Strategic responses to global financial crisis and perfomance of petroleum multinational firms in Kenya

Abstract

Changing environments can pose constraints as well as create opportunities for organizations, so do major economic crises. The global financial crisis relates to the events that led to the collapse of many leading financial institutions in the USA and Europe in 2007 and 2008 as a consequence of subprime lending. This affected organizations from all sectors. The study was aimed at determining the strategic responses applied by petroleum multinational firms in Kenya to counter the effects of the global financial crisis and establishing the effect of the strategic responses applied on the financial performance of the petroleum multinational companies in Kenya. This study was based on contingency theory, resource dependence theory and upper echelons theory. This study adopted a cross sectional descriptive research design. The target population of this study was all the 11 petroleum multinationals in Kenya. Data collection was through questionnaire. The respondents who were the target to answer to the questionnaire were the finance directors of the selected multinationals. Analysis of data was through descriptive and correlation statistics. Study findings indicate that responses applied included postponing investment plans, exercising non-replacement of departing staff, delaying recruitments and wage freeze or deferring wage increases. Other strategic responses applied included reorganizing work systems and functions to improve efficiency, wage moderation, streamlining and better monitoring of expenses to cut costs and adjusting hours of work. The strategic responses which were positively related to performance included adjusting hours of work (for example, reducing overtime and number of shifts), reorganizing work systems and functions to improve efficiency, delaying recruitments, exercising non-replacement of departing staff and postponing investment plans. Other strategic responses which were positively related to performance included wage freeze or deferring wage increases, wage moderation, streamlining and better monitoring of expenses to cut costs and filling work gaps with training. The organizations that applied these responses performed better on average than their peers. The study makes the following recommendations. First, as firms in petroleum sector seek to have strategic responses to guard against major crisis similar to the global financial crisis, it is important to ensure that these responses do not hamper the long term sustainability of the firm. Secondly, though government actions play a pivotal role in determining the future structure and orientation of economies, organizations also should play their rightful role in managing crisis internally. This research has implications for petroleum firms and the government. For petroleum firms, the findings are a call to action by organization management to ensure that when an environmental crisis occurs, they should respond with effective responses to increase the chance of survival and sustainable competitive advantage for the organization. It requires attention to tools that facilitate and enable renewal such as effective policy framework, policies fostering research and development, skills upgrading and training, and investments in capabilities for innovation. The findings also have an implication for the government. The government is required to institute policies that would require organizations to design effective change and risk management practices to deal with crisis that can affect survival of the firms.