Competitive Advantage Practices and Performance of Commercial Banks in Nairobi County Kenya

Abstract

Over the recent years, competition in the Kenyan banking industry has increased, resulting to various banks adapting key practices to increase their competitive advantage. Hence, this research focused on the competitive advantage practices and performance of commercial banks, in Nairobi County Kenya; a case of Equity Bank, Kenya Commercial Bank, Absa and Family Bank. Over the recent past, the performance of commercial banks has been influenced by different factors such as liquidity, capital inadequacy and the efficiency of operational costs. The study’s objective was; to find out how differentiation strategy, innovation, focus strategy and cost leadership. Some of the theories applied include porters five forces, resource-based view, stakeholder, and balanced scorecard model. The research applied a case study method, with detailed questionnaires which examines the respondents on practices used by Commercial banks in Nairobi County. Also, it examined on how such practices enhance performance in the county. The summary of the regression model correlation coefficient explains the interdependence between the independent variables, differentiation, focus strategy, cost leadership, innovation and the dependent variable, which is performance. Key respondents of this study were employees and customers of the sampled Commercial banks in Nairobi County, with a focus of Branch managers, regional managers and departmental managers. Data was collected using questionnaires, with open ended questions. Reliability test was undertaken, and analysis done through multiple regression and inferential statistics. The expected outcome is that the four main practices would become useful to Equity Bank management, future researchers, and the government. The study concluded that commercial banks use differentiation strategy to provide customers with something unique, different and distinct from items their competitors may offer in the marketplace. Innovation plays a key role in introducing novelty to existing product lines or processes, leading to increased market share, revenue, and customer satisfaction. Focus strategy identifies the market segments where the bank can compete effectively. Implementing Cost Leadership Strategy creates a different market size for each product and each industry. The study recommended that the commercial banks need to produce or design extremely unique or distinctive products or services that create increased value for the consumer. Commercial banks should ensure that they truly understand their customers’ needs; establish collaborative relationships with their business partners, allocate resources for training and development etc. The commercial banks should use customer satisfaction ratings from past months what led to high scores, and what could use improvement to develop a proper focus strategy and also consider the demographics of their current clientele.