Pims and corporate performance : the influence of strategic capabilities and contextual factors in Kenya
Mugambi, George Kaberia
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The influence of strategy and context on corporate performance has been and still is a central issue in Strategic Management Discipline. In spite of immense academic curiosity in this area, exemplified by extensive empirioal research, results still remain inconclusive. Some argue that performance differences across firms is as a result of strategic choice and capabilities the firm builds over time. Yet others contend that external characteristics under which a firm operates is equally important in explaining performance, since strategic management is sensitive to the context in which it is practiced. Besides, empirical studies that forge these propositions using an integrated approach in an African setting, and specifically in Kenya, are scanty. This study examined the influence ofPIMS (Profit Impact of Market Strategy) principles, strategic capabilities and contextual factors on corporate performance in Kenya. The study employed a triangulation of exploratory, descriptive and explanatory designs. Both primary and secondary data were collected. Primary data were collected vide a structured close ended Likert type questionnaire administered to all 56 CEOs of quoted companies in Kenya, in a census survey. Secondary data were collected on financial performance of the same companies for a period of five years between 2002 and 2006. Financial data summarized by Nairobi Stock Exchange (NSE) and company's financial statements obtained from Capital Markets Authority (CMA) were used. Data were analyzed using descriptive and multivariate analysis. Specifically, means and standard deviations were used to assess data characteristics. Factor analysis was used to validate and construct indices for the preconceived variables. Correlation analysis and different variants of regression analysis were used to test hypotheses. Model testing show that Kaplan and Norton's Balanced Score Card (BSC) conforms to Kenyan context and remains a viable measure of corporate performance. Further, the study provides additional support for the linkages between PIMS principles and corporate performance, suggesting that PIMS principles are generalizable across a broad spectrum of contexts. More important, the findings demonstrate that when strategic capabilities are considered in addition to PIMS principles, the explanatory power of the model increases significantly from Adj.R2 =0.539 to Adj.R2 =0.741 at P<O.OOI.However, it was found that contextual factors have a negative (~ adj.R2 =-0.004) moderating effect on the relationship between PIMS principles and corporate performance in Kenya, albeit not significant at a= 0.05. The three study variables, PIMS, strategic capabilities and contextual factors in an integrated model account for 71.1 % of variation in corporate performance, this variation being higher than that accounted by any of the study variables individually. These findings hold implications for corporate managers and the Kenyan government. The corporate managers should pay special attention to market strategy especially product quality and market share. These strategies should be leveraged by internally built capabilities such as IT, marketing, market linking, technological and management. The government should moot strategies for lowering political risk by addressing issues like insecurity, corruption, political bickering and unreliable electricity supply. Future research should explore to replicate the findings of this study to firms not listed in the NSE especially Small and Micro Enterprises. Future studies should seek employ optimization procedures to address spuriousness.