employees 

● Employee 

working 

relationship

s 

(Kaplan 

R. S., 

2009) 

Learning and 

Growth 

Banks’ human 

capital 

cultural and 

technological 

competencies 

are key to 

strategic goal 

realization.  

5-point 

Likert scale 

● Training 

● Mentoring 

● Appraisal 

(Kaplan 

R. S., 

2009) 

Source: Researcher (2023)



31 

 

 

2.6 Chapter Summary 

This chapter presented the theoretical underpinnings of the study and previous researchers’ 

findings on the relationship between different business growth strategies and bank 

performance. The section also presented a summary of study gaps, the conceptual framework, 

and a table showing how the variables were operationalized.  

  



32 

 

 

CHAPTER THREE 

RESEARCH METHODOLOGY  

3.1 Introduction  

The third chapter of the study presents the methodology that was applied during the research 

work. The chapter specifically contained the design of the study, the population of the study, 

the data collection instruments, procedures, and the data analysis and presentation methods. 

 

3.2 Research Philosophy 

The philosophical paradigm in research is defined as the development of knowledge, the nature 

of that knowledge, and important assumptions on the way researchers view the world (Kothari 

& Gaurav, 2014). This study was anchored on an epistemological paradigm, which focuses on 

acceptable knowledge in any given field and how that knowledge develops or is acquired. The 

two main epistemological branches in social sciences research are positivism