A study of related diversification within East Africa building society.

Abstract

This is a management research project which was carried out with three (3) key objectives, namely, • To identify the extent of diversification within East Africa Building Society, • The factors that influence the pursuit of the related diversification strategy • Why the EABS wants to move to the main stream of banking. It is a case study whose respondents comprised the Chief Executive of the EABS,the Chief Executives of its sister companies within the EABS holdings and the marketing managers. Primary data was collected using personal interview guide whereas secondary data was collected from the company's periodicals. Content analysis method was applied for the data analysis. The research findings were that-: It has diversified into both financial and real estate sectors. Reasons for these were due to support the parent firm's core objectives of mortgage financing and housing development. The key factors which have influenced their pursuit of related diversification move were that they wanted to remain competitive and turn into ''one stop shop" where they could satisfy all their customers' needs as well as maintain their relative market share. Also they wanted to share and transfer key resources within their SBUs, others cited included the synergy effects, firm's strategic intent, and to try to spread its risks as well as putting their excess financial resources into viable ventures. Their move into the banking sector from their main stream mortgage sector is due to the competitive environment into which they are operating in. It was found out that EABS is registered under the Society's Act which has hindered it in terms of the clearing procedures at the central bank, a factor they now think they can overcome by entering into the banking sector and also due to the fact that their capital base has over grown and surpassed the central bank requirement. Also change of their target market, a fact they think can well be met by shifting to a commercial bank. Finally, insiders pointed out that they are actually divesturing one of its SBUs which has failed to perform to their expectation. With these strategic moves, EABS is seen to have taken the necessary proactive strategy of related diversification which has in deed placed it in the upper hand in the entire mortgage industry in the country. Further, it was revealed that the EABS supports its sister companies especially in both finance and resources of which this has boosted their operations within their respective industries. Recommendations for the policy and practice are that the centralised decision making process and the management style within the EABS Group were cited to have hindered the effectiveness of the single SBUs which need to be set free to compete effectively. It is also the high time the management of the EABS realised the importance of recruiting and maintaining high qualified staffs from all the races. Finally each of the SBUs should be allowed to set up a research and development departments to enable them read the market signals early in advance and set the necessary proactive strategies.