External environment, firm capabilities, strategic responses and performance of large scale manufacturing firms in Kenya

Abstract

The study was based on conceptualized relationship between external environment, firm capabilities, strategic responses and performance. External environment has been argued that it positively influences performance. Other perspectives have posited that firm capabilities moderate the choice of strategic choice. However, some empirical studies have contradicted these influences hence the need for more research on the effect of firm capabilities on the relationship between external environment and strategic responses. These variables were contextualized in large scale manufacturing firms in Kenya. The broad objective of the study was to determine the influence of firm capabilities and strategic responses on the relationship between external environment and performance of large scale manufacturing firms in Kenya. Out of this objective, six specific objectives were formulated with corresponding six hypotheses which were tested at 95 percent confidence level. The specific objectives were to; determine the influence of external environment on performance, determine the influence of external environment on strategic responses, determine the influence of strategic responses on performance, determine the effect of strategic responses on the relationship between external environment and performance, establish the effect of firm capabilities on the relationship between external environment and strategic responses and lastly, establish the joint effect of external environment, firm capabilities and strategic responses on performance of large scale manufacturing firms in Kenya. Through a cross-sectional descriptive survey, data were obtained using a structured questionnaire from 81 large scale manufacturing firms. Data obtained were analyzed using both descriptive and inferential statistics. Hypotheses were tested using both simple and multivariate regression analysis as well as hierarchical analysis for moderating and intervening effects. The findings show that overall external environment has a statistically significant influence on some indicators of performance. Firm capabilities were found not to be statistically significant moderators on the relationship between external environment and strategic responses. Results of the independent effect of firm capabilities indicate statistically significant effect of human resources, marketing, manufacturing technology, research and development and management information systems on strategic responses. Results further show existence of positive correlations between external environment dimensions and some strategic response variables. The results support both open systems and industrial organizations theory and partially supported dynamic capability theory The structure conduct performance and dynamic capabilities are the main theoretical beneficiaries. The study contributes to knowledge in the field of strategic management by establishing effects of firm capabilities through moderation on the relationship between external environment and strategic responses. Managers will use the findings of this study to monitor the crucial performance drivers in their firms with regard to capabilities and strategic responses. The thesis suggests future directions in small and medium enterprises as well as other industries. The study has offered direction for policy makers and the owners of the manufacturing firms. Areas for further research have been highlighted for context and other variables and performance indicators to be tested