Strategies Adopted by Commercial Banks in Kenya to Gain Competitive Advantage

Abstract

Competitive advantage is a position that a firm occupies against its competitors. To compete effectively, a bank must be aware of who it is competing against, so that it formulates strategy to out-compete its competitors. A firm in pursuit of competitive advantage must also identify those skills and resources that have the greatest potential to give it enduring competitive advantage. Firms will then hedge their strategies on these skills and resources so as to obtain and sustain competitive advantage. This study was set out to establish the strategies employed by commercial banks in Kenya in order to build competitive advantage. Strategy consists of all those moves and approaches that a firm has and is taking to attract buyers, withstand competitive pressure and improve its market position. The research adopted cross sectional survey design which was most appropriate in attaining the objective of the study. The research study was grounded on five theories namely; Resource based theory, profitmaximizing and competition-based theory, game theory, resource dependency theory and porter’s generic competitive advantage. The population of the study comprised of 43 commercial banks as licensed by the Central Bank of Kenya as at 31st December, 2014. Respondents were subjected to the study through a semi-structured questionnaire which collected primary data. In administering the questionnaires, the respondents were contacted by mail, or drop and pick later method. Descriptive statistics data analysis method was used to analyze quantitative data using frequency distribution, percentages and mean specifically for the purpose of analyzing the quantitative data and presenting it inform of table, bar graphs and histograms. Qualitative data analysis method was employed to analyze qualitative data gathered using open ended questions. The study found that different commercial banks adopt different strategies in order to gain competitive advantage. Under Cost leadership strategy, banks have adopted alternative channels like mobile banking, agent banking, internet banking and cards. Under differentiation strategy, banks have introduced electronic, digital, Diaspora, Islamic, or executive banking, and unique products. On Focus strategy, banks have focused on a certain group of customers like business people and transport sector. Strategic alliance strategy, banks have partnered with telecommunication companies and collaborated with major organization. Diversification strategy, banks have diversified into other businesses like insurance, investment banking and telecommunication services. Merger and acquisition strategy, banks are either acquiring or merging with other institutions and banks. The study concludes and recommends that for banks to remain competitive and outdo their competitors they have to adopt a mix of strategies in order to gain competitive advantage. The study was only limited to focusing on strategies adopted by commercial banks in Kenya. Further research should be undertaken to establish the strategies employed by other organization in order to build competitive advantage in other sectors like micro-finance institutions, telecommunication sector, insurance, investment banks and Sacco’s that pose real threat to commercial banks survival.