Influence of enterprise risk management on organizational performance: evidence from Kenyan State-Owned Corporations

Abstract

The study conceptualized the association between performance of state corporations (SCs) in Kenya and their enterprise risk management (ERM). ERM is a practice in strategic management that aims to manage risks within the adopted risk tolerance and offer realistic guarantee in accomplishing an entity’s objectives and goals. This strategic management practice was introduced in public organizations as part of the government reforms to deal with the dismal performance of state corporations. However, following its introduction in the year 2009 and thereafter it being made mandatory to augment other performance related reforms in the SCs, poor performance persists in most SCs. The purpose of the study therefore, was to determine the effect of ERM on organizational performance of SCs in Kenya. The study used structured questionnaire to collect data in a cross-sectional survey design approach. Data was collected from 92 state corporations in Kenya. Descriptive and inferential statistics were used in analysis of the collected data. The results from the study established that ERM had a statistically significant influence on organizational performance. The results supported contingency theory of ERM. The study stresses the need to enhance the enforcement and implementation of ERM in strategic government agencies. The study contributed to knowledge by demonstrating that ERM significantly influences performance in public sector organizations. The study supported the advancement of contingency theory of ERM by validating that ERM has a positive influence on the performance of SCs in Kenya, thus extending the advancement of the theory to the public sector context. This suggests that matching the contingent factors and adoption of strategic risk management in an organization enables it to accomplish the envisioned outcomes. The study recommendation to policy is for the government to enforce the adoption of ERM in SCs by evaluating its adoption and auditing corrective action. To practice, the study recommends that managers as the owners of organizational strategy in SCs should ensure the adoption of ERM as a practice in strategic management by its integration at all levels of strategy development, implementation and decision making in the organization to enhance organizational performance. The study was carried out among Kenyan owned state corporations, which ordinarily function in a different external and internal environment as compared to organizations either in financial or non-financial private sector. The results of the study therefore, are to be applied cautiously since they may not be easily generalized in all other sectors.