Strategy and Structure Linkages and The Performance Of Commercial Banks In Kenya

Abstract

Organizational configuration is complex and depends on interactions between strategy and
structure. Strategy is a way of adjusting the relationship between an organization and its
environment, and that internal structure in turn must fit the strategy if this adjustment is
to be successful. The overall objective of the study was to determine the influence of
strategy and structure linkage on the performance of commercial banks in Kenya. The
population of the study consisted of all the forty-three (43) banks licensed by Central Bank
of Kenya as banking institutions as at 31st December, 2010. The study adopted a crosssectional
survey design whereby both primary and secondary data were collected from 30
banks out of the 43 targeted (represented 75% response rate) and subjected to statistical
analysis. Organizational performance was measured using both the financial and nonfinancial
indicators. Analytical and predictive models utilizing descriptive statistics, factor
analysis and odd ratio stepwise regression analysis were used to test the study
hypotheses.The findings of the study indicate that there was statistically significant
relationship with ROA, market share and non-financial performance. The individual
constructs, however, showed mixed results for nature of relationship. Strategy
formulation and strategy implementation had positive significant influence on ROA
and market share. Communication had positive significant influence on nonfinancial
performance indicators. Structure framework had positive significant
influence on ROA, market share and non-financial performance indicators. The
study contribution is that it extends the understanding of configuration and performance
on diversity of operationalization related to content or general characteristics of strategy
and structure. In addition, it has debated and presented results on the effect of potential
moderating effect of structure on the relationship between strategy and organization
performance. The study therefore adds value in validating and extending configuration
theory. The study recommends that bank managers should incorporate the right strategic
implementation approaches and have an organization structure that improves
performance. The fit between strategy and structure may therefore be an important
consideration for managers who wish to enhance organization performance positively.