Relationship between Strategic Contingency Factors and Organizational Performance of Commercial Banks in Kenya

Abstract

The study sought to establish the relationship between strategic contingency factors and the commercial banks performance in Kenya. Specifically, the research sought to ascertain the association between organizational structure, information technology, regulation of banks and competition and the organisational performance and lastly, to asertain the moderating effect of strategic fit on the strategic contingency factors and organisational performance relationship. The study was guided by the contingency theory, diffusion of innovation theory, the neo-classical theory of markets, and the public interest theory of regulation. A descriptive research approach was used, and 41 banks were chosen as study subjects. Four top personnel from each of the institutions targeted were chosen to take part in the research. The respondents were head of human resource department, operations department, finance department, and information technology department. The sample size comprised 156 respondents from 39 banks. Pilot study was carried out on two banks namely; community bank and prime bank. The study employed primary data that were collected through a questionnair. Validity and reliability were determined through use of a pilot study. Data analysis was done using descriptive and inferential analysis. Inferential analysis included correlation analysis, linear regression analysis and multiple regression analysis. Descriptive analysis comprised frequencies and percentages. Cronbach’s alpha ascertained the internal consistency of the research tool. The results established that organizational structure, technology, regulations and competition affected organizational performance. However, the strategic fit was established to have a moderation effect on the relationship between strategic contingency factors and organizational performance. It was recommended that the administration of banks should improve their organizational structure as it was found that the variable had the greatest contribution towards organizational performance, banks should ensure they have a comprehensive organisational structure with a high degree of control, a hierarchical structure, and a divisional structure within the departments. The management should provide an enhanced information technology infrastructure, and improve the IT skills of the employees through professional development to enhance performance. Lastly, the study developed an optimal model suggesting that contingency factors [organizational structure, information technology; competition, and regulation] have a major impact on firm performance and that the relationship is moderated by a strategic fit.