CRITICAL SUCCESS FACTORS AND STRATEGY IN THE BANKING

INDUSTRY IN KENYA

BY: AMOS MUTUKU MULI

A Management Research Project Report submitted in partial fulfillment of the

requirements for the award of the Degree of Master of Business Administration,
Department of Business Administration, school of business, University of
Nairobi.

OCTOBER 2008

University of NAIROBI Library

..f ill
0335809 0
 DECLARATION

This research project is my original work and to the best of my knowledge has not been
submitted for a degree course in this or any other University.

Date

Reg No: D61/7227/06

This research project has been submitted for examination with my approval as the University
Supervisor.

Department of Business Administration, School of Business

University of Nairobi

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 DEDICATION

This piece of work is dedicated to my dear wife, Ruth and my son Clinton.

iii
 ACNKOWNLEDGEMENT

The process of this master project writing is a wonderful learning experience in our academic
life which is filled with challenges and rewards. The completion of the present study leads a
new beginning and a step forward towards our future.

First of all, I would like to express appreciation to my supervisor Dr. Martin Ogutu, who
encouraged, supported and gave me feedback throughout this project writing. Without his
continuous encouragement and support, it would have not been possible for completion. I
would also like to express my special thanks to my lecturers, Professor Aosa, Mr Maalu and
Mr Kagwe for their valuable comments, feedbacks and suggestions during the time of
preparing my project and during the lectures for course work.

Additionally, I would like to thank all respondents who spent their valuable time accepting to
respond to my questionnaires and sharing information with me and making present study go
smoothly.

Finally, the great thanks are directed to my family, fellow MBA students and friends. Being
loved and supported by them makes me believe that I can do anything well.

IV
 TABLE OF CONTENTS
Declaration................................................................................................................................ ii
Dedication................................................................................................................................ iii
Acknowledgement.................................................................................................................... iv
List of tables and figure............................................................................................................. v
Abstract.................................................................................................................................... vi
CHAPTER ONE: INTRODUCTION
1.1 Background....................................................................................................................1
1.1.1 Critical success factors and strategy...............................................................................1
1.1.2 Banking industry in Kenya..................................................................................... 2
1.2 The research problem......................................................................................................5
1.3 The research objectives................................................................................................. 7
1.4 Justification of the study................................................................................................ 7
CHAPTER TWO: LITURATURE REVIEW
2.1 Concept of strategy........................................................................................................8
2.2 Critical success factors.................................................................................................. 9
2.3 The origin of critical success factors............................................................................ 10
2.4 Competitive advantage.................................................................................................11
2.4.1 Technology................................................................................................................... 13
2.3.2 Human resources.......................................................................................................... 14
2.3.3 Service quality..............................................................................................................14
2.4.4 Marketing.................................................................................................................... 15
2.4.5 Pricing..........................................................................................................................15
2.3.6 Service distribution....................................................................................................... 17
2.3.7 Research and development...........................................................................................17
2.3.8 Finance......................................................................................................................... 18
2.5 Critical success factors and the role they relate to strategy.........................................19
CHAPTER THREE: RESEASRCH METHODOLOGY
3.1 Research design............................................................................................................21
3.2 Population.................................................................................................................... 21
3.3 Data collection............................................................................................................. 21
3.4 Data analysis.................................................................................................................22
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1 Introduction................................................................................................................. 23
4.2 General information.................................................................................................... 23
4.3 Critical success factors perceived to be important...................................................... 25
4.4 Determining whether banks leverage strategy on critical success factors.................. 30
CHAPTER FIVE: CONCLUSION, LIMITATIONS & RECOMMENDATIONS
5.1 Summary, discussions and conclusions.................................................................... .35
5.2 Limitations................................................................................................................ .37
5.3 Suggestions for further research................................................................................ .37
5.5 Recommendations for policy and practice................................................................ 37
REFERENCES..................................................................................................................... .38
APPENDICES....................................................................................................................... .40
Appendix I Questionnaire................................................................................................ .40
Appendix ii List of all commercial banks operating in Kenya.......................................... .44

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 LIST OF TABLES AND FIGURE

Table 4.2.1 Respondents profile by gender......................................................................... 23

Table 4.2.2 Age summary of the respondents..................................................................... 24
Table 4.2.3 Bank ownership................................................................................................ 24
Table 4.2.4 Respondents experience in terms of number of years worked......................... 25
Table 4.3.1 Importance of technology................................................................................. 26
Table 4.3.2 Importance of Human resources.................................................................. .....26
Table 4.3.3 Importance of Service quality.......................................................................... 27
Table 4.3.4 Importance of Marketing.................................................................................. 27
Table 4.3.5 Importance of Pricing........................................................................................28
Table 4.3.6 Importance of Service distribution....................................................................28
Table 4.3.7 Importance of Research and development.......................................................29
Table 4.3.8 Importance of finance........................................................................................29
Table 4.4.1 Extent to which banks have a strategy based on technology........................... 30
Table 4.4.2 Extent to which banks have a strategy based on Human resources................. 31
Table 4.4.3 Extent to which banks have a strategy based on Marketing.............................31
Table 4.4.4 Extent to which banks have a strategy based on Pricing..................................32
Tabled.4.5 Extent to which banks have a strategy based on Service Distribution............ 32
Table 4.4.6 Extent to which banks have a strategy based on Research & Development...33
Table 4.4.7 Extent to which banks have a strategy based on Finance.................................33
Table 4.4.8 Extent to which banks have a strategy based on Service Quality.................... 34

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 CHAPTER ONE: INTRODUCTION

1.1 Background

1.1.1 Critical success factors and strategy

Critical success factors (CSFs) are those product features that are particularly valued by a
group of customers, and, therefore, where the organization must excel to outperform
competition (Johnson and Scholes 2002). The concept of Critical success factors was first
introduced by Rockart (1979) as a mechanism to identify the information needs of Chief
executive officers. Rockart asked what it takes to be successful in a business and
concluded that the answer was critical success factors. He defined CSFs as limited number
of areas in which results, it they area satisfactory, will ensure successful competitive
performance for the organization. Critical success factors are those things which must go
right for the organization to achieve its mission. The advantages of identifying CSFs are
that they are simple to understand; they help focus attention on major concerns; they are
easy to communicate to coworkers; they are easy to monitor; and they can be used in
concert with strategic planning methodologies. Critical success factors are the critical
factors or activities required for ensuring the success of business. Critical success factors
have been used significantly to present or identify a few key factors that organizations
should focus on to be successful.

Using critical success factors as an isolated event does not represent critical strategic
thinking, but when used in conjunction with a planning process. Identifying CSFs is
extremely important because it keeps people focused. Clarifying the priority order of
CSFs, measuring results, and achieving rewarding superior performance will improve the
odds for long term success as well. There are four basic types of CSFs according to
Rockart. They are; Industry CSFs resulting from specific industry characteristics, Strategy
CSFs resulting from the chosen competitive strategy of business; Environmental CSFs
resulting from economic or technological changes and Temporal CSFs resulting from
internal organizational needs and changes.

Critical success factors are strongly related to the mission, vision and strategic goals of
business, organization or project. Vision and mission provide direction and scope for the

1
firm’s activities, while Critical Success Factors focus on the most important areas and get
to the very heart of what is to be achieved and how to achieve it. Once CSFs are identified,
executives can use them to develop company strategies. It involves the identification and
analysis of a limited number of areas in which high performance will ensure successful
competitive position (Pearce and Robinson, 2002). Kotler (2001) has indicated the
necessity for organizations to develop competitive advantage to succeed. Poor firms
ignore their competitors, average firms copy their competitors, while winning firms lead
their competitors. Things that are measured get done more often than things that are not
measured. Each CSF should be measurable and associated with a target goal. You don’t
need exact measures to manage. Primary measures that should be listed include critical
success levels (such as number of transactions per month) or , in cases where specific
measurements are more difficult, general goals should be specified such as moving up in
an industry customer service survey.

The critical success factors draw their importance from the desire for business to flourish
and create competitive advantage in the market place through superior strategic capacity.
Strategic capability has been defined as that ability to perform at the level required for
success. Organizations resources and core competences underpins its capacity. The core
competences provide the competitive advantage. Developing the core competences
dictates that CSFs are well understood. To address the CSFs, organizations must meet the
core competences that underpin the organizations ability to outperform competition
(Johnson and Scholes, 2002). This places CSFs, at the heart of strategy where strategy is
seen from both ‘fit and stretch’ perspectives. Strategic fit is developing strategies by
identifying opportunities in the business environment and adapting resources and
competences so as to take advantage of these opportunities while strategic stretch is the
leverage of the resources and competences of an organization to provide competitive
advantage and yield new opportunities.

1.1.2 Banking industry in Kenya

The Banking industry in Kenya is governed by the Companies Act, the Banking Act, the
Central Bank of Kenya Act and the various prudential guidelines issued by the Central
Bank of Kenya (CBK). The banking sector was liberalised in 1995 and exchange controls
lifted. The CBK, which falls under the Minister for Finance’s docket, is responsible for

2
formulating and implementing monetary policy and fostering the liquidity, solvency and
proper functioning of the financial system. The CBK publishes information on Kenya’s
commercial banks and non-banking financial institutions, interest rates and other
publications and guidelines. The banks have come together under the Kenya Bankers
Association (KBA), which serves as a lobby for the banks’ interests and also addresses
issues affecting its members.

There are forty-four banks and non-bank financial institutions, fifteen micro finance
institutions and forty-eight foreign exchange bureaus. Thirty-five of the banks, most of
which are small to medium sized, are locally-owned. The industry is dominated by a few
large banks most of which are foreign-owned, though some are partially locally-owned.
Six of the major banks are listed on the Nairobi Stock Exchange. The banks have come
together under the Kenya Bankers Association (KBA) which serves as a lobby for the
banks’ interests and also addresses issues affecting member institutions. The commercial
banks and non-banking financial institutions offer corporate and retail banking services
but a small number, mainly comprising the larger banks, offer other services including
investment banking. Kenya’s banking industry goes back to 1896 when the national bank
of India opened a branch in this East African country. Most certainly Kenya’s banking
sector has improved tremendously over last 10 years, not just in size and profitability but
also in terms of product offerings and service quality.

The most important observation though is that Kenyan banks are more stable today than
they were 10 years ago. While many of the banks collapsed in the late 90s were as a result
of poor management of credit risks, recent bank closure that is Charter House Bank of
Kenya was more of an operational issue. The Central Bank of Kenya deserves credit for
improvement in the regulatory processes that have resulted in Kenyans having more faith
in their banks, even the smaller banks that have been victims of closures. Total assets in
the banking sector have grown from Ksh 328b in 1997 to 746b, in 2007 a 132% increase,
Central Bank of Kenya (2007), Central Bank of Kenya Annual report 2007. Similarly,
profitability has grown from Ksh 15 billion in 1997 to Ksh to 27b in 2007. But the key
question is; How has this growth been reflected in the overall development of the country,
socially, economically and politically. Socially, the incidence of poverty is still as bad as it
was 10 years ago. More than 50% of Kenyans are poor.

3
The banking sector has played a key role in financing agriculture, the main stay of Kenyan
of Kenyans economy with the highest reach to the Kenyan poor. The banking sector there
is a great emergence of some micro finance institutions like K-rep bank. Equity Bank and
Family Bank, targeting the small trader and rural small scale farmers. That these banks
have grown tremendously compared to their peers over the period they have been in
existence has put paid to the previous perception among Kenyan Banks that there was no
business in the lower retail segment of the market. Indeed the ensuing competition in the
entire industry is testament to this fact. Banks are also now specifically targeting women,
have special accounts for them and some are even planning to open specific branches for
them. My expectation is that in the next 10 years, we should be able to see a reduction in
poverty levels if all these efforts together with government own efforts bear fruits.

The rapid transformation in the banking industry over the last decade have made the
industry stronger, cleaner, transparent, efficient, faster, disciplined and a lot more
competitive. But what we have achieved so far may be only a prelude to the greater things
to come. However, while a few banks have established a good record in terms of
innovation, growth and value creation, most others are yet to make much headway. The
cost of banking intermediation and extent of banking penetration is still lower than other
markets. If the banking sector is to support the economy significantly then it has to
considerably strengthen itself and adapt to the eve revolving environment in which it
operates. Banking sectors that has failed to respond to changing market realities have
historically been a hurdle to the development of the financial sector in many developing
countries. In Kenya, while bank lending has been a significant driver of GDP growth,
periodical systemic failures have significantly affected the stability of the system.

A successful Bank will have to first meet and address several challenges that the industry
currently faces. It will have to be nimble and agile enough to respond to a market that is
seeing growth driven primarily by new products and services. This includes opportunities
in the retail front such as credit cards, consumer finance, wealth management and private
banking and on the whole sale banking front through, fee based income, investment
banking and advisory services. This will call for a completely new skills set both in terms
of new knowledge as well as ability in marketing, areas where the traditional banker have

4
much way to go. With the booming economy and swelling middle class, the retail banking
has been growing explosively over the last 5 years. The trend will continue in future with
even foreign banks returning to this area with their ambitious plans. Also there is huge
potential at the bottom of the pyramid for bringing in the large amount of cash used by
villagers into the banking system. It calls for some outside the box thinking and cost
effective solutions. Sooner, banks may rediscover the rural potential for mobilizing low
cost deposits using their e-banking channels cost effectively.

1.2 The Research Problem

In a competitive market place understanding critical success factors has become a very
important issue. As a result, banks have moved from product centric to critical success
factors to achieve their strategic objectives. Nowadays, many banks realize that it is more
difficult to make their physical products differ from those of their competitors than before.
Therefore, most of them turn to seek differentiation in services by use of critical success
factors. In this way, banks seek more competitive advantages in building on critical
success factors for superior performance like of time delivery, better trained personnel,
management, human resources, equipment or facilities, cost of production and operations,
prices or rates, product quality, service quality, customer care, volume of operations or
sales, image or reputation, marketing effectiveness, finance, technology, research and
development, location and processes or systems.

Perhaps a still greater challenge will be the increased demand for enhanced capabilities
that is demanded of banks by the increasingly demanding customers, who are now more
informed, more aware and more aspiring. Shifts in the demographics, change in the age
profile of the of new customers, rapidly increasing household income and consequently
higher disposable income, and a preference to avail quality services all demand superior
institutional capabilities, varied and updated skill sets, knowledge management abilities
and excellent service levels. Meeting this demand will be the key to success in the market.

A world class support infrastructure is an essential pre-requisite for an efficient and robust
payment system, effective and strong assets reconstruction companies, credit bureaus,
besides backoffice utilities so as to free the Banks and help them focus on core activities.
While significant steps are being taken in many of these areas much more needs to be

5
done. Developments of payment systems over the internet and even the ever ubiquitous
mobile phones have great potential for the future in extending convenience and reducing
cost of transactions. Information is lifeblood for banks. Generating and disseminating
information and knowledge to the employees across the bank can dramatically improve
their performance especially in customer service and decision making. In the ever
changing environment of banking domain, it is a challenging task to re-skill the staff and
re-orient them to use ever more information for decision making. However, a suitable
knowledge management framework with appropriate online educational initiatives can
continuously update and equip the employees across the organization extremely cost
effectively too.

A good number of studies have been done on various aspects in the banking sector in
Kenya. Murigi (2003) is a study on customer satisfaction through end to end service
management strategy. It looks at the application of value chain in service delivery in large
local commercial banks. Musa (2004) is a study on responses of commercial banks to
changes in the operational environment. It was a case study on the National Bank of
Kenya with emphasis on how the bank has tried to enhance customer satisfaction in order
to regain competitiveness. Of the studies that have been done none of them seem to
recognize the importance of critical success factors in strategic management in the
banking industry in Kenya thus creating a knowledge gap.

On the same lines even though critical success factors are important in strategic
management, this area has not attracted many researchers and the aim of the present work
seeks to gain insight on the Critical success factors and their impact on strategy in the
banking sector. With the research gap and the continuous changing environment in which
commercial banks are operating in Kenya, one question that warrants the need to research
into the CSFs and strategy does arise: “Do commercial banks in Kenya leverage critical
success factors in their strategy”.

6
1.3 The research objectives
The following are the two objectives that this research aims to achieve:
I. To identify the critical success factors in the banking sector in Kenya.
II. Establish whether banks in Kenya leverage their strategy on industry critical success
factors.

1.4 Justification of the study

This study will shade light on how commercial banks may use critical success factors in
their strategies in Kenya. This study will be of relevance to the following:
The study will aid managers of various institutions in determining the various critical
success factors. Particularly, managers will gain important insights in establishing the
critical success factors that contribute to organizational success.

Policy makers will obtain knowledge of the critical success factors adopted by the banking
industry in Kenya. They will therefore obtain guidance from the study in designing
appropriate policies that will regulate the banking industry.

Researchers, the will form basis for and stimulate researchers in order to develop a better
understanding of critical success factors and how to use critical success factors to remain
competitive in the market. This will expand their knowledge on critical success factors in
the banking industry and identify areas of further study.

7
 CHAPTER TWO: LITURATURE REVIEW

2.1 Concept of Strategy

Strategy is the match between an organization resources and skills and the environmental
opportunities it wishes to accomplish. It is important to provide guidance and direction for
the activities of the organization. Johnson & Scholes (1999) define strategy as the
direction and scope of an organization over the long term; which achieves advantage for
the organization through its configuration of resources within a changing environment, to
meet the need of markets and fulfill stockholder’s expectations. It is the process by which
managers set an organization’s long term course, develop plans in the light of internal and
external circumstances, and undertake appropriate action to reach those goals. The
“Action” referred to here are the strategies employed in meeting a firms short and long
term objectives.

Strategic management is the set of decisions and actions that results in the formulation and
implementation of plans to achieve a company’s objectives (Pearce and Robinson 1997).
Organizations, whether profit or non profit, private or public have found it necessary in the
recent years to engage in strategic management in order to achieve corporate goals. They
are required to think strategic as never before, need to translate their insight into effective
strategies to cope with their changed circumstances, and lastly to develop rationale
necessary to lay ground work for adopting and implementing strategies in this ever
changing environment. Johnson & Scholes (2002), observes that understanding the
strategic position of an organization and considering the strategic choices upon to it is of
little value unless the managers or management wish to follow can be turned into
organizational action.

In the process of employing strategic management, Pearson and Robinson (2000)

recommend three critical ingredients for the success of strategy; the strategy must be
consistent with conditions in the competitive environment, it must take advantage of
existing or projected opportunities and it must minimize the impact of major threats and it
must place realistic requirements of the firm’s resources. Strategic management is a
managerial approach whose basic concern is the future of the firm and how the firm
anticipates this future. To deal effectively with the changes in external environment, firms

8
need to design strategic management processes, which they feel will facilitate the optimal
positioning of the firm in the competitive environment. Essentially, it means taking critical
evaluations of up to date techniques of strategic analysis, procedures for tailoring the
techniques of the needs of their firms and series of step by step problem solving
procedures (Ansoff and McDonnel, 1990).

There is need for firm's top management to think beyond the current operations so as to
develop strategic input which, they argued, shapes the organizations future strategy and
development, stretching it beyond its past and present achievements. Ansoff and
McDonnell (1990) define strategic management as a systematic approach to a major and
increasingly important responsibility of general management to position and relate the
firm to its environment in a way that will assure its continued success and make it sure
from suiprises. Thompson and Strickland (2003) observe that strategic management is an
ongoing never ending process, not a start-stop-event that once done can safely be put
aside. As such managers have an ever present responsibility for detecting when new
developments require a strategic response and when they don’t.

Johnson and Scholes (2002) notes that the scope of strategic management is greater than
that one area of operational management. Strategic management, they say, is concerned
with complexity arising out of ambiguous and non routine situations within an
organization -wise rather than operation specific implication. Strategic management is
congruent with the quality movement’s emphasis on continuous improvement. The
emphasis on anticipating the needs of stakeholders is a critical component of external
analysis and organizations that adopt a total quality management philosophy will be better
prepared to meet the challenge of competing in the global economic market place. Each
organization’s experience with strategic management is unique, reflecting the
organizations distinct culture, environment, resources, structure management style, and
organizational features.

2.2 Critical Success Factors

CSFs have been defined in several ways depending on the purpose for which they were
used. For the purpose of this paper, Rockart’s (1979) definition will be used. He defines
CSFs as "the limited number of areas in which results, if they are satisfactory, will ensure

9
successful competitive performance for the organisation". The CSF approach represents an
accepted top-down methodology for corporate strategic planning, and while it identities
few success factors, it can highlight the key information requirements of top management
(Rockart, 1979). In addition, if the critical success factors are identified and controllable,
management can take certain steps to improve its potential for success. This technique has
been widely used in many business and technology related contexts for over four decades
and its use is still common. In the context of this research, CSFs theory will be used to
pinpoint some areas that are critical for success of the banking industry in Kenya.

In literature, several definitions of CSF exist. Representing one of the most frequently
cited definitions, Rockart (1979) defines CSF as ‘"the limited number of areas in which
results, if they are satisfactory, will ensure successful competitive performance for the
organization” (p. 85). Consequently, Rockart (1979) stresses, that these particular areas of
activity should be constantly and carefully managed by a company. In a similar fashion,
CSF are “those characteristics, conditions or variables that, when properly sustained,
maintained, or managed, can have a significant impact on the success of a firm competing
in particular industry”.CSF are factors which, if addressed, significantly improve project
implementation chances. Within the field of strategic management, the definition of Key
Success Factors (KSF) is closely related to the CSF concept. KSF is defined as a
qualification or resource that a company can invest in, which in turn, accounts for a
significant part of the observable differences in perceived value and/or relative costs in the
companies’ relevant markets. In literature, the terms CSF and KSF are often alternately
used.

2.3 The Origin of critical success factors.

Research on CSF can be traced back to 1961, where Daniel (1961) first discussed “success
factors” in management literature. In a broad approach, he focused on industry-related
CSF which are relevant for any company in a particular industry. In 1972, Anthony et al.
(1972) went a step further by emphasizing the need to tailor CSF to both a company’s
particular strategic objectives and its particular managers. Here, management planning and
control systems are responsible for reporting those CSF that are perceived by the managers
as relevant for a particular job and industry.

10
The reasons for such a constellation are differences in geographic location and strategies
among other factors. Nevertheless, Rockart was also able to identify analogies between the
CSF lists of the three examined organizations: ‘‘It is noticeable that the first four factors on
the mature clinic’s list also appear on the other two lists. (...) These, it can be suggested,
are the all-encompassing industry-based factors. The remaining considerations, which are
particular to one or the other of the practices but not to all, are generated by differences in
environmental situation, temporal factors, geographic location,or strategic situation.”
(Rockart, 1979, p. 87). In line with his initial study, Rockart (1982) gathered data in regard
to IS executives. This data indicated that executives share a limited number of CSF. Each
executive (...) lists some, but not all, of the CSF gathered from the sample as a whole.
190). The remaining differences were linked to organizational aspects as well as the time
pressure facing the particular manager at the time the data was collected (Rockart, 1982).

Furthermore, Rockart (1979) stressed that his approach did not attempt to address
information needs related to the field of strategic planning. Instead, his CSF approach
concentrates on information needs for management control and seeks to identify data
which can be used to monitor and improve existing areas of business. In this context,
Rockart (1979) follows a categorization of management activities into operational control,
management control and strategic planning. However, it must be emphasized that Rockart
(1979) limited his approach to management control which is defined “the process of
ensuring that resources are obtained and used effectively toward the attainment of
corporate goals”. Today, Rockart’s (1979) CSF approach is particularly relevant within the
limits of project management and IS implementation and therefore often used by IS
executives.

2.4 Competitive advantage

Competition is at the core success or failure of firms. Competition determines the
appropriateness of a firm’s activities that can contribute to its performance, such as
innovations, a cohesive culture, or good implementation. Competitive strategy is the
search for a favorable competitive positioning in an industry, the fundamental arena in
which competition occurs. Competitive strategy aims to establish a profitable and
sustainable position against the forces that determine industry competition (Porter 1998) A
good competitive strategy leads to a competitive advantage.
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LOWER KA RFT*5 LIB!
The fundamental basis of long run success of a firm is the achievement and maintenance
of a sustainable Competitive Advantage, (Varadarajan and Jayachandran, 1999). The
actual term Sustainable Competitive Advantage emerged in 1985 when Michael Porter
discussed the basic types of competitive strategies firms can posses such as low-cost
strategy to achieve Sustainable Competitive Advantage. A firm is said to have a sustained
competitive advantage when it is implementing a value creating activity not
simultaneously being implemented by any current or potential competitors and when these
other firms are unable to duplicate the benefits of this strategy (Barney 1991). It is
achieved by continuously developing existing and creating new resources and capabilities
in response to changing market conditions.

Coyne (1986) proposes that in order to posses an Sustainable Competitive Advantage,

consumers must perceive some difference between a firm's product offering and the
competitors offering. This difference must be due to some resource capability that the firm
posses and competitors do not posses. Also, this difference must be some product /
delivery attributes that is a positive key-buying criterion for the market (Coyne 1986).

Barney (1991) came up with this formal definition, ‘ that a firm is said to have a sustained
competitive advantage when it is implementing a value creating strategy not
simultaneously being implemented by any current or potential competitors and when other
firms are unable duplicate the benefits of this strategy. Based on both Barney’s work and
definitions given by other authors mentioned earlier, the following formal conceptual
definition is offered. Sustainable Competitive Advantage is a prolonged benefit of
implementing some unique value creating strategy not simultaneously being implemented
by any other competitor. In today’s business world of hyper competition and globalization,
firms strive to attain Sustainable Competitive Advantage through whatever means in order
to survive. The banking sector is not an exemption.

12
2.4.1 7 Technology
In the categorization of services in technology based service delivery options there are a
number of relevant classifications that will apply to industries employing technology
based service delivery. The classification analysis “who” delivers the service. That is
person to person; where the employee’s uses technology or consumer to technology such
as the use of an ATM, the other categorization looks at the contact the customer has with
the service operation, either direct or indirect such as in the case of telephone banking.

When the customer is in direct contact with the technology there is a greater control such
as with internet banking. However, if there is an absence of direct contact, such as with
telephone banking (since the technology itself is not visible to customers who are able
only to press number on their telephone keypad. It is assumed that there is less control
perceived by the customer during this transaction. When a customer freely chooses to use
technology as a form of service delivery the impact is high in terms of quality attributes.
Some of the quality attributes that are highly important to customers are efficiency and
special.

Customers are thought to have a positive perception of technology based service attributes
since they believe technology will deliver a faster and more efficiently service than that of
the employee. Reliability and user friendliness are important attributes in the evaluation of
technology based services. This also raises the design of sufficient menu options for
ATMS /telephone and internet bankers.'in most cases the transaction occurs in a neutral
location and the availability of an employee may not always be feasible since these
facilities often operate 24 hours a day seven days a week.

Information technology has had a great impact on the banking industry in Kenya. Service
delivery to customers, internal operations at the banks, product and marketing strategies
are dependent on it. Banks have sought to improve the efficiency and effectiveness of its
staff by implementing information technology based service delivery systems. As a result
banks have embarked on enhancing the processes and policies by embarrassing modem
technology such as the introduction of ATM internet banking, mobile phone banking.
Banks have also put mechanisms to ensure the systems are continuously upgraded to
enhance revenue collection and guard against frauds.

13
 J
2.4.2 Human Resources
Human assets are a major critical success factor in the banking industry. Human assets are
the core of any organization as they create an organizations product and offers service.
Sustainability of human intellectual capital requires an organization to recruit the best and
maintain them at competitive levels of productivity. Lynch (2003) sees this as a
particularly important area which transcends all activities in organizations. It is concerned
with those activities involved in recruiting managing, training, developing and rewarding
people within the organization.

Human resources determine whether an organization is rigid or innovative. Firms can use
the intellectual capital to survive in business by optimally utilizing what they know is
profitable. An organization needs to have adequate human resources who are highly
trained. Human resources is a critical success factor and if continuously improved in terms
of quality and quantity can improve organizations profitability tremendously. Placing the
right people on the right job is important and instilling the spirit of customer focus can
ensure survival in the banking industry.

Banks need to promote a culture of learning and development of its employees to open up
employees minds for new ideas and growth of knowledge. Human resource provide
leadership required for effective implementation of strategy, as this will ensure that the
organization is united and directed towards achievement of its goals (Pearce & Robbinson,
1988). Leadership is considered to be one of the most important elements affecting
organization performance. Human resources in leadership of an organization provide
vision, initiative, motivation and inspiration. As much as possible, the leadership of the
organization should fill relevant positions with qualified people committed to the change
efforts (Campell et al.2004).

7
2.4.3 Service Quality
Service quality has been receiving much prominence because of its obvious relationship to
costs .The banking industry has started focusing on ascertaining the customer perceptions
of service quality and subsequently devising strategies to deliver quality to the customer.
Banks have acknowledged the significance of developing worthy associations with
customers. To remain competitive, banking service providers are increasingly focusing on

14
 service quality. Despite the absence of a tangible product, the banking service providers
must make commercial decisions in regard to profit margins, targeted market segment,
market share, the volume of service delivered and the quality of the service to be provided.
The existence of competition generates choice for customers and potentially orders the
quality of service delivery through market pressures.

si 2.4.4 Marketing
The marketing of financial services is a unique and highly specialized branch of
marketing. The practice of advertising, promoting, and selling financial products and
services is in many ways far more complex than the selling of consumer packaged goods,
automobiles, electronics, or other forms of goods or services. The enviromnent in which
financial services are marketed is becoming more competitive, making the task of
marketing financial services increasingly challenging and specialized. Financial services
marketers are challenged every day by the unique characteristics of the products they
market. For example, often financial services cannot be visually communicated in
advertisements as easily as consumer goods can. Furthermore, the relatively unexciting
nature of financial services makes the task of attracting consumer attention and inspiring
consumer desire a difficult one. There are many predictable behaviors that consumers
often exhibit in their dealings with financial services providers. The predictability of these
behaviors and the abundance of data on existing and potential customers enable a uniquely
scientific approach to developing and executing successful strategies for the marketing of
financial services much more than in other markets. The firm should constantly inform,
persuade and remind the customers on the products available. Informing is educating and
customers want to buy known brands (Me Carthy and Perreault. 1993).

2.4.5 Pricing
This is one of the most important decisions in the marketing of financial services. Price
serves multiple roles for the financial services organization as well as for the individuals
who use those services. To the financial services organization, price represents the sole
source of revenues. Most activities that an organization undertakes represent costs and an
outflow of funds. When advertising, for example, one has to spend money purchasing
advertising space in a newspaper or media time on radio or TV. When employing staff in a
sales department salaries and benefits need to be paid. All of these activities represent an

15
outflow of funds, and the only way to recover these expenditures is through revenues
obtained by charging prices for the financial services provided. It is critical not only to
appreciate the importance of price, but also to be certain that one’s prices are at optimal
levels. Pricing too low or too high can have detrimental effects on profitability of financial
services organizations.

In addition, price is the most visible component of the marketing strategy of a financial
services organization. Unlike advertising style, product strategy, or sales force incentives,
which might be difficult to quantify precisely, price is always presented numerically, and
can be observed and compared by consumers, regulators, and competitors. Therefore, a
second function of price is to communicate to the marketplace the identity, market
positioning, and intentions of a financial services organization. Lowering of prices or an
upward movement of premiums might signal a shift in marketing strategy to competitors
and may provoke reactions from them. This fact raises the strategic importance of price
and highlights the great impact that price has been found to have in shifting the balance of
power among competing financial services providers.

A third function of price is to serve as a signal of quality to customers. As mentioned in

earlier, the quality of a financial service may be highly elusive and vague. It has been well
established in consumer research that in such situations where quality is not clearly
evident, consumers tend to rely on price as a proxy for quality. They might therefore
assume that higher-priced financial services are of better quality, and the lowering of
prices may not necessarily be associated with more positive consumer impressions of the
financial service. The potential for this unexpected relationship between price and
consumer demand in specific markets further highlights the critical importance of setting
prices correctly in financial services. The general approach to pricing can be visualized as
a process of determining where on a continuous line one chooses to set the price charged
to customers. Therefore, the relative position of one’s prices versus those of key
competitors might become the primary focus. To take away market share from a leading
competitor, one may have to price below or at comparable levels to the competitor’s price.

16
2.4.6 Service distribution
Basically concerns itself with geographical positioning of the services facilities. Its
importance depends on the nature of the service. For most banking services location is
very important and the wrong location may spell death for the banks. The decision of
location is determined by flexibility of consumption and flexibility of production.
Flexibility of consumption refers to the ease with which consumers can move or travel
long distances to receive the service. If consumption is highly flexible the location may
not matter much. Flexibility/ inflexibility of consumption may be affected by factors such
as age of the customer, consumption pattern. Secondly flexibility of production refers to
the ease with which service facilities can be moved to serve customers wherever they are.
Where production is inflexible then the customer must go to the facility. This has
implications on pricing and timing.

7
2.4.7 Research and development
To sustainably continue being innovative, it is imperative that commercial banks,
encompass scientific methods to solve and develop new products to remain relevant,
competent and operate sustainably. There are varied reasons why commercial banks
explore research and development, the key reason being, for banks to do research is to
exploit a business opportunity in order to increase sales and profits. Other reasons include,
extending a products life cycle, getting closer to resources and markets, exploring
economies of scale, increasing market share, and reaction to competition to mention a few.

Customers are now enlightened and becoming aware of their rights. As a result the
customers are becoming sophisticated and complex. The customers are now looking for
convenience in their banking activities. They want to pay for value of the service in terms
of efficiency and effectiveness of the services. Banking from many locations, extended
banking hours, ease of accessing their transaction statements. Flexible credit facilities and
pay options (credit and debit card facility). Commercial banks have to keep on doing
market intelligence and come up with new products and services through research and
development.

17
2.4.8 Finance
The last of the areas is financial management, for which critical factors are used. Finance
usually attempts to maximize the financial value of the firm, (Robinson, 1997). Unit
revenue and unit cost are important by themselves, but their relationship is also important.
Therefore, we have compared both unit revenue and unit cost as well as the unit margins
among the products / customers. In addition to unit revenues and unit costs, funding for
growth is an important factor for an organization's long-term success. Most successful
organizations choose to grow over time. In the case of the banks, growth is measured in
terms of profit growth. Furthermore, in order to grow, a bank needs adequate funds. To be
attractive for most equity investors, a bank must grow its equity over time. Moreover, to
be attractive to most debt investors, a reasonable debt-to-assets ratio is desirable. In this
realm of funding, this study is less precise. Flowever, in light of this study's prior research,
the measures in this case appear to indicate the likelihood of enduring success for the
banks.

The banks objectives cannot be met without the funds to invest in expanding the branch
network and internal processes. Finance provides the commercial banks with appropriate
structure and fund to achieve the overall objectives. In addition it examines the financial
implications of corporate and business level strategic options and identifies the best
financial course of action.. It can also provide competitive advantage through a lower costs
of funds and flexible ability to raise capital to support a business strategy.

18
2.5 Critical success factors and the role they relate to strategy
The Critical Success Factor (CSF) approach has the conceptual antecedents from the
“success factors” (Daniel, 1961). Fie argued that a company’s information system must be
discriminative and selective, focusing on ‘success factors’, which in turn, must be tied to
goals of the organization and form the basis of management control. Rockart (1979)
defines critical success factors (CSFs) as those few key areas of activity in which
favorable results are absolutely necessary for successful competitive performance for an
organization. He introduced the concept of different CSFs based on structural, strategical,
environmental, temporal8/operational requirements of various companies/industries and
different levels and positions of the management, and need for binding to performance
indicators.

The CSFs are those few key areas of activity which must be performed particularly well in
order for the organization to outperform its competitors . For obvious reasons, critical
success factors are the key areas of activity where “things must go right” that must receive
due attention from management. Critical success factors are skills, tasks, or behaviors that
influence performance. Performing critical success factors satisfactorily ensures successful
competitive performance.

It has been suggested that the association between potential CSFs and performance
measures be assessed. This assessment may entail correlating CSFs with relevant
measures of success or, alternatively, comparing CSFs across winning versus losing
competitors. A considerable stream of research has focused on CSFs at the industry and
organizational levels. According to Rockart (1979), the following benefits exist for
managers when applying the CSF approach; the process helps the manager to determine
those factors on which he or she should focus management attention. It also helps to
ensure that those significant factors will receive careful and continuous management
scrutiny, the process forces the manager to develop good measures for those factors and to
seek reports on each of the measures, the identification of CSF allows a clear definition of
the amount of information that must be collected by the organization and limits the costly
collection of more data than necessary, the identification of CSF moves an organization
away from the trap of building its reporting and information system primarily around data
that are “easy to collect”. Rather, it focuses attention to those data that might otherwise not

19
be collected but are significant for the success of the particular management level involved
and the process acknowledges that some factors are temporal and that CSF are manager
specific. This suggests that the IS should be in constant flux with the new reports being
developed as needed to accommodate changes in the organization’s strategy, environment
or organization structure. Rather than changes in an IS being looked on as an indication of
“inadequate design”, they must be viewed as an inevitable and productive part of IS
development.”

20
 CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Research design

The research used descriptive survey because data was collected from all the commercial
banks since a comprehensive understanding of what was perceived as critical success
factors in the banking industry was required. The survey was aimed at determining what
the critical success factors are in the banking industry in Kenya and whether banks in
Kenya leverage their strategy on industry critical success factors.

3.2 Population
The target population consisted of all licensed commercial banks operating in Kenya that
are not under statutory management of the CBK. Commercial banks under statutory
management were excluded because they do not cany out their operations normally. The
research used a census survey. A census survey is a count of all the elements in a
population. This design was appropriate because the population was small and therefore
afforded the basis for a more comprehensive exploration of the research question. This
information was obtained from the Central Bank of Kenya (2007), Central Bank of Kenya
Annual report 2007. The population covered 44 commercial banks listed on appendix 1.

3.3 Data collection

The research used primary sources of data since the objective was to get the perception of
commercial banks on critical success factor and strategy. The primary data was collected
by drop and pick method using a questionnaire. The questionnaires were divided into two
sections with the first section seeking background information of the respondents and the
second section capturing to area of study. The questionnaires were distributed to the
Senior executive officer involved in strategic management in each commercial bank. To
improve on response follow up through phone calls was carried out. Cooper and Emory
(1995) cities this approach as a way of improving on the response rates which can be as
high as 70% (response rate in the study was 65%).

21
3.4 Data analysis
On receiving back the questionnaires from the respondents, the data was thoroughly
checked to ensure completeness, consistency, accuracy and uniformity. The data was
coded and tabulated to facilitate data analysis. Descriptive statistics have been used to
transform obtained data from the banks into standard form for relative comparison.
Descriptive statistics was used because the study covered the entire population by a way
of census study.

22
 CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION

4.1 Introduction
This chapter contains the analysis and findings of the research study. The objectives of the
were to establish what are the critical success factors in the banking industry in Kenya and
to determine whether commercial banks leverage their strategy on the industry critical
success factors. Out of the 44 questionnaires dispatched, 28 were duly filled and returned
representing a response rate of 64%. All responses were coded, frequencies and
percentages used to present the findings. These findings were discussed in detail, giving
the researcher opinion and discussion on the findings with a view of understanding the
subject matter.

4.2 General information - respondents

For purposes of mapping out a profile of the banks participating in the study, the
respondents were requested to provide information on the age, gender, ownership and the
number of years in the current position.

4.2.1 Respondents profile by gender

The results in table below indicate that 79% of the respondents interviewed were male
while 21% were females.

Table 4.2.1 Respondents profile by gender

Gender Frequency Percentage
Male 22 79%
Female 6 21%
Total 28 100%

Source; Survey data (2008)

23
4.2.2 Age summary of the respondents
Regarding age the respondents were distributed as follows, 0%, 7%, 61% and 32% under
the following age brackets, 30 Years and below, 3 1 - 4 1 Years, 4 1 - 5 0 Years and 51
Years and above respectively.

Table 4.2.2 Respondents profile by age

Age (in years) Frequency Percentage
30 Years and below 0 0%
3 1 - 4 1 Years 2 7%
41 - 50 Years 17 61%
51 Years and above 9 32%
Total 28 100%

Source; Survey data (2008)

4.2.3 Bank ownership

The majority of banks involved in this industry were privately owned. This indicates that a
lot of the banking activity is controlled by private sector. Private banks tend to be more
innovative and adaptable to strategic management.

Table 4.2.3 Bank ownership

Ownership Frequency Percentage
Foreign 5 19%
State / Public 3 11%
Private 20 71%
Total 28 100%

Source; Survey data (2008)

24
4.2.4 Summary of respondents experience in terms of number of years worked in the
area of strategic management.
68% of the respondents have worked for 5 - 15 years. This is the age bracket with the
knowledge, experience and energetic staff.

Table 4.2.4: Respondents experience in terms of number of years

worked in the area of strategic management.
No of years worked in Frequency Percentage
department
Less than 1 year 0 0%
1 - 5 Years 3 11%
5 - 1 5 Years 19 68%
More than 15 Years 6 21%
Total 28 100%

Source; Survey data (2008)

4.3 Critical success factors perceived to be important

The first objective for this study was to establish what banks perceive as critical success
factors in their operations. A list of the critical success factors was presented to the
respondents for evaluation on the importance of each factor. Frequencies and mean scores
were calculated to determine how critical is. The higher the frequency or mean score the
more important the critical the factor is to the bank.

25
4.3.1 Importance of technology
The results in Table 4.3.1 indicate that a mean of 0.5 respondents interviewed perceived
technology as important in influencing customers to buy from them. This is because
technology has made banking services accessibility better and better.

Table 4.3.1 Importance of technology

Scale Frequency Mean score

Not Important at all 0 0
A little Important 0 0
Moderately Important o 0.11
Very Important 10 0.36
Extremely important 15 0.53
Total 28 1
Source; Survey data (2008)

4.3.2 Importance of human resources

From the results in table 4.3.2 a mean of 0.64 of the respondents interviewed indicated that
the employees determine the decision by customers to buy products from them. This is
because these services are offered by people and the impressions they give to the
customers determine whether to buy or not.

Table 4.3.2 Importance of human resources

Scale Frequency Mean score

N o t Im p o rta n t a t all 0 0

A little Im p o rta n t 0 0

M o d e ra te ly Im p o rta n t 1 0 .0 4

V e ry Im p o rta n t 9 0 .3 2

E x tre m e ly im p o rta n t 18 0 .6 4

Total 28 1

Source; Survey data (2008)

26
4.3.3 Importance of service quality
From table 4.3.3 a mean of 0.86 of the respondents indicated that delivering quality to
customers is paramount to a company’s well being because it results in more new
customers, more business with existing customers, fewer lost customers, more protection
from price competition, fewer mistakes requiring the company to redo its goods/services.

Table 4.3.3 Importance of service quality

Scale Frequency Mean score

Not Important at all 0 0
A little Important 1 0.03
Moderately Important 0 0
Very Important 3 0.11
Extremely important 24 0.86
Total 28 1

Source; Survey data (2008)

4.3.4 Importance of marketing

Results in table 4.3.4 indicate that a mean score of 0.43 of the respondents perceived
marketing as the means to make communication about a product or service with a purpose
of encouraging recipients of the communication to purchase or use the product or service.
Table 4.3.4 Importance of marketing

Scale Frequency Mean score

Not Important at all 1 0.04
A little Important 3 0.11
Moderately Important 4 0.14
Very Important 8 0.28
Extremely important 12 0.43
Total 28 1

Source; Survey data (2008)

27
4.3.5 Importance of pricing
From table 4.3.5 a mean of 0.54 of the respondents interviewed felt that pricing was
important to achieve maximum profitability from each customer over the longer term, low
introductory pricing and higher subsequent pricing may reflect growing level of benefits to
customer and/or high switching costs.

Table 4.3.5 Importance of pricing

Scale Frequency Mean score

Not Important at all 0 0
A little Important 3 0.11
Moderately Important 2 0.07
Very Important 8 0.28
Extremely important 15 0.54
Total 28 l

Source; Survey data (2008)

4.3.6 Importance of service distribution

Table 4.3.6 indicates that a mean score of 0.78 of the respondents interviewed believe that
service distribution is important as this has changed the habit of using services of the bank
by customers and brings convenience to them.

Table 4.3.6 Importance of service distribution

Scale Frequency Mean score

Not Important at all 0 0
A little Important 0 0
Moderately Important 2 0.07
Very Important 4 0.14
Extremely important 22 0.79
Total 28 1

Source; Survey data (2008)

28
4.3.7 Importance of research and development
From table 4.3.7 its clear that a mean score of 0.54 of the respondents felt that research
and development is an important factor in influencing customers to purchase their
products. This is because through research and development banks are able to come up
with new products.
Table 4.3.7 Importance of research and development

Scale Frequency Mean score

Not Important at all 1 0.04
o
A little Important J 0.10
Moderately Important 1 0.04
Very Important 8 0.28
Extremely important 15 0.54

Total 28 1

Source; Survey data (2008)

4.3.8 Importance of finance

The results in table 4.3.8 indicate that a mean of 0.57 of the respondents interviewed
perceived finance as important in influencing customers to purchase their products.

Table 4.3.8 Importance of finance

Scale Frequency Mean score

Not Important at all 2 0.07
A little Important 0 0
Moderately Important 1 0.04
Very Important 9 0.32
Extremely important 16 0.57
Total 28 1

Source; Survey data (2008)

29
Conclusion
From the above analysis it is clear that respondents indicated that service quality is a very
important factor (mean score of 0.86) in influencing customers to purchase banks
products. Customers are willing to pay an extra premium as long as the service quality is
good.

4.4 Determining whether commercial banks leverage their strategies on the

industry critical success factors.
The second objective for this study was to establish what banks leverage critical success
factors in their strategic management. A list of the critical success factors was presented to
the respondents for evaluation on to what extent do banks have strategy based on the
industry critical success factors. Frequencies and percentages were calculated to determine
how critical is. The higher the frequency or percentage the greater the extent the bank has
a strategy based on the critical success factor.

4.4.1 Extent to which commercial banks have a strategy based on technology.

According to the results in Table 4.4.1, most (mean score of 0.57) of respondents
interviewed indicated that they have a strategy based on technology as a critical success
factor. The use of technology in the banks means more time saving, convenience, and
easier access.
Table 4.4.1 Extent to which commercial banks have a strategy based on
technology.

Scale Frequency Percentage

Not at all 0 0
To a little extent 1 0.04
To moderate extent 5 0.18
To a great extent 6 0.21
To a very great extent 16 0.57
Total 28 1
Source; Survey data (2008)

30
4.4.2 Extent to which commercial banks have a strategy based on human resources.
From the results in table 4.4.2, a mean score of 0.61 of the respondents interviewed
indicated that they have a strategy based on human resources as a critical success factor.
This is because employees keep customer informed as to when services will be performed,
give prompt service to customers and respond promptly to customer requests.

Table 4.4.2 Extent to which commercial banks have a strategy based on

human resources.

Scale Frequency Percentage

Not at all 1 0.04
To a little extent 1 0.04
To moderate extent 5 0.17
To a great extent 4 0.14
To a very great extent 17 0.61

Total 28 1

Source; Survey data (2008)

4.4.3 Extent to which commercial banks have a strategy based on marketing.

From the results in table 4.4.2, a mean of 0.61 of the respondents interviewed indicated
that they have a strategy based on marketing as a critical success factor.
Table 4.4.3 Extent to which commercial banks have a strategy based on
marketing.

Scale Frequency Mean score

Not at all 1 0.04
To a little extent 4 0.14
To moderate extent 1 0.04

To a great extent 7 0.25

To a very great extent 15 0.53
Total 28 1
Source; Survey data (2008)

31
4.4.4 Extent to which commercial banks have a strategy based on pricing.

Results in table 4.4.4 indicate that a mean of 0.43 of the respondents perceived that
they have a strategy in place based on products pricing.

Table 4.4.4 Extent to which commercial banks have a strategy based on

pricing.

Scale Frequency Mean score

Not at all 2 0.07
To a little extent 6 0.21
To moderate extent 1 0.04
To a great extent 5 0.18
To a very great extent 14 0.50
Total 28 1
Source; Survey data (2008)

4.4.5 Extent to which commercial banks have a strategy based on service

distribution.
Most of the respondents, a mean of 0.68 indicated that they have a strategy based on
service distribution as a critical success factor.

Table 4.4.5 Extent to which commercial banks have a strategy based on

service distribution.

Scale Frequency Mean score

Not at all 0 0
To a little extent 0 0
To moderate extent 2 0.07
To a great extent 7 0.25
To a very great extent 19 0.68
Total 28 1

Source; Survey data (2008)

32
4.4.6 Extent to which commercial banks have a strategy based on research and
development.
The results in table 4.4.6 indicate that a mean score of 0.36 of the respondents interviewed
have a strategy in place based on research and development as a critical success factor.

Table 4.4.6 Extent to which commercial banks have a strategy based on

research and development.

Scale Frequency Mean score

Not at all 5 0.18
To a little extent 0 0
To moderate extent 7 0.25
To a great extent 6 0.21
To a very great extent 10 0.36
Total 28 1

Source; Survey data (2008)

4.4.7 Extent to which commercial banks have a strategy based on finance.

From table 4.4.7, a mean of 0.46 score of the respondents indicated that they have a
strategy based on finances as a critical success factor of the bank.

Table 4.4.7 Extent to which commercial banks have a strategy based on

finance.

Scale Frequency Mean score

Not at all 0 0
To a little extent 5 0.18
To moderate extent 1 0.04
To a great extent 13 0.46
To a very great extent 9 0.32
Total 28 1
Source; Survey data (2008)

33
4.4.8 Extent to which commercial banks have a strategy based on service quality.
According to results in table 4.4.8, a mean score of 0.75 of the respondents indicated that
they have a strategy based on service quality.

Table 4.4.8 Extent to which commercial banks have a strategy based on

service quality.

Scale Frequency Mean score

Not at all 0 0
To a little extent 0 0
To moderate extent 2 0.07
To a great extent 5 0.18
To a very great extent 21 0.75
Total 28 1
Source; Survey data (2008)

Conclusions
The second objective for the study was to establish extent to which banks have strategies
based on industry critical success factors. A list of the CSFs was presented to the
respondents for evaluation. Frequencies and mean scores were calculated to determine
whether banks have strategies based on the industry critical success factors and to rank the
factors. From the analysis service quality (a mean of 0.75) and service distribution (a
mean of 0.68) are the most CSFs used in strategy development in the banking industry.

From the research we find out that banks use critical success factors in the following
strategies, gain market share, increase competitiveness, attract new customers, sustain
successful relationships with customers, sustain a customer satisfaction rate, retain staff
and keep up customer-focused training, expand product range to attract more customers,
extend store space to accommodate new products and customers and secure financing for
expansion.

34
 CHAPTER FIVE: SUMMARY, DISCUSSIONS AND CONCLUTIONS

5.1 Summary, discussions and conclusions

This chapter sets to draw conclusions that will seek to address the research objectives as
outlined in chapter one. The first objective of this study was to determine the critical
success factors perceived important in the banking industry. Factors perceive¥important
by the respondents in the banking industry include, service quality, service distribution
and human resources; others include finance, pricing and research and development.
However technology and marketing were not considered to be very important.
Atika(2007) did a similar study whose objective was to identify CSFs in the minibus
dealers in Kenya. The findings of the study (Atika 2000) identified quality, financial
image of the company and customer care as some of the key factors that must go right for
the business to succeed. Mbugua (2005) did a study whose objective was to identify CSFs
in the petroleum product dealers retailing in Nairobi. The findings of the study (Mbugua
2005) identified location, consistent product quality offering as some of the key success
factors.

The second objective sought to establish whether commercial banks leverage their strategy
on industry critical success factors. Respondents perceived that banks have strategies on a
great extent based on service quality, service distribution and human resources. Others
include technology and marketing. However finance, research and development and
pricing were not seen not to influence strategies formulation in the banking industry.

When asked about the factor of service distribution, the respondents said that service
distribution is important factors for banking services. In order to make banks easier reach,
the branches network is well designed. A firm may choose to maintain or increase the
market share by use of branch distribution. From locally emerging banks and foreign
investment banks that are threatening to eat into competitive areas in terms of country
wide spread, customer profile and indigenous brand identity. Increased competition also
meant commercial banks to re-evaluate expansion plan and offer market led and customer
focused products in order to remain profitable and competitive in offering value benefit to
its customers.

35
Despite the challenges and size of an organization sustaining a competitive advantage in a
major effort and priority. This is driven by the need and sometimes the pressure to
always be at the lead. There are numerous benefits a company gets from having a
sustainable competitive advantage. The changed business environment banks are operating
in highly competitive environment and therefore needs to maximize on the industry
critical success factors in order to survive and remain competitive. The study reveals that
all banks have critical success factors in place.

The identification of industry critical success factors is considered important by

commercial banks as this has continuously seen the benefits of sustainable competitive
advantage. Sustainability of an organizations competitive advantage depends on how well
the industry critical success factors have been applied in the strategic management of the
firm. The critical success factors must be maintained for a significant amount of time even
in the presence of the competition. Sustaining the industry critical success factors needs to
be at the core of strategic development. This ensures that a company is not only growing
but also getting gave nonnal profits which is the main aim in business. Banks have
continuously seen the benefits of using critical success factor in their strategies. Their
services are in high demand and are not able to cope with customers demand. Product
uniformity, building a corporate image, cost cutting, branch distribution, human resource
management, customer focus are critical success factors being sued by banks to remain
competitive.

All commercial banks operate within both external and internal environments.
Commercial banks therefore need to align themselves with its environment, by making
using critical success factors in their strategies to achieve advantages and easily depend
positions in their markets. A firm poses a competitive advantage when it has value
creating critical success factors that cannot be duplicated or imitated by other firms
commercial banks do this by determining the purpose and the long term objective of the
bank. It then adopts critical success factors to achieve desired lead in the industry.

36
5.2 Limitations of the study
This study had various limitations. Some of the senior officers were too busy to have an
interview. Other respondents did not give their repossess even after several requests. Due
to the nature of information handled by banks some were very sensitive about the
information they gave and thus did not give out some of the information they considered
confidential. The study focused on the banks perspective. It would have been of value to
obtain the views of other stakeholders such as customers and suppliers.

5.3 Suggestions for further research

'I bis study concentrated on use of critical success factors and strategy in the banking
industry in Kenya. These finding cannot be generalized because other sectors have
different critical success factors they use to gain a sustainable competitive advantage. This
is because of firms structures, systems, cultures, processes, leadership, capabilities,
resources and objectives. There is therefore a need to do more research in other sectors in
order to get a broader view of critical success factors that are used to sustain a competitive
advantage.

5.4 Recommendations for Policy and Practice

The findings of this study indicate that the most important factor for banks in influencing
customers to buy their products is service quality. Respondents stressed that delivering
quality to customers in paramount of a company's well being because it results in more
new customers, more business with existing customers, fewer lost customers, more
protection from price competition, fewer mistakes requiring the company to redo its
goods/services.

37
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I

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APPENDIX I: INTRODUCTION LETTER

Amos Mutuku Muli

P.O. Box 4660-00100
Nairobi
September 21st 2008

Dear Sir/madam,
Request for participation in a research study on critical success factors and strategy
in the banking industry in Kenya.

Am a final MBA student at the University of Nairobi. My area of specialization is

strategic management. I am currently undertaking a research project on “Critical success
factors and strategy in the banking industry in Kenya.

1 would be grateful if you could spare some time from your busy schedule and complete
the enclosed questionnaire. All the information provided will be used purely for academic
purposes only and will be treated with utmost confidentiality. A copy of the final report
will be made available to you on request.

Incase of any queries or need clarification on any of the questions, please do not hesitate to
contact me.

Thank you for your cooperation.

Yours faithfully,

Amos Mutuku Muli Dr. Martin Ogutu

MBA student, University of Nairobi Chairman - Business Adm Dep’t
Mobile: 0722-497074
Enc.

41
 QUESTIONNAIRE
This questionnaire seeks to collect information on response by commercial banks to
establish what the critical success factors are in the banking sector and whether banks in
Kenya leverage their strategy on industry critical success factors. Please provide the
information frankly and honestly. All information received will be treated confidentially
and used for academic purposes only.
Section 1: Background information
1. Name of Bank______________________________________________________
2. Name of respondent_________________________________________________
3. Current position held________________________________________________
4. Number of years in current position_____________________________________
5. Please indicate your gender, Male [ ] Female [
6. Please tick the age bracket in which you fall
30 Years and below [ ] 4 1 -5 0 Years [ ]
3 1 -4 0 Years [ ] 51 Years and above [ ]
7. State whether your bank is foreign owned, state owned or
private_______________________________
Section II: Critical Success factors in the Banking Industry
8. Please indicate the extent to which the following factors are important to you in
influencing customers to use your products and services.

Critical Success Rating

Factor N ot Im portant A lit t l e M od erate V ery Im portant E x trem ely

a t all Im p ortan t Im p ortan t im po rta n t

1 2 3 4 5

Technology
Human Resources
Service quality
Marketing
Pricing
Service distribution
Research and
Development
Finance

42
 9. To what extend do you have a strategy related to each of the following,

Critical Success Rating

Factor N o t a t all T o a li tt le T o m o dera te To a great To a very great

extent extent extent extent

1 2 3 4 5

Technology
Human Resources
Service quality
Marketing
Pricing
Service distribution
Research and
Development
Finance

10. For those critical success factors that you have a related strategy, name the factor and
briefly describe the strategy.

Critical Success Factor Description of Strategy

Technology
Human Resources
Service quality
Marketing
Pricing
Service distribution
Research and
Development
Finance

Thank you

43
APPENDIX II: LIST OF ALL COMMERCIAL BANKS OPERATING IN
KENYA
1. African Corporation Bank
2. Bank of Africa
3. Bank of Baroda
4. Bank of India
5. Barclays Bank of Kenya
6. CFC Stanbic Bank
7. Chase Bank
8. Citibank
9. City Finance Bank
10. Commercial Bank of Africa
11. Consolidated Bank
12. Co-operative Bank of Kenya
13. Credit Bank
14. Development Bank of Kenya
15. Diamond Trust Bank
16. Dubai Bank
17. Ecobank
18. Equatorial Commercial Bank
19. Equity Bank
20. Family Bank
21. Fidelity Commercial Bank
22. Fina Bank
23. First Community Bank
24. Giro Commercial Bank
25. Guardian Commercial Bank
26. Gulf African Bank
27. Flabib A.G. Zurich
28. Flabib Bank Ltd
29. HFCK
30. I&M Bank
31. Imperial Bank
32. Kenya Commercial Bank
33. K-Rep Bank
34. Middle East Bank
35. National Bank of Kenya
36. NIC Bank
37. Oriental Commercial Bank
38. Paramount-Universal Bank
39. Prime Bank
40. Prime Capital & Credit
41. Southern Credit Bank
42. Standard Chartered Bank
43. Trans- National Bank
44. Victoria Commercial Bank

44