| dc.description.abstract | The competitive strategy of the firm in the business environment characterized by
uncertainties in the market is an important management decision. Diversification strategy
as one of the competitive strategies of the firm allows a business unit operating in more
than one sector to gain an advantage due to their activities among themselves and thus
creating an undesirable situation of mitigating or hindering competition for the businesses
operating in the same industry. This strategy allows a firm to expand or enter new
markets which are different from the firm’s existing product lines or markets and in the
process attain above-average returns by taking advantage of the incoming opportunities.
Diversification is considered as a growth strategy whose rationale is to explore new
business areas that promise greater profitability and therefore a firm needs to
enter/expand in new markets or product lines which are related or/and unrelated to its
existing businesses. The objective of the study was to determine diversification strategy
and its effects on performance of mobile telephony firms in Kenya. The study adopted a
descriptive cross sectional research design. The population of the study consisted of
Mobile Service Providers operating in Kenya. According to CCK (2011-2012), there are
currently four firms offering mobile services in the country namely: Safaricom, Airtel,
Orange and Yu. The study used primary data which was collected using a selfadministered
questionnaire. The data was analyzed using descriptive statistics. The
findings of the study was that the influence of diversification strategies on firm
performance was on total cost reduction, sales growth, return on investment, market share
growth, financial liquidity and reduction of response time for product design change or
volume change. The study found out that by pursuing related diversification, the
companies were able to use the existing products which are complementary to each other
to boost their sales growth and reduce cost, use the companies’ well-known brand value
to contribute positively to market share and return on investment, apply resource
enhancement and utilization collectively by all the strategic units to increase returns,
share management skills among the different products to enhance the firms’ customer
base and to gain competitive advantage through the transfer of brand name as well as
their marketing capabilities. Unrelated diversification strategy influences the performance
of the companies as it helped the managers to create economic value in different product
lines and markets, result in expansion of product lines and activities to different sectors
where profitability is higher, realize cost savings through performing some activities
centrally and reduce risk for the firms’ products and services that have been threatened by
the environmental uncertainty or that are in decline phase of their life cycle. Unrelated
diversification was also found to have an effect on the firm’s performance as it enables
the firm’s to have a higher level of absorptive capacity that allows it to more fully capture
the benefits of simultaneous exploitation and exploration besides leading to benefits from
organizational slack. It also results in co-insurance effect that has a positive influence on
the company debt capacity due to the reduction in the volatility of firm revenues and
profits and as well as enabling the executives to select from any of the strategic business
units whose information is set to be available to them without any transaction cost. | en |
