Effect of Competitive Strategy on Financial Performance of Commercial Banks in Kenya. A Case Study of Nairobi County, Kenya

Abstract

Competitive strategies are critical in the bank’s financial performance. The banks that have effective competitive strategy are likely to achieve better competitiveness in terms of financial and non-financial performance. The study sought to determine the effect of competitive strategy on the financial performance of commercial banks in Nairobi County Kenya. The specific objectives were; to determine the effects of product differentiation strategy on the financial performance of commercial banks in in Nairobi County Kenya, to establish the effect of innovation strategy on the financial performance of commercial banks in Nairobi County Kenya; to analyze the effect of the post-COVID-19 recovery strategy on the financial performance of commercial banks in Nairobi County Kenya; and to establish the effect of human capital strategy on the financial performance of commercial banks in in Nairobi County Kenya. The study was guided by porter's generic competitive strategies theory resource-based theory, knowledge-based view, and agency theory. The study adopted a cross-sectional survey design, targeting the branch managers of licensed commercial banks operating in Nairobi County. A total of 564 banking branch managers were targeted. A sample of 234 branch managers were selected using random sampling. Data was collected using an online questionnaire administered through the Qualtrics survey portal. The data was analyzed using Statistical Package for the Social Sciences version 29. The data was presented in tables and graphs. The pilot study was conducted in Murang’a County, using 20 branch managers in commercial banks. The ordinal logistic regression was used to analyze the relationship between the variables. The result of the regression indicated a positive statistical relationship between product differentiation, COVID-19 recovery strategy, human capital strategy and innovation on financial performance. It was also established that the overall competitive strategy had a statistically significant effect on the bank’s financial performance. It is recommended that the banks should establish strategies aimed at improving the product quality and review strategies to improve product quality to meet the customers’ expectations and focusing on refinancing and restructuring of loans to assist the customers who are unable to pay the loans on time due to the financial challenges. The recommendation for future research includes using the qualitative approach, comparative analysis across different regions in Kenya and using the longitudinal approach.