EFFECT OF COMPETITIVE STRATEGIES ON FIRM PERFORMANCE
(A CASE STUDY OF NATIONAL OIL CORPORATION OF KENYA)
DOREEN NYANDUKO OMBASA
A PROJECT SUBMITTED TO THE DEPARTMENT OF COMMERCE AND ECONOMICS STUDIES IN THE COLLEGE OF HUMAN RESOURCE DEVELOPMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTERS OF BUSINESS ADMINISTRATION OF JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
DECLARATIONDeclaration by the Candidate
I hereby declare that this is my original work and it has never been presented anywhere to the best of my knowledge. No part of this project has been submitted to any other institution for academic credit.
DOREEN NYANDUKO OMBASA
Declaration by the supervisor
This project has been submitted for examination to the university under my approval as the student Supervisor.
Dr. JOYCE NZULWA.
DEDICATIONTo my family for laying a good foundation in me and giving me the opportunity to pursue my dream career. I thank them for their moral support during my studies and research. Lastly, I thank the good Lord. God bless you all.
ACKNOWLEDGEMENTThis project was facilitated by the contribution of number of people First, I would like to acknowledge my supervisor Dr. Joyce Nzulwa who granted her time and effort in analyzing every detail of my work and giving out constructive guidelines and procedures in achieving this project. I thank my family and friends for giving me support and encouragement when working on this project achievement. Above all, I offer my gratitude and honor to the Almighty God who has led me to overcome all those challenges and guiding me through praying to him.
TABLE OF CONTENT TOC o “1-3” h z u DECLARATION PAGEREF _Toc515277243 h iDEDICATION PAGEREF _Toc515277244 h iiACKNOWLEDGEMENT PAGEREF _Toc515277245 h iiiTABLE OF CONTENTS PAGEREF _Toc515277246 h ivLIST OF TABLES PAGEREF _Toc515277247 h viiLIST OF FIGURES PAGEREF _Toc515277248 h viiiABBREVIATION AND ACRONYMS PAGEREF _Toc515277249 h xABSTRACT PAGEREF _Toc515277250 h xiCHAPTER ONE PAGEREF _Toc515277251 h 1INTRODUCTION PAGEREF _Toc515277252 h 11.1Background of the study PAGEREF _Toc515277253 h 11.1.1 Concept of Strategy PAGEREF _Toc515277254 h 41.1.2 Competitive Strategy PAGEREF _Toc515277255 h 41.1.4Petroleum industry in Kenya PAGEREF _Toc515277256 h 71.2Statement of the Problem PAGEREF _Toc515277257 h 101.3Objectives PAGEREF _Toc515277258 h 121.3.1 General Objective PAGEREF _Toc515277259 h 121.3.2 Specific Objectives PAGEREF _Toc515277260 h 121.4Research Questions PAGEREF _Toc515277261 h 131.5Significance of the Study PAGEREF _Toc515277262 h 131.5.1 The Management National Oil Corporation of Kenya PAGEREF _Toc515277263 h 131.5.2The Researcher PAGEREF _Toc515277264 h 141.5.3Employees and Customers PAGEREF _Toc515277265 h 141.5.4To other Researchers and scholars PAGEREF _Toc515277266 h 141.6Scope of the Study PAGEREF _Toc515277267 h 14CHAPTER TWO: LITERATURE REVIEW PAGEREF _Toc515277268 h 162.1 Introduction PAGEREF _Toc515277269 h 162.2Theoretical Review PAGEREF _Toc515277270 h 162.2.1The Porters Generic Model of Competitive Advantage PAGEREF _Toc515277271 h 162.2.2Game Theory PAGEREF _Toc515277272 h 192.2.3Ansoff’s Product/Market growth Strategies Theory PAGEREF _Toc515277273 h 212.3 Conceptual Framework PAGEREF _Toc515277275 h 232.3.1 Cost-leadership strategy PAGEREF _Toc515277276 h 242.3.2 Differentiation strategy PAGEREF _Toc515277277 h 242.3.3 Focus strategy PAGEREF _Toc515277278 h 252.4Empirical Review PAGEREF _Toc515277279 h 262.4.1 Cost Leadership Strategy and firm performance PAGEREF _Toc515277280 h 26 2.4.2 Differentiation Strategy and firm performance…………………………………………………28
2.4.3 Focus Strategy and firm performance PAGEREF _Toc515277281 h 302.5 Critiques of Existing of Literature PAGEREF _Toc515277283 h 322.6 Research Gaps PAGEREF _Toc515277284 h 332.7 Summary of the Literature Review PAGEREF _Toc515277285 h 34CHAPTER THREE PAGEREF _Toc515277286 h 35RESEARCH DESIGN AND METHODOLOGY PAGEREF _Toc515277287 h 353.1 Introduction PAGEREF _Toc515277288 h 353.2 Research Design PAGEREF _Toc515277289 h 353.3 Target Population PAGEREF _Toc515277290 h 363.4 Sampling Design PAGEREF _Toc515277291 h 363.5 Data Collection Method PAGEREF _Toc515277292 h 373.6 Pilot Test PAGEREF _Toc515277293 h 383.6.1 Validity of Data Collection Tools PAGEREF _Toc515277294 h 383.6.2Reliability of Data Collection Tools PAGEREF _Toc515277295 h 383.7Data Collection Procedures PAGEREF _Toc515277296 h 393.8Data Analysis and Presentation PAGEREF _Toc515277297 h 39CHAPTER FOUR PAGEREF _Toc515277298 h 41RESEARCH FINDINGS AND DISCUSSION PAGEREF _Toc515277299 h 414.1Introduction PAGEREF _Toc515277300 h 414.2Response Rate PAGEREF _Toc515277301 h 414.3Respondents’ Background Information PAGEREF _Toc515277302 h 424.4Descriptive Statistics and Discussions PAGEREF _Toc515277303 h 444.4.1Effect of cost leadership on firm performance of liquefied petroleum gas PAGEREF _Toc515277304 h 454.4.2Effect of differentiation strategy on performance of liquefied petroleum gas PAGEREF _Toc515277305 h 504.4.3Effect of Focus Strategy on performance of liquefied petroleum gas PAGEREF _Toc515277306 h 534.4.4Firm Performance of NOCK PAGEREF _Toc515277307 h 544.5Inferential Analysis PAGEREF _Toc515277308 h 574.5.1Correlation Analysis on Independent and Dependent Variables PAGEREF _Toc515277309 h 574.5.2Regression Analysis PAGEREF _Toc515277310 h 59CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS PAGEREF _Toc515277311 h 645.1Introduction PAGEREF _Toc515277312 h 645.2Summary of Study Findings PAGEREF _Toc515277313 h 645.2.1Findings on firm performance PAGEREF _Toc515277314 h 645.2.2Findings on Effect of cost leadership and Firm performance PAGEREF _Toc515277315 h 655.2.3Findings on Differentiation Strategy and Firm Performance PAGEREF _Toc515277316 h 655.2.4Findings on Focus Strategy and Firm performance PAGEREF _Toc515277317 h 655.2.5Findings on Inferential Statistics655.3Conclusions PAGEREF _Toc515277319 h 665.4Recommendations PAGEREF _Toc515277320 h 675.4.1Policy and practical implications PAGEREF _Toc515277321 h 675.4.2Recommendations for further study PAGEREF _Toc515277322 h 68REFERENCES…………………………………………………………………………………………………………….74
APPENDICES PAGEREF _Toc515277323 h 73
LIST OF TABLES TOC h z c “Table 3.” Table 3.1: Target Population PAGEREF _Toc515277338 h 36Table 3.2: Sample Size PAGEREF _Toc515277339 h 37 TOC h z c “Table 4.”
Table 4.1: Analysis by persons involved in the development of strategy PAGEREF _Toc515277326 h 45Table 4.2: Means of Setting New Prices PAGEREF _Toc515277327 h 46Table 4.3: Mechanisms of introducing new products to market PAGEREF _Toc515277328 h 47Table 4.4: Analysis by Effect of cost leadership on firm performance PAGEREF _Toc515277329 h 48Table 4.5: Analysis by Effects of Differentiation strategy on firm performance PAGEREF _Toc515277330 h 50Table 4.6: Introduction of new products and branding products PAGEREF _Toc515277331 h 52Table 4.7: Analysis by Effect of Focus Strategy on firm performance PAGEREF _Toc515277332 h 53Table 4.8: Status of Cost, Net Profit and Profit Growth PAGEREF _Toc515277333 h 55Table 4.9 : Correlation Results PAGEREF _Toc515277334 h 58Table 4.10: ANOVA for firm performance PAGEREF _Toc515277335 h 61Table 4.11: Results of Regression of firm performance PAGEREF _Toc515277336 h 60Table 4.12: Model Summary for firm performance PAGEREF _Toc515277337 h 63
LIST OF FIGURES TOC h z c “Figure 2.” Figure 2.1: Conceptual Framework PAGEREF _Toc515277343 h 23 TOC h z c “Figure 4.”
Figure 4.1: Analysis by Response Rate PAGEREF _Toc515277340 h 42Figure 4.2: Analysis by Gender PAGEREF _Toc515277341 h 43Figure 4.3: Length of time in business PAGEREF _Toc515277342 h 44
OPERATIONAL DEFINITION OF TERMS
Competitive advantage: Competitive advantage is an advantage over competitors gained by offering consumers greater value either by means of lower prices or by providing benefits and services that justify higher prices (Thompson, 2010).
Competitive strategy: The three generic business strategies suggested by Michael Porter that could be adopted in order to gain competitive advantage. The four strategies relate to the extent to which the scope of businesses? activities are narrow versus broad and the extent to which a business seeks to differentiate its products (Porter, 2008).
Cost leadership: This strategy focuses on gaining competitive advantage by having the lowest cost in the industry. In order to achieve a low-cost advantage, an organization must have a low-cost leadership strategy, low-cost operations, and a workforce committed to the low-cost strategy (Malburg, 2008).
Differentiation:Differentiation strategy is one in which a product is different from that of one or more competitors in a way that is valued by the customers or in some way affects customer’s choice. A successful differentiation strategy allows firm to earn above the average returns (Clark, 2007).
Focus strategy: In this strategy the firm concentrates on a select few target markets. It is also called a focus strategy or niche strategy. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market, (Porter, 2008).
Firm Performance:This refers to the positive change in organizational performance in relation to profitability, market share, customer satisfaction, customer loyalty and customer retention (Gruber, Heinemann ; Bretel, 2010; Atikiya, 2015).
ABBREVIATION AND ACRONYMSBSC: Balanced Scorecard
ERC: Energy Regulatory Commission
KPC: Kenya Pipeline Company
KPRL: Kenya Petroleum Refineries Limited
LPG: Liquidated petroleum gas
NOCK: National Oil Corporation of Kenya
OTS: Open Tender system
PPP: Private Public Partnership
R ; D: Research and Development
ROI: Return on Investment
SPSS: Statistical Package for Social Sciences
IV: Independent Variable
DV: Dependent Variable
ABSTRACTThis study investigates the effect of competitive strategies on firm performance using a case study of the National Oil Corporation of Kenya. The study sample size was 75 respondents. So questionnaires were administered to 75 respondents, where the response rate was 64, which translates to 85.53%. However, 14.67% did not respond to the study. The study analyzed the data collected to describe the study variables using descriptive statistics, which helped to establish the influence of the independent variables on the dependent variable. Data was analyzed using Excel and Statistical Package for Social sciences (SPSS). Further, it was presented using tables and pie charts. On the other hand inferential statistics were analyzed by use of multiple regression and coefficient of correlation analysis to determine the relationship among variables. The study carried out this analysis based on the objectives and discussed these with reference to the literature reviewed in chapter two. Some of the questions in the questionnaire were on a 5 point Likert Scale. The study carried out inferential analysis by first using a correlation analysis. The correlation was done using the Pearson’s product moment correlation. The study found that the average performance of NOCK was to less extent and each of the indicators of performance; average monthly sales, average monthly total cost, average monthly net profit, profitability growth, employee satisfaction, and employee engagement was found to be less extent. The study made policy recommendation based on the findings and study objectives. The study recommended that liquefied petroleum gas should ensure that they increase the proficiency of the cost leadership through; offering low priced products, building customers’ loyalty, prompt services/delivery of products; retention of popular staff, and employing high caliber staff. Meanwhile; offering price discount and engaging in promotional activities highly affected the firm performance of the NOCK, the liquefied petroleum gas should enhance their profitability growth strategy by seeking to achieve; an increase in the market share and financial gains, a secure dominance of growth in markets, and restructure a mature market by driving out competitors.
CHAPTER ONEINTRODUCTIONThis chapter covers the background of the study, statement of the problem to indicate what made the researcher to carry out the study. On the other hand it gave the objectives of the study, significance, limitations and delimits on how limitations are overcome.
1.1Background of the studyThe business environment has become very competitive as firms endeavor to outdo each other. For firms to maintain competitiveness it’s necessary for them to develop strategies for competitive advantage which they can seek to sustain. The strength of competition rises from day to day that is caused by a more globalized world economy. Because of that it is even more important to be prepared in order to remain globally successful in competition. Competitive strategies refer to the action plan an organization adopts in a bid to attract more customers, endure pressure from competitors and enhance their market performance (Thompson, Strickland & Gamble, 2010).
The demands and needs of the environment are constantly evolving and management is about adjusting the company according to the needs and demands of the environment. Increased competition threatens the attractiveness of an industry and reducing the profitability of the players. Demands further exert pressure on firms to be proactive and to formulate successful strategies that facilitate proactive response to anticipated and actual changes in the competitive environment Rainbird, (2009).
Firms therefore focus on gaining competitive advantage to enable them respond to, and compete effectively in the market. Thompson & Strickland (2012) argue that a company has competitive advantage whenever it has an edge over its rivals in securing customers and defending against competitive forces. Sustainable competitive advantage is born out of core competencies that yield long-term benefit to the company. To succeed in building sustainable competitive advantage, a firm must try to provide what buyers will, perceive as superior value.
According to Porter (2010) competitive strategy is about being different. This means deliberately performing activities differently and in better ways than competitors. Porter (2009) outlined the three approaches to competitive strategy these being Striving to be the overall low cost producer, that is, low cost leadership strategy, secondly Seeking to differentiate one’s product offering from that of its rivals, that is, differentiation strategy and lastly Focus on a narrow portion of the market, that is, focus or niche strategy. Owiye (2009) argued that competitive strategies will be vital to a firm while developing its fundamental approach to attaining competitive advantage (low price, differentiation, niche), the size or market position it plans to achieve, and its focus and method for growth (sales or profit margins, internally or by acquisition).
Competitive strategies dependent on differentiation are designed to appeal to customers with special sensitivity for a particular product attributes. Focus strategy is a marketing strategy in which an organization concentrates its resources on entering or expanding in a narrow market. It is usually employed where the company knows its segment and has products/services to competitively satisfy its needs. Firms need competitive strategies to enable them overcome the competitive challenges they experience in the environment where they operate.
A competitive strategy therefore enables a firm to gain a competitive advantage over its rivals and sustain its success in the market. A firm that does not have appropriate strategies cannot exploit the opportunities available in the market and will automatically fails. A company has a competitive advantage whenever it has an edge over its rivals in securing and defending against competitive forces (Thompson ; Strickland, 2012).
Organization performance is an indicator which measures how well an enterprise achieves their objectives (Venkatraman; Ramanujam, 2009). Organization performance can be assessed by an organization’s efficiency and effectiveness of goal achievement (Robbins & Coulter, 2008). Hancott (2012) indicates that organizational performance, effectiveness and efficiency are synonyms which are interchangeable. In addition, a number of indicators have been adopted to measure organization performance since mid-1900, such as profit growth rate, net or total assets growth rate, return on sales, shareholder return, growth in market share and number of new products, and return on net assets.
Porter (2010) proposes a strategy that requires a firm to identify growth segments, work at achieving operational efficiency and continuously enhance the quality of its products and services. It is the continuous measurement of these performance indicators and their management that determines the long term direction of the firm and its survival. To measure Performance, Weidinger and Platts (2012) explains that it involves a process of collecting, analyzing and/or reporting information regarding the performance of an individual, group, organization, system or component. Du Randt (2008) indicated that performance measurement should eventually lead to performance management, which is a tool of transforming ideas, vision and mission of senior managers into actions that can be planned for, measured, modified and corrected.
1.1.1 Concept of StrategyStrategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations” (Johnson, Scholes & Whittington,2008). Strategies are therefore the means by which companies aim to achieve their long-term objectives. Strategies are potential actions that require top management decisions and large amounts of the firm’s resources. In addition, strategies affect an organization’s prosperity, as they are future oriented typically for at least five years for long-term strategies and a year for short-term strategies. Strategies have multifunctional or multidivisional consequences and require consideration of both the external and internal factors facing the firm.
1.1.2 Competitive StrategyCompetitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition. Johnson, Whittington and Scholes (2011) notes that competitive strategy is concerned with how a business achieves a competitive advantage in its domain of activities. Competitive strategy is concerned with how a company can gain a competing advantage through a distinctive way of competing. Having a competitive advantage is necessary for a firm to compete but what is more important is whether the competitive advantage is sustainable (Kimando, Njogu, &Sakwa, 2012)
According to Porter (2005) strategies are used by organizations to establish their position in a particular market since they reflect the firm’s short and long term responses to the challenges and opportunities of the business, strategies therefore are not an end by themselves but a means to attain stated goal.
Organizations need competitive strategies to enable them overcome the competitive challenges they experience in the environment where they operate. A competitive strategy therefore enables a firm to gain a competitive advantage over its rivals and sustain its success in the market. A firm that does not have appropriate strategies cannot exploit the opportunities available in the market and will automatically fails. A company has a competitive advantage whenever it has an edge over its rivals in securing and defending against competitive forces (Thompson ;Strickland, 2012).
The core of a firm’s competitive strategy consists of its external and internal initiatives to deliver superior value to its customers. It includes offensive and defensive moves to counter the maneuvering of rivals, actions to shift resources around to improve the firm’s long term competitive capabilities and market position and tactical efforts to respond to whatever market conditions prevailing at the moment. The competitive aim is therefore to do significantly better job of providing what buyers are looking for, thereby enabling the companies earn a competitive advantag0e and out compete rivals in the market place.
1.1.3 Firm Performance
Firm’s performance is the measure of standard or prescribed indicators of effectiveness, efficiency and environmental responsibility such as cycle time, productivity, waste reduction, and regulatory compliance. Performance also refers to the metrics relating to how a particular request is handled or the act performing of doing something successfully, using knowledge as distinguished from merely possessing it. It is the outcome of all the organizations operations and strategies. It is also the extent to which an individual meets the expectations regarding how he should function or behave in a particular context, situation, job or circumstance.
Noum (2007) is of the view that performance is what people do in relation to organizational roles. Since their inception, companies have used various yardsticks for measuring and reporting performance.
The two main items used to measure performance are the firms market share within the particular industry in which it operates and its profitability. Profitability is then used to measure the company return on capital employed hence value to its shareholders. Accountants and economists have derived and used various financial ratios to asses? company financial performance. These ratios mainly involve the company liquidity- cash flow ratio, debt management, financial leverage index, asset management-return on total assets, profitability-cash flow margin and finally return on investment –dividend yield.
Kaplan and Norton (2011) introduced the balanced score card as a more realistic measure of performance. The balance scorecard defines a strategy’s cause and effect relationships and provides a framework to organizing strategic objectives into the financial perspective in line with the vision and mission. Key items linked are financials, customer service and satisfaction index, learning and growth within the organization and internal business processes. Internal business process is the path to achieving strong financial results and superior customer satisfaction.
Raps and Kauffman (2005) are of the view that firms performance is affected by three major factors; organization motivation to achieve the performance objectives, the influence and impact of the external environment and the organizational capacity to achieve the performance desired. Continuous performance is therefore the focus of organizations as it defines the extent to which the organization achieves a set of pre-determined objectives unique to its mission and determines their ability to grow and expand. Organizations have unique key performance drivers that are critical to their capacity to perform.
1.1.4Petroleum Industry in KenyaThe petroleum industry in Kenya began in 1903 during colonial times where petroleum products were imported in finished form. Illuminating kerosene was the main product and was initially imported in tins but gasoline was later introduced. The gasoline was also imported in tins and drums until Royal Dutch Shell established the first depot on the Mombasa Island at Shimanzi. The importation of finished petroleum product continued until 1963 when Royal Dutch Shell and British Petroleum Company BP set up the first crude oil refinery complex at Mombasa, which they named East African Oil Refineries Limited.
The institutional structure of petroleum industry comprises the Ministry of Energy, the Energy Regulatory Commission (ERC), Kenya Pipeline Company (KPC), Kenya Petroleum Refineries Limited (KPRL) and Multinational Independent Oil Marketing Companies that include a State Oil Company, the National Oil Corporation of Kenya (NOCK), Kieyah (2013). Every institution is mandated in carrying out specific functions aimed at peaking the sector as the main economic drive of the GDP.
The Ministry of Energy provides the policy leadership, ERC provides regulatory stewardship of the sub-sector while KPC, a State Corporation, provides the economy with the most efficient, reliable, and safe and least cost means of transporting petroleum products from Mombasa to the hinterland. KRPL is a Private Public Partnership (PPP) limited company with the government owning 50% of the shares and the rest owned by Essar Energy Overseas Limited, that runs a single skimming refinery in Mombasa. (ERC, 2017).
The Ministry of Energy through an Open Tender System (OTS) coordinates the importation of the refined petroleum fuel products where interested marketers bid to import on behalf of the rest. The OTS winner allocates refined product based on calculated cargo participation. The petroleum industry in Kenya has been most active in downstream operations with little activity on upstream. There is nil hydrocarbon production in Kenya but this is due to change owing to the recent discovery of commercially viable hydrocarbon deposits in the northwest region of the county.
Oil exploration in Kenya began with BP and Shell 1950s with the first exploration well drilled in 1960.Over the past 50 years many other oil and gas companies have tried their luck onshore and offshore, including Exxon, Total, Chevron, Woodside and CNOOC Deloitte (2013). About half of the exploration wells drilled in the country prior to 2012 showed signs of hydrocarbons, but the quantities were not much enough for commercial viability. Tullow Oil farmed into six blocks in the Turkana Rift Basin in late 2010 (five in Kenya and one block in Ethiopia) and in March 2012, it announced an oil discovery in some of the blocks. Later in the year,
Tullow confirmed that the deposits were large enough for commercial production. Since the discovery of oil deposits in 2012, the government of Kenya has entered into concessions for commercial production of oil, targeting full production by the year 2016. There is justified expectation that local production of oil will completely change the dynamics of the petroleum industry in Kenya once it begins.
1.1.5 National Oil Corporation of Kenya
National Oil is one of Africa’s fastest growing fully integrated National and a top player in Kenya’s oil and gas sector. The national oil corporation of Kenya is a fully integrated state corporation involved in all aspects of the petroleum supply chain covering the upstream oil and gas exploration, midstream petroleum infrastructure development and downstream marketing of petroleum products. In the upstream, National Oil facilitates and directly participates in the oil and gas exploration activities in Kenya. As a facilitator National oil is tasked with the marketing of Kenya’s exploration acreage, management of gas and exploration data and the running of the National Petroleum Laboratory among other attendant responsibilities.
National oil has an active downstream business segment with a growing retail network of over 99 services stations spread throughout the country. The corporation also serves a cross section of resellers, industrial and government business from its modern Nairobi Terminal. In addition to its fuels business, National Oil has developed and deployed a number of innovative products and services including its Supagas brand of Liquefied Petroleum Gas (LPG), the supa range of motor and industrial lubricants, an advanced electronic fuel management system named supacard and a vibrant alternative business unit that deals with non-fuel businesses.
National Oil launched its SupaGas brand of cooking gas into the Kenyan market in 2008. Since then, SupaGas has grown to become a leading brand in the country commanding a sizeable market share. National oil sells SupaGas to retail customers in the standard 6kg, 13kg and 50kg cylinders and for our commercial customers, they supply them in bulk.
SupaGas is available to our retail customers at our service and appointed distributors including leading supermarkets. Towards the end of 2011, National Oil introduced into the Kenyan market a 3kg cylinder. Plans are underway to have these cylinders available to the consumer. The introduction of the smallest cylinder in the market is part of a broad strategy ensure that LPG is affordable to a majority of Kenyans unable to afford the standard cylinder sizes.
The company also faces stiff competition from other oil companies operating in the same environment. Some of which are established multinational companies. Pricing policy is poor and often delayed to match market demand. There are sporadic price increments in the oil industry leading to unpredictability of prices. There is proliferation of substandard fuel dispensing facilities coupled with adulteration of motor fuels and dumping of expert products. Limited supply facilities for fuels including LPG are also a challenge to the company.
Statement of the ProblemAs Kenya aspires to be a middle income economy as envisaged in Vision 2030, it faces an enormous task of meeting energy needs due to the high expectations in growth to power the economy. The country therefore needs to come up with strategies and investment plans to secure sustainable supply of energy to meet the growing demand.
The energy sector is considered a key enabler to achieving vision 2030. Electricity, petroleum and renewable energy are the most potential sub sectors. Even though wood fuels are the most consumed fuels in Kenya, petroleum and electricity are the most dominating fuels in the commercial sector. Other major energy consumption sectors apart from commercial sector, are transport, manufacturing and residential sectors (KIPPRA, 2010).
Competitive strategies employed by firms in their operations vary widely depending on the operating environment. The current operational set up of Liquefied Petroleum gas is a dynamic one and highly competitive with the emergence of many firms offering the same products. With the emergence of many companies offering this products and services this has led to a lot of competition in the market leaving the business at the mercy of market forces. As a result, NOCK faces increased competition and declining profits and even losses. NOCK has put great effort into strategic planning in order to ensure efficient and effective service delivery, most of these planning remain unimplemented and this is a challenge to the organization.
There is evidence in the failure of the organization to achieve its core objective efficiently and effectively as outlined in the plan. For example in the year 2016 NOCK reported a loss of 270 million in six months to June hence NOCK brilliantly crafted plans that focus on customer satisfaction, ensuring employee satisfaction, ensuring they achieve their targets set by the management and ensuring of readily available of the products needed by customers, and the constant complaints from the customers, suppliers and the top management base are also evidence that the organization is not performing according to its expectations. And this has heavily contributed to the losses that the company is incurring which reflect poor performance of the organization. To ensure survival and sustainability in the market place, NOCK needs to adopt competitive strategies to ensure that they outperform their competitors.
NOCK has to deploy a number of competitive strategies overtime including cost leadership, product differentiation, and focus strategy.
A number of studies have been done on competitive strategies but under different contexts in Kenya. Gathoga (2011) focused on competitive strategies by commercial banks in Kenya. The study revealed that banks in Kenya use various means in order to remain competitive.
He also concluded that expansion into other areas by opening new branches has also been used as a strategy; Karanja (2002) did a survey of competitive strategies of real estate firms in the perspective of Porters generic model. These studies reveal that firms in different industries adopt different competitive strategies which are unique in each context. Despite this background, limited studies have been done to determine the effect of competitive strategies on firm performance of liquefied petroleum gas as they operate within such an environment.
The previous studies had conflicting outcomes and were over five years old and therefore a more current study would be necessary to reflect the current situation and confirm the nature of relationship between competitive strategies and the performance of Liquefied Petroleum Gas. This study sought to establish the effect of competitive strategies on the firm performance of Liquefied Petroleum Gas in NOCK.
ObjectivesThis study was guided by general and specific objectives
1.3.1 General ObjectiveThe main objective of the study was to establish the effect of competitive strategies on firm performance at National Oil Corporation of Kenya.
1.3.2 Specific ObjectivesThe specific objectives that this study seeks to fulfill were:
To determine the effect of cost leadership on firm performance at National Oil Corporation of Kenya.
To establish the effect of differentiation strategy on firm performance at National Oil Corporation of Kenya
To evaluate the effect of Focus Strategy on firm performance at National Oil Corporation of Kenya
Research QuestionsThe following are the research questions that study addressed:
What is the effect of cost leadership on firm performance at National Oil Corporation of Kenya?
What is the extent to which differentiation strategy affects firm performance at National Oil Corporation of Kenya?
How much effect does Focus Strategy have on firm performance at National Oil Corporation of Kenya?
Significance of the StudyThe final findings of the study added value to the body of knowledge and discover new theory. The research benefited the following:
1.5.1 The Management National Oil Corporation of KenyaOne of the main beneficiaries of this research was the management National Oil Corporation of Kenya who were able to analyze the gap and ensure the company had undertaken clear and precise procedure to fill those gaps. This not only improved the productivity of the firm but also established the efficient ways in service delivery to its customers and how to easily compete in the market easily.
The ResearcherThe research project helped the researcher on building her career and increases the level of understanding when doing other research. It also helped in conducting other investigation including having proper ethical standards in dealing with respondents.
Employees and CustomersEmployees of the organization were able to discover the benefits of competitive strategies on performance to the company. The competitive skills would develop and have a chance to access other opportunities elsewhere. On the other hand, customers were able to dedicate hence achieving organizational goals.
To other Researchers and scholarsOther researchers who included students, conducted the same research, and other organizations, were able to establish more findings that improved and developed their organizations in making sure they are not left out of the business.
Scope of the StudyThis research study was undertaken in National Oil Corporation of Kenya headquarters in Nairobi which is situated at Kawi house South C Red cross Road off Popo Road (Behind Boma Hotel). The study was carried out to determine the effect of competitive strategies on firm performance of liquefied petroleum gas of National Oil Corporation of Kenya. The study targeted a population of 250 employees of NOCK among them 75 were sampled out to participate in the study. The research was carried out within six months.
Research entailed the use of questionnaires. Questionnaires are mostly used in business research though they are prone to misinterpretation thus compromising the validity. However, to surmount this, a pretesting was done so as to determine whether the questionnaire would be able to measure what it is required to. In addition closed ended questions were used to overcome the issue of misinterpretation. One the limitation of the study is that this research shall cover only National Oil Corporation of Kenya in Nairobi, Kenya where it has its head quarter and the findings may not necessarily reflect the prevailing situation in other oil industries.
CHAPTER TWO: LITERATURE REVIEW2.1IntroductionThis chapter provides a review from other researchers who have carried out research on the same field. The concept of competitive strategies will be reviewed from various sources in this chapter. This will be followed by a theoretical literature review of Michael Porters Generic competitive strategies which forms the basis of this study. Cost leadership, Differentiation, and Focus strategy will also be analyzed. Finally empirical literature where similar studies have been carried out will be reviewed and this will be followed by the conceptual framework of this study
2.2Theoretical ReviewA firm’s competitive strategies must be linked to the original theoretical frameworks that made it more competitive within the industry. By explicitly outlining and understanding some form of theory, it became easier to explain the reasons why an intervention may work to induce planned change or otherwise not to. Various theories have been developed that explained what made a firm become competitively sustainable within the industry. This section discusses theories related to competitive strategies. Specifically, the study will be anchored on the following theories: the Porters model of competitive advantage, Ansoff’s product/ Market Growth Strategies Theory and Game Theory.2.2.1The Porters Generic Model of Competitive AdvantageAccording to Porter (2003), a firm develops its business strategies in order to obtain competitive advantage through increased profits over its competitors. It does this by responding to five primary forces which are the threat of new entrants, rivalry among existing firms within an industry, the threat of substitute products/services, the bargaining power of suppliers, and the bargaining power of buyers. Porter, (2008), notes that the five forces model helps one to look beyond his direct competitors. He notes four competitive forces that can hurt profits: savvy customers that can play you and your rivals, powerful suppliers who may constrain your profits by charging high prices, aspiring entrants armed with new capacity and hungry for market share, and substitute offerings that can lure your customers away.
Porter (2008) says that for a firm to benefit from the five forces model it must be able to comprehensively define its industry. It states that, defining the industry in which competition takes place is important for good industry analysis, not to mention for developing strategy and setting unit boundaries, to this end he notes that the firm must determine the product and geographical scope and identify the players and segment under the four segments listed above. The analysis should also assess the strength and weaknesses of these competitive forces. It is also crucial to understand the industry profitability and the recent positive and negative developments in the industry. Porter (2008) says that, the five competitive forces reveal whether an industry is truly attractive, and they help investors anticipate positive and negative shifts in the industry structure way before they are obvious.
He also notes that this deeper thinking about competition is a more effective or superior method to achieve investment success than financial projections and trend extrapolation that dominates today’s investment analysis (Howcroft, 2015). A firm strives to have the lowest cost in the industry and offers its products and services to a broad market at the lowest prices. A cost leader basis for competitive advantage is lower overall costs than competitors. Successful leaders are exceptionally good at finding ways to drive cost out of their business.
Cost leadership strategy focuses on gaining competitive advantage by having the lowest cost and cost structure. In the industry (porter, 2008) in order to achieve a low cost advantage an organization must have a low cost leadership mind-set. Low cost manufacturing with rapid distribution and replenishment and a workforce committed to the low cost strategy. The organization must be willing to discontinue any activities in which they don’t have a cost advantage and may outsource activities to other organization that have a cost advantage (Malburg, 2000).
Porter (2003) reemphasized the importance of analyzing the five competitive forces in developing strategies for competitive advantage: “Although some have argued that today’s rapid pace of technological change makes industry analysis less valuable, the opposite is true. Analyzing the forces illuminates an industry’s fundamental attractiveness, exposes the underlying drivers of average industry profitability, and provides insight into how profitability will evolve in the future. The five competitive forces by Porter’s Five Competitive Forces Model clearly show how a firm by adopting certain competitive strategy (cost leadership, market focus, and differentiation strategies) determines its profitability.
This theory is used to explain the effect of cost leadership on performance of LPG. Michael Porter’s Generic Framework theory gives techniques for analyzing industries and competitors. This theory can be used to find the optimum position for a company within an industry and often a determinant of a company’s profitability can be said to be the attractiveness of an industry in which it operates. This means that companies that manage to place them self correctly can generate more profits than companies who have not thought about their optimal position. The framework is called generic because it is not industry dependent. A company should reflect on its strengths and weaknesses in order to find its competitive advantage, and this unique strength should be leveraged
2.2.2Game TheoryThis theory deals with the process of competitive interaction. It involves making decisions when two or more intelligent and rational opponents are involved under conditions of conflict and competition. Instead of making inferences from the past behavior of the opponents the firms seeks to determine a rival’s most profitable counter strategy to one’s own best moves and to formulate the appropriate defensive measures. In game theory according to Gandoifo (2011), every firm has complete information about the rules of the game and the preferences of the other players for each result. They contain perfect information on the choices foregoing at the time of rival’s decision. The firm is rational of decision process by taking decisions based on the maximization of the utility function.
Every firm is rational and able to predict the choices of other firms thinking about what would be the rational choice it would take if it was in the same situation of the rival firm. They are also aware of competitive and non-cooperative behavior because of the previous assumptions; individual choices are based on the maximization of each individual utility function and not on that of all the competitors as a whole. There is a non-cooperative bias, which, from a systemic point of view, brings to non-optimal choices. There is dynamism in the environment and the result of each firm is mutually related with decisions of other players; thus, unilateral decisions are not possible. The strategic conflict model portrays competition as war between rival firms with the saying that no battle plan ever survived the first encounter with the enemy (Mintzberget al., 2009).
To illustrate not just the dynamic nature of strategy but also the need to respond to competitors who do not always behave as anticipated. Central to this approach according to Burnes (2009) is the view that a firm can achieve increased profits by influencing the actions and behavior of its rivals and thus, in effect, manipulate the market environment. This can be done in a number of ways such as investment in capacity and advertising. However, such moves will have little impact if they can easily be undone, therefore, to be effective; they require irreversible commitment.
Further it is argued these various maneuvers are crucially dependent on what one firm thinks another firm will do in a particular situation. Therefore, the model incorporates the role of strategic signaling as an important mechanism for influencing or intimidating rivals (Burnes, 2009). This includes such practices as predatory pricing and limit pricing.
Strategic conflicts are likely to be more appropriate in situations where there is an even balance between rivals in an industry rather than in situations where one organization has substantial competitive advantage over its rivals (Gandoifo, 2011). This theory therefore supports the variable differentiation strategy by indicating that through making the right decisions when two or more intelligent and rational opponents are involved under conditions of conflict and competition, a differentiation strategy can therefore go a long way in enhancing a company performance.
2.2.3Ansoff’s Product/Market growth Strategies TheoryA product-market strategy, accordingly, is a joint statement of a product line and the corresponding set of missions which the products are designed to fulfill. Product-Market Growth Matrix as a marketing tool to allow marketers to consider ways to grow the business via existing and/or new products and also in existing and/or new markets. There are four possible product/market combinations. This matrix helps companies decide what course of action should be taken given current performance. Pearce and Robinson (2010) the matrix includes market penetration, product development, market development and diversification. The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy (Onyango, 2011).
Market penetration is an effort to increase company sales without departing from an original product-market strategy. The company seeks to improve business performance either by increasing the volume of sales to its present customers or by finding new customers for present products. The company first considers whether it could gain more market share with its current products in their current markets (Kotler, 2010).
Market penetration occurs when a company penetrates a market with current products. The best way to achieve this is by gaining competitors’ customers other ways include attracting non-users of your product or convincing current clients to use more of your product/service, with advertising or other promotions. Market penetration is the least risky way for a company to grow.
According to Thompson and Strickland (2015),market penetration seeks to achieve four main objectives; Maintain or increase the market share of current products, Secure dominance of growth markets, Increase usage by existing customers and doing business as usual. Product development strategy, on the other hand, retains the present mission and develops products that have new and different characteristics such as will improve the performance of the mission. A firm with a market for its current products might embark on a strategy of developing other products catering to the same market although these new products need not be new to the market; the point is that the product is new to the company.
According to Johnson and Scholes (2015) this strategy may require a commitment to high levels of research and development. According to Pearce and Robinson (2010), product development strategy is based on the penetration of existing markets by incorporating product modification into existing or developing new products with a clear connection to the existing product line. When a firm creates new products, it can gain new customers for these products. Hence, new product development can be crucial business development strategy for firms to stay competitive. A successful product development strategy places the marketing emphasis on R & D, detailed insights into customer needs and how they change and being the first to market. Market development is a strategy in which the company attempts to adapt its present product line (generally with some modification in the product characteristics) to new missions.
This theory therefore supports the variable market focus strategy by indicating that an established product in the marketplace can be tweaked or targeted to a different customer segment, as a strategy to earn more revenue for the firm. Also the market need not be new in itself; the point is that the market is new to the company. A market focus strategy can therefore go a long way in enhancing a company performance.
2.3 Conceptual FrameworkA conceptual framework is a figure that shows the relationship between the dependent variable and the independent variable. It’s a diagrammatic presentation showing the relationship between independent and dependent variable. It aims at explaining relationship between variables and it synthesizes the idea in a systematic way to provide direction. A dependent variable is what one measures in the experiment and what is affected during the experiment. An independent variable is a variable presumed to affect or determine a dependent variable.In this study the dependent variable is performance of public universities while the independent variables are cost leadership strategies, differentiation strategies, and market focus. A conceptual framework has been drawn to show the relationship of the dependent variable and the independent variables
Reduce production cost
minimize wastage and distribution cost
branding of products
new products development
Types of market segments
focus on specific market segment
Expand market breadth
Figure 2. SEQ Figure_2. * ARABIC 1: Conceptual Framework2.3.1 Cost-leadership strategyThis is Porter’s generic strategy known as cost leadership (Malburg, 2010). This strategy focuses on gaining competitive advantage by having the lowest cost in the industry (cost advantages). In order to achieve a low-cost advantage, organizations must have a low-cost leadership strategy, low-cost operations within business units, and a workforce committed to the low-cost strategy.
Cost leadership strategy is a pricing strategy in which a company sells the same product at different prices in different markets. It can also refer to the charging of different prices for the same product to different social or geographic sectors of the market. It describes a way to establish the competitive advantage. Cost leadership, in basic words, means the lowest cost of operation in the industry. Consistently making or offering better products that outperform competitors’ products.
2.3.2 Differentiation strategyDifferentiation strategy is an approach under which an organization aims to develop and market unique services and products for different customer segments. Differentiation strategies refer to the approach under which an organization aims to develop and market unique products for different customer segments. Usually employed where an organization has clear competitive advantages, and can sustain an expensive advertising. Differentiation strategy can also be defined as positioning a brand in such a way as to differentiate it from the competition and establish an image that is unique (Davison, 2011).
Differentiation can be achieved through premium pricing or brand loyalty. It occurs when a firm lower cost of using a product, raised performance or service buyers get from the product and attaching intangible and noneconomic benefits to a product. An effective differentiation strategy can be realized when a firm takes advantages of the opportunities arising from the value chain such as purchasing, product research and development (R;D), production R;D, outbound distribution/logistic on one hand and marketing, sales and customer service on the other hand (Johnson et al., 2009).
2.3.3 Focus StrategyAccording to Njoroge (2010) the focus strategy is aimed at narrowing the market segment, products and category or certain buyers. This helps firms to narrow their operations to specific markets and thus they are able to achieve competitive advantage. According to Gakumo (2006) the focus strategy has two variants; cost focus and differentiation focus. A business firm that is not pursuing any particular strategy but is choosing between various aspects of different strategies is said to be stuck in the middle and cannot show progress.
Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well (Porter, 1998). Sustainable competitive advantage can be realized through high quality products, superior customers care, being able to charge at the lowest costs, better geographic location, technical expertise possessed by the firm, efficient and effective supply chain management, brand image and reputation of the firm. According to Johnson et al., (2009), sustaining bases of competition is likely to require a linked set of organizational competencies which competitors find difficult to imitate and/or the ability to achieve a lock-in position to become the “industry standard” recognized by the buyers and suppliers.
2.4Empirical ReviewA range of issues and concepts affect the strategy and functionality of National Oil Corporation, Kenya. Among these are cost leadership strategy, differentiation strategy, Focus Strategy and their relation to firm performance; each of these lead to various form performance indicators.
2.4.1 Cost Leadership Strategy and Firm PerformanceThis is Porter’s generic strategy known as cost leadership (Malburg, 2010). This strategy focuses on gaining competitive advantage by having the lowest cost in the industry (cost advantages). In order to achieve a low-cost advantage, organizations must have a low-cost leadership strategy, low-cost operations within business units, and a workforce committed to the low-cost strategy. The organizations must be willing to discontinue any activities in which they do not have a cost advantage and should consider outsourcing activities to other organizations with a cost advantage. For an effective cost leadership strategy, organizations must have a large market share. There are many areas to achieve cost leadership such as mass production, mass distribution, economies of scale, technology, services and products design, input cost and capacity utilization of resources. Porter (2011) purports only one firm in an industry can be the cost leader and if this is the only difference between a organization and competitors, the best strategic choice is the low Cost leadership role (Malburg, 2010).
A research done by Gakumo (2006) showed that most commercial banks in Kenya based their cost leadership strategy on high level of capital investment and streamlined organizational structure. The process engineering, skills and volume sale techniques were the least emphasized aspects of the cost leadership strategy applied by the commercial banks. According to Njoroge (2006) keeping lower overheads than competitors was more preferable than keeping same overheads as with the competitors, this would in turn translate to offering products at lower prices than the competitors.
A research done by Gitonga (2003) found that cost leadership is one of the strategies applied by the hospitality establishments in Nairobi, Kenya. In a study carried by Kariuki (2006) the preference ofcost leadership strategy was not much, with 72% of the respondents in the hotel industry not preferring to use the strategy. That research was in the service industry, it will be of importance to compare the results of this research project in the dairy industry that deals with tangible goods. According to Chepkwony (2008) cost leadership is a strategy that is aimed at reducing the cost without altering positively or negatively the quality of the product. Business firms following this type of strategy seek competitive advantage based entirely upon achieving low cost production. According to Dulo (2006) manufacturing firms pursuing a cost leadership strategy follow policies of purchasing materials in large volumes to get low cost of inputs, mass production of a limited range of products, marketing non branded or privately branded goods or services (to avoid advertising costs), making extensive use of automation to maximize economies of scale, locating any manual production in low wages areas of the world and aggressive pricing to build and maintain market share.
Jowi (2006) conducted a study on the competitive strategies applied by Mumias sugar company and indicated that cost leadership is based on aggressive construction of large scale facilities, tight cost and overhead control, vigorous pursuit of cost reductions associated learning effects and utilization of economies of scale for discretionary expenses such as R & D, promotion or advertising. For a successful execution of the cost leadership strategy the firm has to have sufficient financial resources, adequate process engineering skills and intense supervision of labour and low cost distribution capability.
According to Mbugua (2006) organizations following the cost leadership strategy have manufacturing and material management at the centre of attention. To successfully apply the cost leadership strategy the cost leader normally ignores the different market segments and positions its products to appeal to the average customer. This is because developing a line of products tailor made to meet the needs of different market segments is very expensive. Business firms in the manufacturing industry employ Lean manufacturing principles and the five sigma management system to achieve low cost leadership strategy. These two management systems are aimed at minimizing wastage during the production process and are also aimed at producing at the lowest cost possible.
2.4.2 Differentiation Strategy and Firm performance
Differentiation strategy is a marketing technique used by an organization to establish strong identity in a specific market. Using this strategy, an organization will introduce different varieties of the same basic service and product under the same name into a particular services and products category and thus cover the range of services and products available in that category. Differentiation strategy can also be defined as positioning a brand in such a way as to differentiate it from the competition and establish an image that is unique Davison, 2011). Differentiation strategy is an approach under which an organization aims to develop and market unique services and products for different customer segments.
On a study done on the application of Porters generic strategies by commercial banks in Kenya, Gakumo (2006) indicates that reputation on quality and service and use of corporate image were the most used differentiation aspects used by the commercial banks as their selling points. That research was done on organization in the service industry (banking sector) thus the results for the study of the dairy sector may be different as these are two different industries. According to the above research, strength in carrying out basic research and reward on creativity among employees were the least used differentiation aspects in the banks as their selling points. According to Njoroge (2006) where differentiation is only limited to a few features like colour and size, then good management of overhead costs is very important so that the companies can compete on the prices of their products only.
According to Dulo (2006) a differentiator chooses a high level of product differentiation to gain competitive advantage; accordingly product differentiation can be achieved in three principle ways i.e. quality, innovation and responsiveness to customers. When differentiation strategy is based on responsiveness to customers, a company offers a comprehensive after sales service and product repair after the actual purchase of the products by the customers. According to Kariuki (2006) a firm that is pursuing the differentiation strategy strives to be the service leader, quality leader, the style and technology leader, but because it is not possible for a company to be all these things, the firm cultivates the strengths that will contribute to its intended differentiation strategy approach. According to Kariuki (2008) differentiation requires strong marketing skills, superior product engineering and quality, and close coordination of R & D, production, distribution and marketing functions.
According to Chepkwony (2008) the differentiation strategy aims at improving the products or the organizations image or quality by adding value or improve features of a product. Thus a differentiated product commands a higher selling price than the products that are not differentiated. Differentiation can be done through technology, design, distribution and product features.
2.4.3 Focus Strategy and Firm Performance
In the focus strategy, a firm targets a specific segment of the market (Davidson, 2008). The firm can choose to focus on a select customer group, product range, geographical area, or service line (Hyatt, 2001). Focus also is based on adopting a narrow competitive scope within an industry. Focus aims at growing market share through operating in a niche market or in markets either not attractive to, or overlooked by, larger competitors. These niches arise from a number of factors including geography, buyer characteristics, and product specifications or requirements. Focus aims at growing market share through operating in a niche market or in markets either not attractive to, or overlooked by, larger competitors.
According to Njoroge (2006) the focus strategy is aimed at narrowing the market segment, products and category or certain buyers. This helps firms to narrow their operations to specific markets and thus they are able to achieve competitive advantage. According to Gakumo (2006) the focus strategy has two variants; cost focus and differentiation focus. A business firm that is not pursuing any particular strategy but is choosing between various aspects of different strategies is said to be stuck in the middle and cannot show progress.
A study done by Gakumo (2006) on the application of porters generic strategies on commercial banks in Kenya showed that focus strategy with 15% was the second most applied strategy. A further 40% of the banks were stuck in the middle meaning that they failed to develop their strategy in at least one of the three directions. According to Dulo (2006) the focus strategy differs from the other two strategies because it is directed towards serving the needs of a limited customer group or a specific market segment.
This study by Dulo (2006) indicates that a focus strategy provides an opportunity for entrepreneurs to find and exploit a gap in the market by developing an innovative product that customers cannot do without. A study done on the factors influencing the marketing strategies adopted by micro and small entrepreneurs in Eldoret in Kenya by Chepkwony (2008) indicates that the focus strategy is about achieving competitive advantage by concentrating on a particular market or product niche. An organization following such a strategy seeks to identify and satisfy a market niche or a certain segment of the market. Kariuki (2003) indicates that in a focus strategy the firm focuses on a limited set of customers and through either a cost leadership or differentiation strategy or a combination of both, the firms try to gain competitive advantage over their competitors pursuing either cost leadership or differentiation strategy on a broader industry wide basis.
According to Jowi (2006), a firm that follows a focus strategy tries to monopolize a niche in the market place, that may fall anywhere within the area on the left side of the Porters curve. In a study done by Kariuki (2006) on the competitive strategies and performance of five star hotels in Nairobi, Kenya indicates that 21% of the respondents considered focus as a strategy very important while 58% rated this strategy as important; therefore 80% of the respondents used the focus as a strategy in their business.
2.5 Critiques of Existing of LiteratureVarious studies have been done on competitive strategies across various contexts and sectors. In Kenya, a study by Murage (2011) focused on the competitive strategies in the petroleum industry and found that service stations use differentiation as a method of obtaining competitive advantage over other service stations. Gathoga (2001) in his study, focused on competitive strategies by commercial banks in Kenya. The study revealed that banks in Kenya use various means in order to remain competitive, he also concluded that expansion into other areas by opening new branches has also, been used as a strategy. Karanja, (2002) did a survey of competitive strategies of real estate firms in the perspective of Porter’s generic model. These studies reveal that firms in different industries adopt different competitive strategies which are unique in each context. No study has been done on Effect of competitive strategies on performance adopted by LPG industries.
2.6 Research GapsIt’s however clear those only limited studies have been done to determine the effect of competitive strategies on performance. From the reviewed studies, different approaches and theoretical and conceptual frameworks have been used. There is no consensus on theories and conceptual framework. This study will therefore fill this gap by reviewing the existing theoretical literature on linkage between competitive strategies and organizational performance, reviewing the existing empirical literature on linkage between competitive strategies and organizational performance, establishing the emerging knowledge gaps reviewed on competitive strategies and organizational performance and coming up with a conceptual framework for link between competitive strategies and the firms performance.
Mutuma (2013) carried out an investigation of the effects of expansion strategies on the performance of commercial banks in Kenya. The study used a descriptive research design. The target population was all the staff working in the headquarters of commercial banks in Kenya. The results indicated that market penetration had the highest effect on performance followed by diversification and market development. However, since the study was limited to Commercial banks in Kenya, the findings of this study cannot be generalized to the LPG firm due to differences in macroeconomic factors, legal framework, technological factors and political stability.
2.7 Summary of the Literature ReviewThis Chapter comprises of theoretical review whereby theories provided include: The Porters Generic Model of Competitive Advantage, Game Theory and Market Growth Strategy Theory which have been provided to explain the effect of competitive strategies on performance of LPG. The conceptual framework has also been provided; it clearly outlines the relationship between the dependent and independent variable. The independent variables are cost leadership strategy, market focus strategy, and differentiation strategy. The dependent variable is performance of the firm .An empirical review which presents past studies that has been done by other scholars has also been done on the independent and dependent variables. The study has also looked at critique whereby the subject under study has been reviewed and finally research gaps which exists from literature review that has been studied and which present study seeks to fill.
CHAPTER THREERESEARCH DESIGN AND METHODOLOGY3.1 IntroductionThis chapter introduced the methodology that the study was using to experiment and find out the effects of competitive strategies on the firm performance of Liquefied Petroleum Gas in NOCK. Methodology contains sections discussing research design, target population, sample and sampling procedure, data collection, pilot test and data analysis method that will be observed during the study.
3.2 Research DesignThis research is a descriptive survey study that is aimed at establishing the effects of competitive strategies on firm performance of Liquefied Petroleum Gas in NOCK. Descriptive design is a method of collecting information by administering questionnaires and interviews it is focused on the respondents views. Research design is the outline, plan or scheme that is used to generate answers to the research problem. It is basically the plan and structure of investigation. Descriptive research design was used in the study which seeked to establish factors associated with certain occurrences, outcomes, and conditions of type of behavior. A descriptive approach was used because it enables collection of accurate data on and provides a clear picture of the phenomenon under study. Sandeep (2007) perceives a descriptive design as one that provides the investigator with both qualitative data and quantitative data. This design enabled the study to combine both qualitative and quantitative approaches.
3.3 Target PopulationThe population is the entire set of individuals (or objects) having some common characteristics as defined by the sampling criteria established for the study (Ngechu, 2012). A complete study of all members in a specified area of interest to the researchers is what is referred to as target population (Kothari, 2009). Saunders Lewis and Thornhill, (2009) adds that population consist of all the groups of individuals, items, objects and events that have similar apparent characteristics. This study targeted two hundred and fifty staffs working in the head office in Nairobi Mombasa Road.
Table 3. SEQ Table_3. * ARABIC 1: Target PopulationPopulation category Target population Percent %
Senior management staff 20 8
Management staff 40 16
Supervisory Staff 70 28
Support Staff 120 48
Total 250 100
3.4 Sampling DesignSampling design is the process by which relatively small number of individual, object or event is selected and analyzed in order to find out something about the entire population from which is selected. A sample is a small proportion of targeted population selected using some systematized form. According to Kothari (2004) a sample is usually drawn because it is less costly and less time consuming to survey than the population, or it may be impossible to survey the entire population.
The sample size of this study was 30% of the target population. According to Mugenda and Mugenda (2008), a sample size of between 10 and 30% of the target population is a good representation of the target population.
The sample size was follows:
Table 3. SEQ Table_3. * ARABIC 2: Sample SizePopulation category Target population Computation Sample size Senior management staff 20 20*30/100 6
Management staff 40 40*30/100 12
Supervisory Staff 70 70*30/100 21
Support Staff 120 120*30/100 36
Total 250 75 3.5 Data Collection MethodAccording to Sekaran (2008), data collection is the means by which information is obtained from the selected subject of investigation. This study used both primary and secondary data. Questionnaires were preferred in this study because they are very economical in terms of time, energy and finances. This research study used semi structured questionnaires to collect data the primary and panel data tool for the analysis of secondary data. This is because of their simplicity in the administration and scoring of items as well as data analysis (Babbie 2009).
The structured questions were used as they conserve energy, money and time and facilitate an easier analysis as they are in immediate usable form. On the other hand, the unstructured questions were used as they encourage the respondent to provide an in-depth response without feeling held back in revealing of any information.
3.6 Pilot TestA pilot test is conducted to detect weaknesses in design and instrumentation and to provide proxy data for selection of a probability sample. Pilot test assists in determining if there are flaws, limitations, or other weaknesses within the interview design (Bridget and Lewan 2014). A pilot test was conducted to test the reliability and validity of the data collection instruments.
3.6.1 Validity of Data Collection ToolsAccording to Mugenda and Mugenda (2003) validity can be defined as the accuracy and meaningful of inferences which are based on the research results. Validity is the degree to which results obtained from analysis of the data actually represent the phenomena under study. This study engaged the opinion of the experts to enlist the content validity.
3.6.2Reliability of Data Collection ToolsReliability is a measure of the degree to which a research instrument yields consistent results or data after repeated trials. It is the stability of measurement and relates to the absence of random errors of measurement and demonstrates that the operations of the study such as data collection procedures would be repeated with the same results. Therefore instrument reliability is a way of ensuring that any instrument used for measuring experimental variables gives the same results every time (Martyn Shuttle Worth 2009).
A pilot study was carried out to ensure the reliability of the instruments used in this study. In order to ensure accuracy and completeness of all entries and likely passive responses from the respondents, some measures such as assuring the respondents of the confidentiality of their responses were taken in attempt to increase the number and quality of responses.
3.7Data Collection ProceduresAccording to Sekaran (2014), data collection is the means by which information is obtained from the selected subject of investigation. An introductory letter was obtained from the University. Before visiting the individual respondents, I informed the management of the intentions of the study and agree on the timings for filling the questionnaires. The respondents were informed that the instruments being administered are for research purposes only and the responses will be kept secret and confidential. The questionnaires were both hand delivered to the respondents. Follow-ups were made on daily basis to monitor the progress of the respondents in filling up the questionnaires. The data collection exercise was expected to take approximately two weeks.3.8Data Analysis and PresentationBurns and Groove (2013) define Data analysis as a mechanism for reducing and organizing data to produce findings. The semi structure questionnaire generated both qualitative and quantitative data, which were analysed differently using different methods. Qualitative data was analysed by use of thematic content analysis and the results were presented in a prose form. Quantitative data was by use of both inferential and descriptive statistics with the help of statistical software known as Statistical Package for Social Sciences (SPSS version 22). Before analysis, the completed questionnaires will be edited for completeness and consistency.
Descriptive statistics included percentages, and frequencies, measures of central tendency (mean) measures of dispersion (standard deviation). The results are presented using tables and figures which included pie charts. Inferential statistics such as correlation analysis and multiple regression analysis were used to establish the relationship between the independent and the dependent variable. Correlation analysis was used to establish whether there is a relationship between the dependent and independent variables. On the other hand, multiple regression analysis was used to show the weight of the relationship between the dependent and independent variables.
The multiple regression analysis took the following model:
Y= ?0 + ?1X1 + ?2X2 + ?3X3 ?
Y= Firm performance
?0 = Constant
?1 – ?4 = Beta coefficients
X1= Cost leadership strategy
X2= Differentiation strategy
X3= Focus strategy
?= Error term
CHAPTER FOURRESEARCH FINDINGS AND DISCUSSION4.1IntroductionThis chapter contains the obtained from the collected data as well as the analysis, presentation and interpretation of the results and discussions of these results. These results obtained were presented in form tables and figures for ease of understanding. The chapter shows the pilot testing results, response rate, background information, descriptive analysis based on the research objectives and inferential analysis. Descriptive statistics were used to present analysis of quantitative data emanating from closed ended questions. Discussions on the research findings were also provided based on the research objectives and with reference to literature reviewed earlier.
4.2Response RateThe study sample size was 75 respondents. So questionnaires were administered to 75 respondents, where the response rate was 64, which translates to 85.33%. However, 14.67% did not respond to the study as recorded figure 4.1.
Figure 4. SEQ Figure_4. * ARABIC 1: Analysis by Response RateThe results in figure 1indicate that the response rate was 85.33%. According to Mugenda and Mugenda (2003), a study response rate above 69% is high and very good and is adequate to yield favorable results. This is enough evidence that the results from the present study were accurate and suitable for inference to the entire Liquefied Petroleum Gas industry.
4.3Respondents’ Background InformationFirst, the study sought to establish respondents’ background information based on their gender and years of service to company. The results obtained on respondents’ gender were then captured in figure 4.2.
Figure 4. SEQ Figure_4. * ARABIC 2: Analysis by GenderThe results obtained on the respondents’ gender indicate that a majority of 62.50% were shown to male while the remaining 37.50% indicated that they were female as shown in figure 2. So, most of the respondents were male and the minority were female. It was clear that the number of male officer were not exceeding 2/3rd of the total number respondents and the number of female officer were not less than 1/3rd of the total number of respondents. This showed considerable women inclusion in what was initially considered male dominated positions and gender diversity as stipulated in the constitution of Kenya (Republic of Kenya RoK, 2010). It is possible to conclude that there is gender diversity and equity in the employment in the Kenyan LPG industry.
The study sought to establish the period in years that the respondents had worked in the LPG industry as shown in the figure 4.3 below.
Figure 4. SEQ Figure_4. * ARABIC 3: Length of time in businessThe results in figure 4 shows that majority of the respondents (62.50%) indicated that they had been in industry for between five (5) and 10 years less five (5) years. Those who had been in industry for more between 10 and 15 years were next (23.44%) and were followed by those who had been in industry more than 15 years (14.06%).
4.4Descriptive Statistics and DiscussionsThe study analyzed the data collected to describe the study variables using descriptive statistics, which helped to establish the influence of the independent variables on the dependent variable. The study carried out this analysis based on the objectives and discussed these with reference to the literature reviewed in chapter two. Some of the questions in the questionnaire were on a 5 point Likert Scale. For clear and more appropriate analysis, the study obtained a mean and standard deviation of the e results for each indicator as well as the associated variable and moderated the answers to these questions.
4.4.1Effect of cost leadership on performance of liquefied petroleum gasThe study first assessed the effect of cost leadership on firm performance of liquefied petroleum gas in its effort to assess the first objectives; To determine the effect of cost leadership on firm performance of liquefied petroleum gas.
All the respondents (100%) indicated that the company had a written vision statement as well as a written mission statement. They further indicated the various groups of persons involved in the development of strategy in the company as shown in table 4.1.
Table 4. SEQ Table_4. * ARABIC 1: Analysis by persons involved in the development of strategyPersons involved Frequency Percent
Managers and owners 6 9.38%
Staff representatives 40 62.50%
Consultant 7 10.94%
Outsourcing 11 17.19%
Total 64 100.00%
The results in table 4.1 show that most of the respondents (62.50%) indicated that Staff representatives were the main people involved in the development of strategy in the company as 17/19% indicated that the company outsourced for development of strategy in the company. Meanwhile 10.94% indicated that development of strategy in the company was through consultancy service and 9.38% indicated that development of strategy in the company was carried out by managers and owners.
The respondents indicated that the prices were set variously as captured in table 4.2.
Table 4. SEQ Table_4. * ARABIC 2: Means of Setting New PricesThey ways Prices are set Frequency Percent
Equal to competitors 13 20.31%
Higher than competitors 34 53.13%
Based on Market Forces 4 6.25%
Bases of Demand 13 20.31%
Total 64 100.00%
The results show that a majority of 53.13% of the respondents indicated that the most common method of using setting prices was where they set thesehigher than competitors. As 20.31% of the respondents showed that prices were set as equal to competitors, another 20.31% showed that prices were set based of demand of the products. However, 6.25% of the respondents showed that the prices were set based on market forces.
The result showed that 56.3% of the respondents indicated that they were involved in in the production of products, where all of them (100.00%) indicated that the production was mainly automated.According to Dulo (2006) manufacturing firms pursuing a cost leadership strategy follow policies of mass production of a limited range of products, make extensive use of automation to maximize economies of scale, locating any manual production in low wages areas of the world and aggressive pricing to build and maintain market share, this justifies the use of automated production in the LPG industry.
All the respondents (100.00%) indicated that they were involved in marketing and sales of the products in one way or the other. They further cited the means of introducing new products in the market as captured in table 4.3.
Table 4. SEQ Table_4. * ARABIC 3: Mechanisms of introducing new products to market Means of introducing new products to market Frequency Percent
Wait to gauge reaction of market to the new product 11 17.19%
Introduce last after the others 32 50.00%
Together with others 11 17.19%
Any time 10 15.63%
Total 64 100.00%
Half of the respondents (50.00%) indicated the company introduced prices last after the others. As 17.19% of the respondents indicated that the company Waited to gauge reaction of market to the new product before introducing prices, another 17.19% indicated that they introduced prices as others were introducing. From the results in table 4.3, 15.63% indicated that the company did not have a definite policy of introducing new products to market.
The study analyzed the key cost leadership variables considered as impacting on the firm performance. The data for cost leadership variables was collected and measured using a 5 point Likert scale; “5-Very large extend, 4-To a large extend, 3-Moderate extend, 2-Less extent, 1-Not at all”. The study moderated the results obtained to obtain means (M) and standard deviation (SD)cost leadership and its indicators using the statistics; 1– 1.8 for Not at all; above 1.8 – 2.6 for Less extent; above 2.6 – 3.4 for Moderate extent; above 3.4 – 4.2 for To a large extent; and above 4.2 – 5.0 for Very large extent, the moderation enhanced ease in interpretation of the results. These results were captured in table 4.4.
Table 4. SEQ Table_4. * ARABIC 4: Analysis by Effect of cost leadership on performanceCost leadership and firm performance M SD
Offering low priced products 3.44 0.96
Building customers loyalty 3.34 0.96
Offering price discount 3.44 0.94
Engage in promotional activities 3.59 0.87
Prompt services/delivery of products 3.34 0.93
Retention of popular staff 3.30 0.92
Employing high caliber staff 3.22 1.05
Average 3.38 0.95
The results in table 4.4 indicate that offering low priced products moderately (M=3.44; SD=0.96) affected the company firm performance. Building customers loyalty was as well shown to have had a moderate effect (M=3.34; SD = 0.96) on the firm performance of the company. The respondents indicated that Offering price discount to a large extend (M=3.44; SD =0.94) affected the firm performance of the company while engaging in promotional activities also to a large extend (M=3.59; SD = 0.87) affected the firm performance of the company. According to these results, prompt services/delivery of products had a moderate effect (M=3.34′ SD=0.93), retention of popular staffs had a moderate effect (M=3.30; SD=0.92) and employing high caliber staff (M= 3.22, SD =1.05) moderately affected the firm performance of the company. On average, cost leadership was shown to have a moderate effect (M=3.38; SD=0.95) on firm performance of the company.
The study found that cost leadership moderately affected firm performance of the company as was revealed by Gitonga (2003) and Kariuki (2006) as well as Chepkwony (2008). From these results certain factors of cost leadership highly affected the firm performance while other affected it moderately.
The factors affecting firm performance of the NOCK were; offering low priced products, building customers loyalty, prompt services/delivery of products; retention of popular staffs, and employing high caliber staff. Meanwhile; offering price discount and engaging in promotional activities highly affected the performance of the NOCK.
According to Malburg (2010), cost leadership strategy focuses on gaining competitive advantage by having the lowest cost in the industry (cost advantages) while in the present study offering low priced products and offering price discount were found also to be factors of cost leadership strategy contributing towards achieve firm performance through superior advantage. Malburg (2010) adds on that in order to achieve a low-cost advantage, organizations must have a low-cost leadership strategy, low-cost operations within /business units, and a workforce committed to the low-cost strategy. This was confirmed in the present study where the study established that in addition to offering low priced products and offering price discount, retention of popular staffs, and employing high caliber staffs were also necessary for competitive advantage that would lead to increased firm performance. Thus for LPG industry to improve its performance it should gain competitive advantage through , low-cost operations (offering low priced products and offering price discount) coupled with , retention of popular staffs, and employing high caliber staff (Gakumo, 2006). The study by Njoroge (2006) also established that offering products at lower prices than the competitors and keeping lower overheads than competitors would highly influence the firm in gaining competitive advantage (Mbugua, 2006).
The study by Jowi (2006) revealed that vigorous pursuit of cost reductions associated learning effects and utilization of economies of scale for discretionary expenses such as promotion or advertising and low cost distribution capability were important for important for firm performance while the present study established that engaging in promotional activities and prompt services/delivery of products enhance improve firm performance. Thus, engaging in promotional activities and prompt services delivery of products were vital activities for improving firm performance of NOCK.
4.4.2Effect of Differentiation Strategy on Firm PerformanceIn assessing objective 2, the study sought to establish the effect of differentiation strategy on firm performance of liquefied petroleum gas. The study started with assessing the use differentiation strategy in a bid to remain competitive. Since the data was collected and measured using a 5 point Likert scale; “5-Very large extend, 4-To a large extend, 3-Moderate extend, 2-Less extent, 1-Not at all, it was moderated to produce means and standard deviation using the statistics; 1 – 1.8 for Not at all; above 1.8 – 2.6 for Less extent; above 2.6 – 3.4 for Moderate extend; above 3.4 – 4.2 for To a large extend; and above 4.2 – 5.0 for Very large extend. The results are in shown in Table 4.5.
Table 4. SEQ Table_4. * ARABIC 5: Analysis by Effects of Differentiation strategy on firm performanceDifferentiation strategy Indicator M SD
Differentiation strategy seeks to remain competitive 3.50 0.93
Price 3.41 0.89
innovation 3.56 0.92
product 3.42 0.92
market 3.48 0.94
Average 3.47 0.92
It was found that on average, differentiation strategy to a large extend (M=3.47, S= 0.92) affected the on firm performance of NOCK.
According to the results, differentiation strategy bid to seek to remain competitive to a large extend (M=3.50, S= 0.93) affected the on firm performance of NOCK and at the same time price also affected the on firm performance of NOCK3.41, S= 0.89). the respondents indicated that each of innovation(M=3.56, S= 0.92), product (M=3.42; V=0.92) and market (M=3.48, S= 0.94) to a great extend affected the on firm performance of NOCK.
Based on these findings, the study established that overall; differentiation strategy highly affected the on firm performance of NOCK. The present study found that; differentiation strategy bid to seek to remain competitive highly affected the on firm performance of NOCK and as well price also affected the on firm performance of NOCK. Further, innovation; product; and market each highly affected the on firm performance of NOCK. This was earlier confirmed in the study by Dulo (2006) which revealed that a differentiator chooses a high level of product differentiation to gain competitive advantage; accordingly product differentiation can be achieved in three principle ways i.e. quality, innovation and responsiveness to customers. Chepkwony (2008) as well found that the differentiation strategy aims at improving the products or the organizations image or quality by adding value or improve features of a product. Thus, innovation; product; and market are important for improving the firm performance of NOCK.
The study further sought to assess the way the company introduce new products in to the market and whether they branded the products they offered in the market as shown in table 4.6.
Table 4. SEQ Table_4. * ARABIC 6: Introduction of new products and branding productsI always introduce new products in to the market Frequency Percent
Annually 2 3.13%
Bi-annually 34 53.13%
Every three years or more 14 21.88%
Always 14 21.88%
Total 64 100.00%
I always brand the products you offer in the market Frequency Percent
Annually 15 23.44%
Bi-annually 26 40.63%
Every three years or more 12 18.75%
Always 11 17.19%
Total 64 100.00%
The results in table 4.6 show that a majority of 53.13% of the respondents indicated that the company introduced new products bi-annually. As 21.88% showed that the company introduced new products every three years or more another 21.88% showed that the company introduced new products any time. However, 3.13% showed that company introduced new products annually.
On the case of product branding, most of the respondents (40.63%) showed that the branded the products bi-annually as 23.44% showed that the products were branded annually while 18.75% showed that the company branded the products every three years or more and 17.19% indicated that the branding was done anytime.
4.4.3Effect of Focus Strategy on Firm PerformanceThe study assessed the second objective which was to evaluate the effect of focus strategy on firm performance of liquefied petroleum gas.
The study sought to establish the influence of focus strategy on firm performance in its effort to assess the second objective. Since the variable data was collected and measured using a 5 point Likert scale; “5-Very large extend, 4-To a large extend, 3-Moderate extend, 2-Less extent, 1-Not at all, it was moderated to produce means and standard deviation using the statistics; 1 – 1.8 for Not at all; above 1.8 – 2.6 for Less extent; above 2.6 – 3.4 for Moderate extend; above 3.4 – 4.2 for To a large extend; and above 4.2 – 5.0 for Very large extend.. Results are in Table 4.7.
Table 4. SEQ Table_4. * ARABIC 7: Analysis by Effect of Focus Strategy on Firm Performance
Focus strategy Indicator M SD
Focus strategy in a bid to remain competitive 3.77 0.97
Buyer characteristics 3.19 0.77
Product range 3.88 0.98
Geographical area 3.34 0.88
Service line 3.31 0.97
Average 3.50 0.92
The results on influence of effect of focus strategy on firm performance of NOCK in table4.7 showed that the respondents indicated that focus strategy in a bid to remain competitive to a large extend (M=3.77; SD= 0.97) affected firm performance while buyer characteristics to moderate extend (M=3.19; SD=0.77) affected firm performance and product range to a large extend (M=3.88; SD=0.98) affected firm performance. The geographical area was shown to moderate extend (M=3.34; SD=0.88) to have affected firm performance and service line was also shown to moderate extend (M=3.31; SD=0.97) to have affected firm performance. On average, focus strategy was indicated as to a large extend (M=3.50; SD=0.92) having affected firm performance.According to the study by Njoroge (2006) focus strategy helps firms to narrow their operations to specific markets and thus they are able to achieve competitive advantage while Gakumo (2006) revealed that the focus strategy a business firm that is not pursuing any particular strategy but is choosing between various aspects of different strategies is said to be stuck in the middle and cannot show progress. At the same time Jowi (2006) concludes that a firm that follows a focus strategy tries to monopolize a niche in the market place. Meanwhile the present study found that focus strategy highly affected firm performance of NOCK with some indicators of focus strategy showing high effect on firm performance while other had moderate effect. The factors having high effect on firm performance of NOCK were; focus strategy in a bid to remain competitive, and product range while; buyer characteristics; geographical area and service line were found to have moderate effect on firm performance of NOCK. Based on the earlier studies, then the present study established that focus strategy is very important for improving firm performance of NOCK and the factors of focus strategy contributing to improved perform were; focus strategy in a bid to remain competitive, product range; buyer characteristics; geographical area and service line.
4.4.4Firm Performance of NOCKThe study assessed the Firm Performance of NOCK by first examining the status of the sales, net profit, employee satisfaction and profit growth as shown.
Firm Performance Indicator M SD
Average yearly sales 2.06 1.17
Average yearly total cost 2.03 0.87
Average yearly net profit 2.25 1.02
Profitability growth 2.48 1.20
Employee Satisfaction 2.42 0.94
Employee Engagement 2.44 1.19
Average 2.28 1.07
On average, the firm performance of NOCK was shown to less extent (M = 2.28; SD =1.07).Each of the indicator of firm performance; average yearly sales (M = 2.06; SD = 1.17), average monthly total cost (M = 2.03; SD =0.87), average yearly net profit (M = 2.25; SD =1.02), profitability growth (M = 2.48; SD =1.20), employee satisfaction (M = 2.42; SD =0.94), and employee engagement (M = 2.44; SD =1.19) was found to be to less extent. According to Thompson (2007) there are two distinct performance yardsticks; there are those that relate to financial management and others that relate to strategic performance.
4.5Inferential AnalysisThe study carried out inferential analysis by first dousing a correlation analysis and then multiple regressions.
4.5.1Correlation Analysis on Independent and Dependent VariablesThe study first carried out a correlation analysis on the study variables to establish whether there existed any significant relationship between the firm performance of liquefied petroleum gas industry in Kenya and the cost leadership, differentiation strategy, and focus strategy.
In the study; cost leadership, differentiation strategy, and focus strategy are the independent variables (IVs) while the firm performance of liquefied petroleum gas industry in Kenya is the dependent variable (DV). By so doing the study sought to establish whether there was a statistically significant relationship between IV and each of the DV used in the study. The correlation was done using the Pearson’s product moment correlation as results captured on Table 4.9.
Table 4. SEQ Table_4. * ARABIC 9 : Correlation ResultsCorrelations
Firm Performance Cost Leadership Differentiation Strategy Focus Strategy
Firm Performance Pearson Correlation 1 .521** .654** .692**
Sig. (2-tailed) .000 .000 .000
N 64 64 64 64
Cost Leadership Pearson Correlation .521** 1 .447** .481**
Sig. (2-tailed) .000 .000 .000
N 64 64 64 64
Differentiation Strategy Pearson Correlation .654** .447** 1 .674**
Sig. (2-tailed) .000 .000 .000
N 64 64 64 64
Focus Strategy Pearson Correlation .692** .481** .674** 1
Sig. (2-tailed) .000 .000 .000 N 64 64 64 64
**. Correlation is significant at the 0.01 level (2-tailed).
The results of the correlation analysis in Table 4.9 show that under the Pearson correlation all the DVs, cost leadership, differentiation strategy, and focus strategy were significantly related to the DV, firm performance of liquefied petroleum gas industry in Kenya since the p-value for each was less than 0.05. The p-value for each DV was less than 0.005; cost leadership (p =.000), differentiation strategy (p-value = .000), and focus strategy (p-value = .000).
From the results; focus strategy had the highest relationship (r = .692, p-value = .000), followed by differentiation strategy(r = .654)and; lastly cost leadership(r = .521, p =.000).Each had significant a positive relationship with firm performance of liquefied petroleum gas NOCK. It was shown that the relationship between cost leadership(r = .521) and the DV, firm performance, was moderate since the correlation coefficient was greater 0.3 and not exceeding 0.6.
However, each of focus strategy(r = .692) and differentiation strategy (r = .654) had high relationship with firm performance of liquefied petroleum gas industry in Kenya since the correlation coefficient was greater than 0.6.
4.5.2Regression AnalysisSince the study established that all the IVs had significant relationship with the DV, it then sought to establish whether the IVS; cost leadership, and differentiation strategy would actually predict the DV (firm performance of liquefied petroleum gas industry in Kenya). The study therefore carried out multiple regressions to establish the nature of relationship and as well a estimate a model that would explain DV in terms IVs.
The sought to estimate the model;
Y= ?0 + ?1X1 + ?2X2 + ?3X3 +?
Y= Firm performance
?0 = Constant
?1 – ?4 = Beta coefficients
X1= Cost leadership
X2= Product differentiation
X3= Market focus
?= Error term
The model dictates that for every predictor, the minimum independent observations needed should be fifteen(15).For the three(3) predictors, the least value should be(3 X 15) = 45 respondents. Our data actually meets the rule because we had 64 respondents that will surpass the needed value hence sufficient.
Table 4. SEQ Table_4. * ARABIC 100: Results of Regression of firm performanceCoefficients
Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta (Constant) -.892 .382 -2.335 .023
Cost Leadership .229 .114 .196 2.003 .050
Differentiation Strategy .288 .112 .299 2.572 .013
Focus Strategy .394 .118 .396 3.335 .001
a. Dependent Variable: Firm Performance
Various interpretations were also made based on Table 4.10 results when seeking to establish the significance of the independent variables in determining the dependent variable. From these results, T= 2.003 and p-value = .050. Since p-value is equal to 0.05 then at the ? = 0.05 level of significance, there is no sufficient evidence to conclude that the cost leadership is useful as a predictor of firm performance of liquefied petroleum gas industry in Kenya.
As differentiation strategy the results show that T= 2.572 and p-value= .013 implying that at the ? = 0.05 level of significance, there exists enough evidence to conclude that the differentiation strategy is not zero and, hence, that appropriate differentiation strategy is useful as a predictor of firm performance of liquefied petroleum gas industry in Kenya since Since p-value < 0.05.
The focus strategy results show that T= 3.335 and p-value= .001. Since p=value< 0.05 at ? = 0.05 level of significance, there exists enough evidence to conclude that the focus strategy is not zero and, hence, that appropriate differentiation strategy is useful as a predictor of firm performance of liquefied petroleum gas industry in Kenya.
The estimated equation is Y= -0.906 + 0.229X1 + 0.288X2+ 0.394X3 as derived from Table 4.10. The table shows that cost leadership, differentiation strategy, and focus strategy had positive coefficients, implying that they were directly proportional to firm performance of liquefied petroleum gas industry in Kenya. This means that an increase in any of; cost leadership, differentiation strategy, or focus strategy would lead to improvement of firm performance of liquefied petroleum gas industry in Kenya and vice versa.
The study used the mean of mean to obtain indices for all the study variables. The study first produced Analysis of Variance (ANOVA) and these results are captured in Table 4.11
Table 4. SEQ Table_4. * ARABIC 111: ANOVA for firm performanceANOVAs
Sum of Squares
df Mean Square F Sig.
Regression 16.409 3 5.470 26.760 .000b
Residual 12.264 60 .204 Total 28.673 63
a. Dependent Variable: Firm Performance
b. Predictors: (Constant), Focus Strategy, Cost Leadership, Differentiation Strategy
The study tested the model goodness of fit based on the study model Beta coefficients; ?1 – ?4 by checking whether the coefficients of; cost leadership, differentiation strategy, focus strategy are all zero (that is ?1 = ?2 =?3 =0) or not, at 5% level of significance.
The coefficients are all zero when the probability value (p-value)> 0.05 and such a model is not fit for use since it lacks goodness of fit. However, when the p-value <= 0.05 then model is considered as being fit for use since it goodness of fit.
Results in Table 4.11, indicates that p-value = .000. Since p-value <0.05 (F=24.178, P-value=.000), then at the 5% significance level (i.e. ?=0.05, level of significance), there exists enough evidence to conclude that at least one of the predictors; cost leadership, differentiation strategy, and focus strategy are useful in predicting the firm performance of liquefied petroleum gas industry in Kenya. Therefore the model is useful in explaining to firm performance of liquefied petroleum gas industry in Kenya.
The IVs and DV were then regressed to estimate the study model. The study obtained result shown in Table 4.11.
Table 4. SEQ Table_4. * ARABIC 12: Model Summary for Performance
R R Square Adjusted R Square Std. Error of the Estimate
.756a .5723 .5509 .45211
a. Predictors: (Constant), Focus Strategy, Cost Leadership, Differentiation Strategy
Table 4.12 shows the coefficient of determination was .5509, an indication that 55.09% of variation in firm performance of liquefied petroleum gas industry in Kenya is explained by cost leadership, differentiation strategy, and focus strategy.
Therefore, all the variable; cost leadership, differentiation strategy, and focus strategy are strong determinants of firm performance of liquefied petroleum gas industry. In conclusion, it was showed that the performance of liquefied petroleum gas industry was significantly and positively explained by cost leadership, differentiation strategy, and focus strategy.
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONSIntroductionThis chapter provides the conclusions from the study findings as well as the recommendations based on the findings. It further highlights the research gaps the researcher felt should be filled by further research as well the limitations of the study. The study assessed the objectives; to determine the effect of cost leadership on firm performance of liquefied petroleum gas, establish the effect of differentiation strategy on firm performance of liquefied petroleum gas, and evaluate the effect of Focus Strategy on firm performance of liquefied petroleum gas.
5.2Summary of Study FindingsThe results were summarized based on the study objectives. These included to; determine the effect of cost leadership on firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya, establish the effect of differentiation strategy on firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya, and evaluate the effect of Focus Strategy on firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya.
5.2.1Findings on Firm PerformanceThe study found that the average firm performance of NOCK was to less extent and each of the indicator of firm performance; average monthly sales, average monthly total cost, average monthly net profit, profitability growth, employee satisfaction, and employee engagement was found to be to less extent.
5.2.2Findings on Effect of Cost Leadership and Firm PerformanceThe study established that cost leadership had a moderately effect firm performance of the company as was revealed by Gitonga (2003) and Kariuki (2006) as well as Chepkwony (2008). From these results certain factors of cost leadership highly affected the firm performance while other affected it moderately. The factors affecting firm performance of the NOCK were; offering low priced products, building customers loyalty, prompt services/delivery of products; retention of popular staffs, and employing high caliber staff. Meanwhile; offering price discount and engaging in promotional activities highly affected the firm performance of the NOCK.
5.2.3Findings on Differentiation Strategy and Firm PerformanceThe study established that differentiation strategy highly affected the on firm performance of liquefied petroleum gas as characterized by each of the indicator of differentiation strategy. According to the study findings; each of differentiation strategy bid to seek to remain competitive, price strategy; innovation strategy; product strategy; and market differentiation highly affected the on firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya.
5.2.4Findings on Focus Strategy and Firm PerformanceThe study finding show that focus strategy highly improves firm performance of NOCK as characterized by; focus strategy in a bid to remain competitive, and product range which highly enhanced improved firm performance of NOCK and buyer characteristics; geographical area and service line which moderate affected on firm performance of NOCK.
5.3Conclusions of the Study
Based on the study findings, the study concludes that cost leadership had a moderate effect on firm performance of the liquefied petroleum gas industry firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya. More specifically, an increase in use of cost leadership moderately improves the firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya. Some factors of cost leadership highly improve firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya. These include offering price discount and engaging in promotional activities. Other factors moderately improve firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya. These factors include; offering low priced products, building customers loyalty, prompt services/delivery of products; retention of popular staffs, and employing high caliber staff.
The study concludes that differentiation strategy highly affects firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya. More precisely, actively employing differentiation strategy highly improves the firm performance of liquefied petroleum gas at the National Oil Corporation of Kenya. The indicators differentiation strategy used to enhance this firm performance; differentiation strategy bid to seek to remain competitive, cost leadership strategy; innovation strategy; product strategy; and market differentiation.
The study concludes that focus strategy highly affects the firm performance of liquefied petroleum gas industry in Kenya at the National Oil Corporation of Kenya by improving it. The factors of focus strategy appropriate for improving the firm performance of liquefied petroleum gas industry at the National Oil Corporation of Kenya are; focus strategy in a bid to remain competitive and product range as well as; buyer characteristics; geographical area and service line.
Lastly, the study revealed that, at 5% level of significance, cost leadership, differentiation strategy, and focus strategy positively and significantly influence on firm performance of liquefied petroleum gas industry in Kenya. The study concludes that 55.09% of variation in firm performance of liquefied petroleum gas industry in Kenya is explained by cost leadership, differentiation strategy, and focus strategy. The study reveals that at 0.05 level of significance cost leadership, differentiation strategy, and focus strategy are estimators of firm performance of liquefied petroleum gas industry in Kenya.
5.4Recommendations of the Study
5.4.1Policy and Practical ImplicationsThe study made policy recommendation based on the findings and study objectives. First, the study recommends that liquefied petroleum gas industry should ensure that they increase the proficiency of the cost leadership through; offering low priced products, building customers’ loyalty, prompt services/delivery of products; retention of popular staffs, and employing high caliber staff. Meanwhile; offering price discount and engaging in promotional activities highly affected the firm performance of the NOCK, the liquefied petroleum gas industry should enhance their profitability growth strategy by seeking seeks to achieve; an increase in the market share and financial gains, a secure dominance of growth in markets, and restructure a mature market by driving out competitors. A preferred option is to generate a more permanent share gain by winning a sustainable competitive advantage with enhanced customer value or by matching a competitor’s sustainable competitive advantage. To achieve profitability, existing products are marketed more effectively to existing customers. Hence revenues are increased by, for example, promoting the product, repositioning the brand, and so on.
Secondly, the study recommends that liquefied petroleum gas industry should acquire the most optimal differentiation strategy for the improved firm performance and assured survival of their business enterprises. The study recommends that the liquefied petroleum gas industry should practice differentiation strategy bid to seek to remain competitive, price strategy; innovation strategy; product strategy; and market differentiation highly affected the on firm performance of liquefied petroleum gas. This settles down to the price strategy of LPG products/services where it was hard for the clients to purchase to sustain the business, which were unaffordable to them. Product design further affects the quality of the service. Although LPG clients may not afford high prices, they need high quality products; in fact better-quality LPG product would attract them. In fact, the LPG products should be general and adequate in meeting the user needs in Kenya. However the characteristics and product variety would largely induce the clients to purchasing these products
Thirdly the study recommends that the liquefied petroleum gas industry should actively engage their focus strategy to enhance and improve the firm performance of liquefied petroleum gas industry in Kenya. For focus strategy to appropriately improve the firm performance of liquefied petroleum gas industry in Kenya, the liquefied petroleum gas industry should ensure that focus strategy in a bid to remain competitive, provide range of product; enhance buyer characteristics; expand their geographical area and extend the service line.
5.4.2Recommendation for Further Studies
The study used data collected from National Oil Corporation of Kenya headquarters in Nairobi, which limited the scope of the study findings to NOCK’s Nairobi office. NOCK’s Nairobi office is one out of office in the 47 counties of Kenya and limiting the applicability of the study to Nairobi while not take care of the other NOCK offices.
So, other studies should be conducted to assess the influence of cost leadership, differentiation strategy, and focus strategy on firm performance of liquefied petroleum gas industry in the entire country due to differences in challenges faced in different companies and areas.
The study found that 55.09% of variation in firm performance of liquefied petroleum gas industry in Kenya is explained by cost leadership, differentiation strategy, and focus strategy. This means that there are other factors that account for the remaining 44.91%. So the study recommends that other studies should be conducted to establish what influences the 44.91% change of firm performance of liquefied petroleum gas industry in Kenya.
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APPENDICESAPPENDIX 1: QUESTIONNAIREKindly tick as appropriate or put your response in the space provided .Information will be treated with utmost confidentiality.
SECTION A: GENERAL INFORMATION
Name of the department………………………………………………………….
Gender of the respondent Male ( ) Female ( )
Years of service to company
Less than 5 Year ( )6 to 10 Years( )11 to 15 Years ( )over 15 Years ( )
Which of the following best describes your role in the company?
Senior management( )
Operational Management( )
Supervisory Management( )
Support Staff ( )
In your own opinion please indicate by ticking (?) the space corresponding to the correct answer the level to which competitive strategies are aligned to each of the following written statement of the company
Scale: Not at all = 1; Low = 2; Moderate =3; High = 4 Very High = 5
Statement 5 4 3 2 1
a. Vision statement b. Mission statement Please indicate by ticking (?) the space corresponding to the correct answer the most commonly used technique in setting prices of your products? Please tick once
a) Lower than competitors ( )
b) Equal to competitors ( )
c) Higher than competitors ( )
c) Based on Market Forces ( )
c) Bases of Demands ( )
Please indicate by ticking (?) the space corresponding to the correct answer the most commonly method of allocating sales persons in your company? Please tick once
i. Centrally ( )
ii. Regionally ( )
iii. Rotational( )
iv. Product Wise ( )
v. On Demand( )
What is the most commonly used method of introduce new products in the market in the company?
a. Try to be first in the market ( )
b. gauging reaction of market to the new product ( )
c. Introduce last after the others ( )
c. Together with others ( )
c. Any time( )
How often does your company introduce new products in to the market?
a. Every six months ( )
b. Annually ( )
c. Bi-annually ( )
d. Every three years or more ( )
e. Always ( )
How often do you brand the products you offer in the market?
a. Not at all ( )
b. Every six months ( )
c. Annually ( )
d. Bi-annually ( )
e. Every three years or more ( )
Do you offer product guarantees to your customers
a. Yes ( )
b. No ( )
What is your policy in product replacement?
a. No policy on product replacement ( )
b. Faulty products are replaced ( )
c. Faulty products are not replaced ( )
d. Faulty products are first examined ( )
e. Faulty products are subject to Warranty terms ( )
SECTION B: COST LEADERSHIP
Cost leadership is considered to have an influence on firm performance of LPG producing companies. On a scale of 1 to 5, please indicate to what extend the following indicators influence the firm performance of NOCK. Please indicate by ticking (?) the space corresponding to the correct answer
Scale: 5=Very large extent, 4= Large extent, 3=Moderate extent,2= Low extent, 1=Not at all
Indicator 5 4 3 2 1
a. Products development cost reduction b. Offering products at lower prices than competitors c. Staff reduction strategy d. Staff cost reduction e. Job redesign f. Capacity utilization g. Wastage and distribution cost Minimization
SECTION C: DIFFERENTIATION STRATEGY
The study considers that the company uses differentiation strategy in a bid to remain competitive. On a scale of 1 to 5, please indicate to what extend the following indicators of differentiation strategy influence the firm performance of of NOCK. Please indicate by ticking (?) the space corresponding to the correct answer
Scale: 5=Very large extent, 4= Large extent, 3=Moderate extent,2= Low extent, 1=Not at all
Indicator 5 4 3 2 1
a. Affordability of the product b. Accessibility of products c. Uniqueness of products d. Involvement of marketing staff in product design e. Market research on the customers’ needs and demands F Specification of product to meet the needs of the defined customer groups g. Variety of the available products h branding the products in the market
SECTION D: FOCUS STRATEGY
The study considers that the company use focus strategy in a bid to remain competitive. On a scale of 1 to 5, please indicate to what extend the following indicators of focus strategy influence the firm performance of NOCK. Please indicate by ticking (?) the space corresponding to the correct answer
Scale: 5=Very large extent, 4= Large extent, 3=Moderate extent,2= Low extent, 1=Not at all
Indicator 5 4 3 2 1
a. Level of penetration of shrinking formal markets b. Development of new markets (Shrinking formal markets) c. Introduce new products into existing markets d. Design, tailor or offer new products to regular customers to serve serve a market niche e. Develop and innovate new product offerings to replace existing ones F Diversification of client network g. Offeringnew products to new market segments h Focusing on specific market segment
SECTION E: FIRM PERFORMANCE
Please indicate the limits of sales growth, profit, and job satisfaction at NOCK for the last five years. Please enter the corresponding digits in the table below.
2013 2014 2015 2016 2017
Sales Growth Profit Job Satisfaction END
Thank for taking your time to answer this questionnaire. In case of any clarification, contact me through 0704322629.
APPENDIX 2: LETTER OF INTRODUCTION
DOREEN NYANDUKO OMBASA
JOMO KENYATTA UNIVERSITY
P.O BOX 62000-00200
Dear Sir/ Madam
REF: REQUEST FOR DATA COLLECTIONON THE EFFECT OF COMPETITIVE STRATEGIES ON FIRM PERFORMANCE OF LIQUEFIED PETROLEUM GAS AT THE NATIONAL OIL CORPORATION OF KENYA.
I am a student at Jomo Kenyatta University Agriculture of Technology currently pursuing Master degree in business administration (Strategic Management Option). I am currently carrying out a research study on the effect of competitive strategies on form performance of liquefied petroleum gas. I am kindly requesting you to provide me with information regarding LPG, through filling the questionnaire to assist me in doing the research work.
The information you will provide in this questionnaire is for academic purpose only and will be treated with utmost confidentiality.
Thank you in advance.
Doreen Nyanduko Ombasa