Cost Leadership Strategy and Organisational Performance: A Case of Insurance Companies in Nyeri County, Kenya.

Abstract

This study sought to determine the effect of cost leadership strategy on the performance of insurance firms in Nyeri County, Kenya. It was anchored on Porter’s Five Forces Model and the Dynamic Capabilities Theory. A census study approach was used to subject all the twenty (25) insurance companies operating in the county to study. Purposive sampling was used to identify the respondents who included branch managers, finance officers, marketing managers, claims managers and actuaries of all the insurance firms being studied. This procedure led to a total of 125 respondents. The study assessed non-financial performance of the insurance companies for 5 financial years 2014-2018. Primary data was collected through questionnaires while secondary data was gathered using a document review guide to review financial statements, management reports and other key publications in the company. Both descriptive and inferential statistics were used in the analysis. The Pearson correlation analysis results established that cost leadership (r=0.791, p= 0.01) has a very strong and positive correlation with organisational performance. Similarly, the results of the multiple linear regression analysis showed that cost leadership (β=880, p=0.004) has a positive effect on organisational performance. Thus, a conclusion was made that pursuit of cost leadership strategies delivers positive results to the organisation. The study recommends that insurance companies work on improvement of the adoption of proprietary technology and innovative distribution channels for products which were found to be only moderately entrenched. This could be limiting their efficiency in effectively controlling the operating and distribution costs.