Organizational Strategic Capabilities, Compliance with Regulations and Competitive Advantage of Commercial Banks in Kenya

Abstract

The business environment today is characterized as Volatile, Uncertain, Complex and Ambiguous thus the capability to sense and respond to market threats and opportunities with speed and surprise has become essential for survival of organizations. The commercial banks operating in Kenya are experiencing a fast pace of change characterized by customers’ sophistication, strict regulation and supervision, technology advancement and liberalization of banking license leading to rapid internationalization. With a demonstration of three commercial banks in Kenya collapsing in the last five years, there is perhaps a need to reevaluate how to compete and gain competitive advantage in this sector. In such a situation, scholars agitate for agility. However, empirical literature on the relationship between organizational agility and competitive advantage is scarce. Thus this study sought to establish the effect of Information Technology Capability, Knowledge Management Capability, organizational adjustment agility and market capitalizing agility on competitive advantage of commercial banks in Kenya. The study also tested for the mediating effect of higher order capabilities as well as moderating effect of compliance with central bank regulations. The study was anchored on the McKinsey 7S Framework Model, the Resource Based View, the dynamic capability Theory and the Market Power Theory. A positivist research philosophy was adopted for the study. A descriptive survey design was adopted.A pilot study was conducted on 2 commercial banks and hence the remaining 37 were used in the main survey. A total of 259 respondents were sampled from the 37 commercial banks to participate in the survey. The relationship between the variables was tested using ordinary least square regression model. On the other hand, the moderating effects of compliance with Central Bank of Kenya regulations was also tested using the moderated multiple regression model. The study findings are that organizational strategic capabilitiesnamely knowledge management capability, information technology capability, operational adjustment agility and market capitalizing agility are moderately developed (M = 4.00) on a scale of 1 to 5 and have a positive and significant effect on competitive advantage of commercial banks in Kenya. The regression results established that the strategic capability with the highest effect is ICT capability followed by Market Capitalizing agility then Knowledge Management Capability and the one with the least effect is Operational Adjustment Agility. It was also established that organizational strategic capabilities(Knowledge Management, ICT capability, Market Capitalizing agility and Operational Adjustment Agility) accounts for up to 59.3% of the variation in competitive advantage of commercial banks in Kenya. Furthermore, compliance with central bank regulations have a significant moderating effect on the relationship between organizational strategic capabilitiesand competitive advantage of commercial banks in Kenya. It is recommended that commercial banks intensify the development and employment of both lower level and higher level dynamic capabilities because they were found that they positively and significantly influence competitive advantage. Further, more focus should be directed to market capitalizing agility and operational adjustment agility because these capabilities were found to be less developed at (M < 4.00).