Influence of Competitive Strategies on Performance of Commercial Banks

The volatility nature of the business environment mandates the use of competitive strategies in order to compete. This necessitates the adoption of competitive strategies by financial institutions in order to remain profitable. There are limited studies on the influence of competitive strategies on performance of commercial banks in Kenya. This, as well as other growing banking challenges, has an operational and management impact on the bank's performance. However, there has been limited study on the influence of commercial banks' competitive strategy performance of Banks in Kenya especially in arid and semi-arid areas and, adopting a complete strategic plan remains a pipe dream as long as the driver's strategies at the business level remain unknown to management. The general objective of the research was to establish the influence of competitive strategies on the performance of commercial banks in Lodwar Town. The study was guided by the following specific objectives: to assess the influence of differentiation strategy on performance of banks in Lodwar Town; to establish the influence of cost leadership strategy on banks performance in Lodwar Town and to determine the influence of diversification strategy on performance of commercial banks in Lodwar Town. The following three theories were used to elucidate the link between competitive strategies and performance: Resource-based theory, Porters generic model and Porter’s five forces model. The study deployed cross sectional study design. The study was conducted in Lodwar Town, Kenya. The target population was the banking staff of commercial banks in Lodwar, Town. The study employed census method targeting all the 100bank employees comprising (96) operational staff and (4) managers from the four 4 banks for questionnaires and interview schedules respectively. The researcher collected primary data. The data was collected by use of questionnaires and interview schedule. Validity was ascertained with a content validity index of 0.8. The reliability statistics for the alpha coefficient was 0.84 rendering the tool reliable. From the findings, differentiation strategy, β = 0.457 and p< .05 has a statistically significant positive effect on the performance of the commercial banks in Lodwar. Cost leadership strategies were also found to have a statistically significant and positive effect, β = 0.385, the p< .05 on the performance of the commercial banks in Lodwar. The study also established that diversification, β = 0.538, the p< .05, has a statistically significant and positive effect on the performance of the commercial banks in Lodwar. The study concluded that of the three competitive strategies, diversification strategy seems to have the greatest impact followed by differentiation strategy with the least being cost leadership strategy. While recommending for these competitive strategies to be adopted, the study also recommends varying resource allocation where more resources should be allocated to diversification with the least resources being allocated to cost leadership. The study upheld the sentiment of the theories advanced in addition, it will be critical in developing and improving policies for Commercial Banks. Furthermore, the study contributes to the body of knowledge by the supporting the need of adoption of competitive strategies by businesses to improve performance.