influence of competitive strategies on …
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INFLUENCE OF COMPETITIVE STRATEGIES ON ORGANIZATIONAL
PERFORMANCE OF TELECOMMUNICATION FIRMS IN KENYA: A CASE OF
SAFARICOM PLC AND AIRTEL KENYA LTD HEADQUARTERS
BY
MUTHURI JANE WANJIRU
UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA
SUMMER 2019
INFLUENCE OF COMPETITIVE STRATEGIES ON ORGANIZATIONAL
PERFORMANCE OF TELECOMMUNICATION FIRMS IN KENYA: A CASE OF
SAFARICOM PLC AND AIRTEL KENYA LTD HEADQUARTERS
BY
MUTHURI JANE WANJIRU
A Research Project Report Submitted to the School of Business in Partial Fulfillment of
the Requirement for the Degree of Masters in Business Administration (MBA)
UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA
SUMMER 2019
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STUDENT’S DECLARATION
I, the undersigned, declare that this is my original work and has not been submitted to any
other college, institution or university other than the United States International University in
Nairobi for academic credit.
Signed: ________________________ Date: _____________________
Muthuri Jane Wanjiru (ID 639525)
This project has been presented for examination with my approval as the appointed
supervisor.
Signed: ________________________ Date: _____________________
Fred Newa
Signed: _______________________ Date: ____________________
Dean, Chandaria School of Business
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COPYRIGHT
No part of this research project report should be reproduced or transmitted in any form, or by
any means such as electronically, by magnetic tape or mechanically, including photocopying,
recording, on any information storage and retrieval system without prior authorization in
writing from the author.
Copyright © Muthuri Jane Wanjiru, 2019
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ABSTRACT
The purpose of the study sought to determine the relationship between Michael Porter’s
generic strategies and their influence on the performance of mobile telecommunication
companies in Kenya. The objective of this study was to investigate the extent to which
competitive strategies influence the performance of telecommunication firms in Kenya,
narrowing down to Safaricom PLC and Airtel Kenya Ltd.
The study was be guided by the following research objectives: To determine the effect of
cost leadership strategy in the performance of Safaricom PLC and Airtel Kenya Ltd; To
assess the effect of service or product differentiation in boosting performance of Safaricom
PLC and Airtel Kenya Ltd; and To establish the influence of focus strategy on Safaricom
PLC’s and Airtel Kenya.
A descriptive research was adopted and the research used structured questionnaires to collect
data. The target population was 23 strategic management managers from all the ten divisions
at Airtel Kenya Ltd. and 42 from the nine departments at Safaricom PLC. A total of 37 were
filled and submitted by Safaricom PLC respondents and 17 by those from Airtel Kenya Ltd.
The data was analyzed using the Statistical Package for Social Sciences (SPSS) into
frequency distribution and percentages. The data was presented using tables and figures in
order to diagrammatically represent the data and enhance the comprehension of the readers
for this research.
The major findings of this study revealed a positive relationship between cost leadership and
performance. Therefore, an increase in cost leadership leads to an increase in performance.
Cost leadership strategy has more attached to it than just cost reduction initiatives. From
Pearson correlation analysis was done to establish the relationship between differentiation
and performance, the finding revealed a positive correlation. Therefore, an increase in
differentiation leads to an increase in performance. For a company when using differentiation
strategy, it focuses its efforts on providing a unique service or product. The finding revealed
a positive relationship between focus strategy and performance although not significant. The
research also analyzed relationship between the dependent variable (performance) against
focus strategy.
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The study concludes that the Airtel Kenya Ltd and Safaricom PLC have been utilizing cost
leadership strategy to gain performance. Safaricom PLC as a company uses differentiation
strategy and this has been achieved by having a strong brand image and offering value added
services in the products and service The findings show that Airtel Kenya Ltd has a focus on
cost-sensitive customers using the cost-varying products and services; whereas Safaricom
PLC has put a lot of focus on value added services to create good customer experience.
The study recommends the need for the institution to improve customers’ perception through
offering of value added services in their products and services. Market segmentation is key in
order to focus and address various needs accordingly. This ensures that the entire market is
well taken care of. The study recommended that managers and leaders need to focus on the
best strategy to employ in order to achieve a great organizational performance in their
respective organizations.
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ACKNOWLEDGEMENT
Prima facea, to Jesus Christ, my Lord and Saviour, for giving me the wisdom, perfecting His
strength in me, zeal, sharpening my knowledge and deepening my understanding as well as
overcoming challenges for me. His grace has been sufficient, to God be the glory.
I wish to express my deep and sincere gratitude to my supervisor, Prof. F. Newa for his
aspiring guidance, invaluably constructive criticism and friendly advice throughout my
project work. His thorough, vast knowledge, dynamism and motivation have provided insight
and expertise that greatly assisted the research. It was a great privilege and honor to be
mentored by him.
I dedicate my research to my family and friends. A special feeling of gratitude to my loving
parents for their dedication, everlasting love, steadfast prayers, concern, immeasurable care
and sacrifices that they have relentlessly put in for me to acquire the best education. Much
gratitude and love to my amazing husband for his unending love, unwavering support,
immense encouragement and enthusiasm during this incredibly energy taking process. I
count my blessings for having you honey, I love you. I am eternally grateful to my two
beautiful sisters for always being there for me and being my greatest cheerleaders. I will
always hold dear the love and joy my niece brings me that motivates me to work hard.
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DEDICATION
Consider it pure joy, my brothers and sisters, whenever you face trials of many
kinds, because you know that the testing of your faith produces perseverance. Let
perseverance finish its work so that you may be mature and complete, not lacking
anything. 5 If any of you lacks wisdom, you should ask God, who gives generously to all
without finding fault, and it will be given to you.
James 1:2-5
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TABLE OF CONTENT
STUDENT’S DECLARATION .......................................................................................................................... ii
COPYRIGHT ..................................................................................................................................................... iii
ABSTRACT .........................................................................................................................................................iv
ACKNOWLEDGEMENT ..................................................................................................................................vi
DEDICATION ................................................................................................................................................... vii
TABLE OF CONTENT ................................................................................................................................... viii
LIST OF TABLES ................................................................................................................................................ x
LIST OF FIGURES .............................................................................................................................................xi
ABBREVIATIONS AND ACRONYMS.......................................................................................................... xii
CHAPTER ONE ................................................................................................................................................... 1
1.0 INTRODUCTION .......................................................................................................................................... 1
1.1 Background to the Study .................................................................................................................................. 1
1.2 Statement of the Problem ................................................................................................................................. 5
1.3 General Objective ............................................................................................................................................. 6
1.4 Specific Objectives ........................................................................................................................................... 7
1.5 Significance of the Study .................................................................................................................................. 7
1.6 Scope of the Study ............................................................................................................................................ 9
1.7 Definition of Terms .......................................................................................................................................... 9
1.8 Chapter Summary ........................................................................................................................................... 10
CHAPTER TWO ................................................................................................................................................ 11
2.0 LITERATURE REVIEW ............................................................................................................................ 11
2.1 Introduction .................................................................................................................................................. 11
2.2 The Effect of Cost Leadership Strategy on Organizational Performance ..................................................... 11
2.3 The Effect of Differentiation Strategy on Organizational Performance ....................................................... 19
2.4 The Influence of Focus Strategy on Organizational Performance ................................................................ 24
2.5 Chapter Summary ......................................................................................................................................... 28
CHAPTER THREE............................................................................................................................................ 29
3.0 RESEARCH METHODOLOGY ................................................................................................................ 29
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3.1 Introduction ............................................................................................................................................. 29
3.2 Research Design ...................................................................................................................................... 29
3.3 Population and Sampling Design ............................................................................................................ 30
3.4 Data Collection Methods ......................................................................................................................... 32
3.5 Research Procedures................................................................................................................................ 32
3.6 Data Analysis .......................................................................................................................................... 33
3.7 Chapter Summary .................................................................................................................................... 34
CHAPTER FOUR .............................................................................................................................................. 35
4.0 RESULTS AND FINDINGS ........................................................................................................................ 35
4.1 Introduction .................................................................................................................................................... 35
4.2 Demographic Information .............................................................................................................................. 35
4.3 Cost Leadership Strategy Implementation on Performance ........................................................................... 40
4.4 Differentiation Strategy Implementation on Performance .............................................................................. 45
4.5 Focus Strategy Implementation and Performance .......................................................................................... 49
4.6 Chapter Summary ........................................................................................................................................... 51
CHAPTER FIVE ................................................................................................................................................ 52
5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS ......................................................... 52
5.1 Introduction .................................................................................................................................................... 52
5.2 Summary of the Study .................................................................................................................................... 52
5.3 Discussion ...................................................................................................................................................... 54
5.4 Conclusions .................................................................................................................................................... 60
5.5 Recommendations .......................................................................................................................................... 61
REFERENCES ................................................................................................................................................... 63
APPENDICES…………………………………………………………………………………
APPENDIX I: INTRODUCTION LETTER…………………………………………………...
APPENDIX II: QUESTIONNAIRE.........................................................................................................................
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LIST OF TABLES
Table 3.1: Population Distribution Table................................................................................ 30
Table 3.2: Sample Size Distribution ....................................................................................... 32
Table 4.1: Response Rate ........................................................................................................ 35
Table 4.2: Reliability Statistics ............................................................................................... 36
Table 4.3: Education ............................................................................................................... 38
Table 4.4: Duration Served ..................................................................................................... 38
Table 4.5 (a): Division ........................................................................................................... 39
Table 4.6 (b): Division ............................................................................................................ 39
Table 4.7: Descriptive of Cost Leadership Strategy Implementation ..................................... 42
Table 4.8: Correlation of Cost Leadership Strategy on Performance ..................................... 43
Table 4.9: Model Summary of Cost Leadership Strategy on Performance ............................ 43
Table 4.10: Anova of Cost Leadership Strategy ..................................................................... 44
Table 4.11: Coefficients of Cost Leadership Strategy on Performance .................................. 45
Table 4.12: Descriptive of Differentiation Strategy on Performance ..................................... 46
Table 4.13: Correlation of Differentiation Strategy on Performance ..................................... 47
Table 4.14: Model Summary of Differentiation Strategy on Performance ............................ 47
Table 4.15: Anova of Differentiation Strategy on Performance ............................................. 48
Table 4.16: Coefficients of Differentiation Strategy on Performance .................................... 49
Table 4.17: Descriptive of Focus Strategy Implementation ................................................... 50
Table 4.18: Correlation of Focus Strategy on Performance ................................................... 51
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LIST OF FIGURES
Figure 2.1: Michael Porter's Three Generic Strategies (Porter, 1985)…….…………….…..13
Figure 2.2: Inter-relationship between variables subsumed in the study…….………….…..13
Figure 4.1: Gender……………………………………………………………………….......36
Figure 4.2: Age……………………………………………………………………………....37
Figure 4.3: Market Share…………………………………………………………………….40
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ABBREVIATIONS AND ACRONYMS
4G -Fourth-generation wireless telephone technology CA
ANOVA -Analysis of Variance
CAK -Communications Authority of Kenya
CCK -Communications Commission of Kenya
HR -Human Resource
IT -Information Technology
PLC -Public Limited Company
SPSS -Statistical Package for Social Sciences
STI -Science, Technology and Innovation
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CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the Study
Organizations operate in highly competitive and turbulent environment with the aim of
expanding their investments, dictating the space with a goal of becoming the market leader
that will command the largest share of the industry. These in mind as anchored objectives
usually make firm to espouse every strategic means that are legal, ethical and advantageous
to arrive at the attainment of these objectives (Abayomi & Akinmadelo, 2014).
In view of the highly competitive market, organizations must develop strategies for
performance which they can seek to sustain, expeditiously grasp opportunities, respond to
threats and outmaneuver their rivals to endure and succeed (Akingbade, 2014). Strategy has
been borrowed from the military, adopted for use in business and can be defined the bridge
between policy or high-order goals on the one hand and tactics or concrete actions on the
other (Nickols, 2015). It is therefore an integral part of any effective business plan.
Employing effective competitive strategy enables a company to find its industry niche and
learn about its customers (Porter, 1980).
Mintzberg (1994) argues that strategy emerges over time as intentions collide with and
accommodate a changing reality. Porter (1985) states the three generic strategies that are
required for different resources, organizational arrangements, control procedures, styles of
leadership, and incentive systems could translate to improved organizational performance
and performances. The three generic competitive strategies are overall price leadership,
differentiation and focus (Porter, 1985), the focus strategy having two variants, cost focus
and differentiation focus in a narrow market segment (Li & Li, 2008). The generic strategies
are strategies originally envisioned by Michael Porter that companies can use to achieve
strategic options clearly explain the reasons of firms’ behavior (Porter, 1980; Porter, 1985),
and ultimately achieve performance (Tanwar, 2013).
Price leadership strategy involves gaining performance by reaching the lowest cost in the
industry (Porter, 1979). In order to reach this type of advantage, a company must pursue a
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price leadership mindset and 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 (Bertozzi et al, 2017). The pricing strategy that a firm
adopts is crucial to its success due to its direct impact on performance (JU, Xuenan et al,
2015). Lawton (1999) sustains that over-reliance on the price leadership strategy brings the
risk of a price war because competitors can easily emulate the low price. Thus, the grim
consequences on vulnerability to market fluctuation, unsustainable growth, and
accompanying risk of price wars all endanger firms to survive the international competition.
The differentiation strategy is correctly pursued when the firm provides a superior or
unique value to the customer through product value, quality, characteristics, or
customer services such as after sale support (Akan, et al 2006). In some situations, a business
may get “stuck in the middle”, in other words the firm is unable to differentiate its product
or service from a competitors', often resulting in poor financial performance, but an
organization can pursue either differentiation or focus strategy (Porter, 1985; Collins &
Winrow, 2010; Bertozzi et al 2017).
Focus also is based on adopting a narrow competitive scope within an industry. Porter (1980)
asserts that a successful focus strategy has to be built around serving a particular target very
well while exploring a segment related to the specific industry which is large enough to have
a positive growth potential but not of core interest to the other major competitors. By
focusing the marketing mix on the narrowly defined target markets, the business can
position itself to increase brand loyalty and customer satisfaction (Collins et al 2010).
The link between competitive strategies and organizational performance is a key issue in the
field of strategic management. According to Ndung’u, Machuki, and Murerwa (2014), the
success of any organization is manifested in attaining a competitive position or a series of
competitive positions that lead to superior and sustainable performance. Organizational
performance the ability for an organization to fulfill its mission through sound management,
strong governance and a persistent dedication to achieving specific goals over a given period
of time (Stafford & Miles, 2013). Panayides (2010) argued that strong influence on
performance seem to be achieving economies of scale, differentiation (in particular through a
wider range of services offered) and market-focus and competitor-analysis.
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The advancement of globalization in the telecommunication industry, accompanied by the
dynamic competitive situation in the world markets, which are greatly influenced by
government policies and trade frameworks, have created a new dynamic business
environment. The mobile industry’s rapid growth can be credited to the affordability of
mobile phones, lower interconnectivity charges, the infrastructural improvements by
operators, the presence of multiple players in the industry, and a stable regulatory
environment, among other things. As competition heightens, the economy continues to boom
due to the fact that more strategies are devised to ease communication and firm performance
(Kim & Huarng, 2011).
Telecommunication industry in Kenya in the last ten years has recorded unprecedented
growth and development, from monopoly in the year 2000 to the current oligopoly system
with a total of 39.15 million mobile subscribers at 31 March 2017 (CAK, 2017). The
telecommunication industry in Kenya has become very competitive as more and more firms
seek to share the profitability of the voice, data and short message services (World Bank
Report, 2010). Safaricom PLC accounted for the majority of total wireless customers (28.13
million) at the end of Q1 2017, followed by Airtel Kenya Ltd with 6.39 million and Telkom
Kenya with 2.80 million (CAK, 2017). The industry in Kenya is managed by the
Communications Authority of Kenya (CAK), formerly Communications Commission of
Kenya (CCK).
With the progressing tech ecosystem in Kenya, telecommunication services are core
infrastructure. There has been a tremendous improvement in the qualities and quantities in
different types of services provided to customers. The deregulation of the industry led to the
increase in the number of providers of the telecommunication services and of the numbers of
subscribers or customers. This led to competition between the providers as each of them
pursues strategies that are directed to enable them to have their own share of the market in
order to be profitable and to survive. These organizations have therefore been forced to
strategically position themselves in order to succeed in the ever changing market driven by
rapid changes, in technology, reduced access costs, reduced device costs, increasing
customer demands, increased competition and increased government regulation in the
industry.
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Safaricom PLC is the leading mobile network operator in Kenya which was founded in the
year 1997. In 2002, the company was converted to a public company and is listed at the
Nairobi Stock Exchange and has annual revenues of over Kshs.150 Billion. It is the industry
leader, and has continued being innovative in order to remain competitive and profitable.
Key to their success has been the implementation of Porter’s generic strategies. Safaricom
PLC has given its competitors a run for their money by applying the price leadership strategy
through the low prices it offers to a wide range of their products. This has seen the company
diversify its investment in various ventures related to communication (Achuti, 2012), and
employed the differentiation strategy. Its products include Mpesa – Mobile payment service;
Masoko – An E-commerce platform; M-Kopa – Solar-Powered lighting kit; Till number –
Buy goods and services; Paybill Number – Bill pay service; Little-ride – A taxi-hailing app;
Digital TV – The Safaricom Big Box; Songa – A music streaming web and mobile app; M-
Shwari – Micro-credit mobile loan; M-Pesa1Tap – A debit card connected to Mpesa account;
and most recently Mpesa Foundation Academy – A high school. In 2018, Safaricom PLC
reported annual net profits amounting to Ksh55.29 billion in the financial year ending
31st March 2018. Focus strategy has been put to use to better serve a niche market or a
specific market segment which needs unique products specific to that segment (Njogu D.
2018).
Airtel Kenya Ltd was launched in the year 2000 as Kencell. The company has undergone a
number of rebranding since its entrance into the African market. From Kencell, it rebranded
to Celtel, then Zain in the year 2008 and finally Airtel Kenya Ltd in the year 2010. Airtel
Kenya Ltd also provides several services such as; Prepaid & Postpaid plans, Airtel Kenya
Ltd Money and international roaming. In the year 2016 it reported annual net loss amounting
to Ksh 8.1 Billion which includes the Kenya subsidiary which reported a net profit
amounting to Ksh.51.2 Million. Their customer base is 6.3 million with a market share of
16.3% (CAK, 2017). Airtel Kenya Ltd is currently experiencing challenges in renewal of its
operating license with the Communications Authority of Kenya (CAK) due to the high
renewal fee, and as of August 2015, forcing the company to operate using the license
acquired from Essar (Yu Mobile). Airtel Kenya Ltd is disputing the high renewal fee and is
negotiating that the renewal fees should be pegged on a percentage of the annual gross
turnover of each operator as opposed to a flat rate. The performance that Airtel Kenya Ltd
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has is that their customers are strongly attached to the differentiated attributes, compared to
the competitors (Ongache 2015).
1.2 Statement of the Problem
Firms have to respond strategically to competition and have a performance over their rivals
in securing customers; sustainable performance is born out of core competences that yield
long term benefit to the company (Magretta, 2013). Effective implementation of generic
strategies enhances the performance of an organization. Environmental influences to a
business result in competition that exerts pressure on firms to be proactive and formulate
successful strategies that can facilitate a positive response to perceived and actual changes in
competitive environment (Moreno & Reyes, 2013).
Many empirical studies have been done on competitive strategies but on different context and
concept from which the current study seeks to cover. Competitive strategies used by firms in
their operations shift based on the working environment. The importance of a competitive
strategy for a business is to find a position in the industry that the company can best defend
itself against competitive forces or can influence them in its favor, resulting in a
performance.
Kamau (2009) researched on competitive strategies employed by Airtel Kenya Ltd, at the
time Zain, and established that the company uses low cost and differentiation strategies,
which enables it to minimize costs, outsource services, adopt strategies to increase market
share, provide quality offerings, have an efficient delivery system, and ensure market
penetration and development, thus enabling the efficient use of company resources in order
to compete effectively with other companies.
This research seeks to identify the competitive strategies in place by Airtel Kenya Ltd to
tackle competition, and the challenges experienced in applying the strategies. It is clear that a
poor or vague strategy can limit implementation efforts dramatically. Good execution cannot
overcome the shortcomings of a bad strategy or a poor strategic planning effort
The extents to which the uses of different competitive strategies by selected
telecommunication companies have led to improved performance and to what extent
customers have responded to the provider’s strategies have not being sufficiently examined.
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It is necessary to find out the extent to which competitive strategy could lead to improved
performance, customer satisfaction, loyalty and retention in the telecommunication industry.
A key gap that needs to be addressed is to look into the implementation of the competitive
strategies and the possible mechanisms that could be employed by Airtel Kenya Ltd to
overcome the challenges, and to investigate how Safaricom PLC has implemented corporate
business strategies to beat their competitors, commanding a big market share and generating
huge profits whereas some of their competitors are exiting the market while others like Airtel
Kenya Ltd are in constant losses and struggling to remain in business.
Communications Authority of Kenya, the national authority is tasked among other duties to
license all systems, services, carriers and operators in the communications industry in Kenya.
The regulator also type approves and accepts communications equipment meant for use in
the country, protects consumer rights within the communications environment, manages
competition within the sector to ensure a level playing ground for all players, regulates retail
and wholesale tariffs for communications services and manages the universal access fund to
facilitate access to communications services by all in Kenya. All these are major factors
affecting internet service penetration in the country and therefore interrogating their
implementation and challenges faced in the process of implementing by the most successful
provider will provide insights that the regulating authority could use to improve the operating
platform for all interested investors in the sector. The Economic pillar of vision 2030
blueprint for long term sustainable development is centered on Science, Technology and
Innovation (STI). For this to be in place, the penetration, adoption and usage of internet is
key, therefore this study will provide useful insights on to the milestones achieved so far and
other complementary aspects that could increase penetration even for accelerated Economic
development.
1.3 General Objective
The main objective of this research sought to establish the influence of competitive strategies
on the performance of telecommunication firms in Kenya.
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1.4 Specific Objectives
1.4.1 To determine the effect of cost leadership strategy in the performance of Safaricom
PLC. and Airtel Kenya Ltd.
1.4.2 To assess the effect of service or product differentiation in boosting performance of
Safaricom PLC. and Airtel Kenya Ltd.
1.4.3 To establish the influence of focus strategy on Safaricom PLC’s. and Airtel Kenya
Ltd’s performance.
1.5 Significance of the Study
1.5.1 Safaricom PLC
It will offer invaluable information to Safaricom PLC which will help them acquire the best
corporate strategies in the volatile mobile network industry. Information gathered through
this study will help the Safaricom PLC have an insight into the strategic responses that are
effective in dealing with the environmental challenges in the industry and fine-tune their
responses in dealing with various challenges.
1.5.2 Airtel Kenya Ltd
This study will be important to Airtel Kenya Ltd as it will offer insights on how best it can
employ the generic strategies to improve their performance, and adapt to the changes and
remain a key player in the industry. The study may inform them on how generic strategies
adopted by the organization are influencing their growth and performance, thus facilitate
better decision-making.
1.5.3 Other Telecommunication Firms
Telecommunication firms as the target population of the study would benefit with the
findings of this study as it would be enlightened on the various generic strategies the
universities may adopt to improve their growth. Information gathered through this study
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would help the universities to formulate policies beneficial in the best competitive strategies
in the various universities in Kenya.
1.5.4 Policy Makers
This study is important to the policy makers, more so CAK, as the Authority will be able to
know for certain that Porters’ generic strategies; focus, differentiation and cost leadership
play a major role in shaping their operations in this industry and how they affect
organization growth, at the same time informing their policy making process.
1.5.5 Future Scholars
The results of this study will also be valuable to researchers and scholars, as it would form a
basis of further research. The students and academicians would use this study as a basis for
discussions on competitive strategies. This study would be a source of reference material for
future researchers on other related topics; it would also help other academicians who
undertake the same topic in their studies. The study will also be useful to those interested in
carrying out more studies as far as the application of profit maximizing strategies is
concerned. Thus, future researchers will find this study a useful guide as it forms a basis
upon which other studies will be done on other industries in Kenya.
1.5.6 Investors
In addition to the financial and stock performance of an organization, investors need to
understand the management of strategy of the organizations they invest in. The management
of strategy is important for continued performance of the organization. Strategy that is
sensitive to environmental changes and is flexible to those changes is likely to yield better
performance of the organization therefore maximizing shareholder wealth which is one of the
roles that the management have. This study delves into the management of strategy in
turbulent environments and the use of strategic issue management as a tool to manage
strategy in such crucial conditions and its effects on organizational performance. Therefore
this study provides a basis for investors to analyze the organizations that they not have
invested in but also intend to invest in.
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1.6 Scope of the Study
This study was carried out in two telecommunication firms in Kenya namely; Safaricom and
Airtel Kenya Ltd because they are the leading players in telecommunication industry. The
study focused on how innovative strategies, market diversification strategies, pricing
strategies and cost leadership strategies adopted by telecommunication firms in Kenya
enhance profit maximization. The study targeted middle level managers working within the
two main network providers who are directly involved in strategic change management. The
divisions included Financial Services, HR, technical & IT, customer care, marketing, risk
management, and strategy & innovation. Questionnaires were employed as data collection
instrument.
The study was restricted to two telecommunication firms; Safaricom PLC. and Airtel Kenya
Ltd. This study was limited to establishing the influence of corporate business strategy on the
performance of telecommunication firms in Kenya. The study sought to establish how the
firms in this industry have leveraged on cost leadership, differentiation and focus strategies to
influence their performance. To achieve the objectives, the study took a descriptive research
design in which data was collected from a population sample consisting of management,
faculty departmental heads and staff at Safaricom PLC and Airtel Kenya Ltd. Questionnaires
and interviews were used as data collection instruments. The study was carried out between
July and August 2019.
1.7 Definition of Terms
1.7.1 Competitive Strategy
Competitive strategy is defined as the long term plan of a particular company in order to gain
performance over its competitors in the industry. It is aimed at creating defensive position in
an industry and generating a superior Return on Investment (ROI) (Johnson, 2012).
1.7.2 Cost Leadership Strategies
Cost leadership strategy focuses on gaining competitive edge by adopting the lowest cost in
the industry (Thompson, 2013). In order to reach the target of a low-cost leadership, an
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organization must have a low-cost leadership advantage, low-cost operations, and a united
and committed workforce to the low-cost strategy (Thompson, 2013).
1.7.3 Differentiation Strategy
According to Hammond (2013) 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.
1.7.4 Focus strategy
A competitive strategy where the firm narrows down and concentrates on a segment and
within that segment tries to achieve either cost leadership or differentiation advantage
(Porter, 1980).
1.7.5 Performance
A set of financial and non-financial indicators, which provide information on the degree of
implementation and achievement of the organization's objectives and results; comprising the
actual results of a company's success measured against the expected output (Walker,
Damanpour, & Devece, 2011)
1.8 Chapter Summary
This chapter has established the background information on Telecommunication Industries in
Kenya. The chapter has shown, in the problem statement, the challenges facing some
telecommunication firms due to lack of competitive strategies to keep them in the industry.
In this chapter, background of the study, problem statement, scope and limitations of the
study have been explored. Chapter two analyzes literature review. Chapter three covers
research methodology in terms of the research design, population and sampling design, data
collection methods and analysis. Chapter four covers the results findings in terms of the
study objectives, and chapter five covers the study discussions, conclusions and
recommendations, based on the findings.
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CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
This chapter reviews a number of scholarly literature related to the influence of corporate
business strategy on the performance of the telecommunication firms in Kenya, focusing on
Safaricom PLC and Airtel Kenya Ltd. The chapter will study the point of application of
Porter’s generic strategies and present literature review on the influence of competitive
strategies on organizational performance. The literature on the effect of cost leadership
strategy on performance is presented first, followed by the effect of differentiation strategy
on performance and finally the influence of focus strategy on performance.
2.2 The Effect of Cost Leadership Strategy on Organizational Performance
2.2.1 Overview
The performance of organizations is expressed in terms of profitability, growth, service
delivery among others. The aim of organizations is maximizing the value of equity and
maximizing the value of the organizations and its stock (Yuliansyah, Gurd, & Mohamed,
2017). Value maximization of the firm’s value requires the use the financial resources and
optimal strategy by managers and their correct performances. According to Allio (2015)
there three main competitive strategies that is cost leadership strategy, differentiation and the
focus strategies are key to achieving performance and crucial for organizational
improvement.
Strategy, as defined by Porter (1996), is a broad and complex concept that is primarily
concerned with two factors; the decision on the direction one wants business to head, and the
actions that need to be taken to steer the business there. He explains that strategy is the
creation of a unique and valuable position which involves a set of different activities (Porter,
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1996). The success or failure of an organization is therefore determined by the way these
activities are performed (Gathara, 2018), making strategic management an important tool that
affects the performance of an organization. Strategic management involves the analysis of
decisions and actions an organization undertakes to create a sustainable performance. Kinyili
and Omwenga (2016) define strategic management as a process that involves the analysis of
cross-functional business decisions before proceeding to put them into effect, the goal being
to achieve better positioning of corporate policies and strategic priorities.
Michael Porter held that firms can only achieve high returns if their costs are lower than
those of competitors’ or if they can differentiate their products effectively. In his study,
Porter (2004) classified competitive strategies as two-dimensional phenomena with a supply
side which entails the strategic scope; and a demand side which entails the strategic strength
(Porter, 2004). This scheme was later simplified into three generic strategies, namely ‘overall
cost leadership’, ‘differentiation’ and ‘focus’. It is from these competitive strategies that
firms then derive their performance and utilize the performance as an ingredient in their quest
for growth. Performance is defined as the value that a firm is able to create for its buyers,
which exceeds the firm's cost of creating it (Porter, 1985).
Johnson, Scholes and Wittington (2008), The first of Porter’s strategy which was the overall
cost leadership, although neglecting quality, service and other areas, accentuates on setting of
low cost relative to the competition. The second strategy, differentiation, necessitates that a
firm creates something, service or product, that is accepted industry wide as being inimitable
or exclusive, and so permitting the firm to command higher than average prices. In the third
which is focus strategy, the firm concentrates on a particular group of customer’s market
segment or product line segments. A company must adopt one of the three generic strategies
(cost leadership, differentiation and focus) failure to which the company will be “stuck in the
middle” and will be suffering from below-average performance (Porter, 1998).
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Figure 2.1: Michael Porter's Three Generic Strategies (Porter, 1985)
Porter emphasized that employing more than one strategy will lose the entire focus of the
organization hence clear direction of the future trajectory cannot be established with certainty
(Porter, 1980). Porter (1980) went on to reason that on the one hand, differentiation will incur
costs to the firm which clearly contradicts with the basis of low cost strategy, and on the
other hand relatively standardized products with features acceptable to many customers will
not carry any differentiation, hence, cost leadership and differentiation strategy will be
mutually exclusive.
Figure 2.2: Inter-relationship between variables subsumed in the study
Dependent Variable Independent Variables
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Most companies seek a sustainable performance and the porter’s generic strategies can be a
guide to define the strategic direction. The most profitable competitor in any sector tends to
be the lowest-cost producer of supplier offering a product with the greatest perceived
differentiated values (Ruto & Ayuo, 2017). The aim of cost leadership strategy is the firm’s
low cost product offering in the sector. Cost leadership strategy takes place through the
experience, investment in production facilities, careful monitoring and conservation on the
total operating costs through programs like reducing quality management and the size and the
reason for cost leadership application is to obtain the advantage by reducing the economic
costs among its competitors (Phongpetra & Johri, 2011).
2.2.2 Cost Leadership Strategy
Cost leadership strategy is one of the commonly used strategy dimensions in the literature.
According to Banker, Mashruwala & Tripathy (2014), the aim of cost leadership strategy is
to provide products or services at the lowest cost in the sector. The challenge of this strategy
is to earn a suitable profit for the firm, rather than operating at a loss and draining
profitability from all the market players, hence, creating a better performance in all industries
of the company from the accounting sector statement, the operation sector marketing all the
way to survival sector of the company. Aboyassin & Abood (2013) suggests that the choice
of a cost leadership is critical for the survival as well as the success of any firm’s
performance. The increased competition threatens the attractiveness an industry and reduces
the profitability of the sector players as it exerts pressure on companies to be proactive and to
formulate successful strategies that facilitating proactive response to the anticipated actual
changes in the environment. Nandakumar, Ghobadian & O’Regan (2010) argue that cost
leadership strategy is key factor in the determination of the performance a firm; hence, it is a
key factor in planning of how organizations operations need to run. Lower costs and cost
advantages result from process innovations, learning curve benefits, and economics of scale,
product designs reducing manufacturing time and costs, and reengineering activities
(Kyengo, 2016). Cost leadership strategy seeks to achieve above-average returns over
competitors through low prices by driving all components of activities towards reducing
costs.
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In a highly dynamic and uncertain environment, competition is inevitable as a result
companies wishing to remain ahead of competition should therefore pursue suitable
strategies since business strategies have been found to have a direct influence on the
company’s competitiveness and growth (Sedlmeyer & Dwyer, 2018). Cost leadership is
among the most appropriate business strategy that integrates set of actions taken to produce
goods and services with the features that are acceptable to customers at the lower cost,
relative to that of competitors. Baack & Boggs (2008) indicates that cost leadership tends to
be more competitor oriented rather than being customer oriented approach. A firm that
successfully implements cost leadership strategy emphasizes vigorous pursuit of cost
reduction, overhead and tight costs control, research and development and advertisement
among other marketing expenses that will help the company achieve a low cost position.
Amadi & Higham (2018) indicate that sources of cost advantage depend on industry
structure. Cost advantages may come from the economies of scale, economies of scope,
propriety technology and the preferential access to the materials among other factors. On the
basis of cost advantages companies are able to have above average return of command a
price. Phongpetra & Johri (2011) argue that common to the success of Japanese companies in
consumer goods industries like consumer electronic, vehicles, motorcycles and musical
instruments has been the capability to reconcile low cost with high quality and technological
progressiveness. The position is further supplemented by Mastrangelo, Eddy & Lorenzet
(2014) who indicates that having few layers in the reporting structure; simple reporting
relationships, small corporate staff and a focus on narrow range of business functions are
components of the organizational structure allowing companies to realize the full potential of
cost leadership strategies. It is also crucial to note that however, the company might be the
cost leader but that does not necessarily imply that the organization’s products would have a
low price. In certain instances, the firm can for instance charge an average price while
implementing the low cost leadership strategy and reinvest the extra profits into the business
lynch. The risk of adopting cost leadership strategy, however is that the firm’s focus on
reducing costs even at the expense of other vital factors may become dominant that the firm
loses vision of why it embarked on one such strategy in the first place (Allio, 2015).
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2.2.2.1 Economies of Scale
Parnell (2010) indicates that companies work to gain a better position and earn higher profits
by enhancing their turnover ratio and increasing the activities by using business strategies.
These strategies are therefore based on customer valuation and are crafted for companies to
gain an advantage over competitors. Cost leadership strategy is a strategic move pursued by
companies with an attempt to gain a performance and directly increase their returns as well
as lower cost of business. Marx (2015) explains that cost leadership strategy is a value
creation for the customer by maintaining the quality standards and emphasize quality
enhancement and alignment with the organizational control systems enhance company’s
profitability. Yoshikun & Albertin (2018) various cost leaders depend on economies of scale
in order to achieve efficiency. The economies of scale are created when the cost of goods and
services decreases as the company is able to increase production. When companies pursue
cost leadership strategies it can give them a sufficient market power as well enjoying the
economies of scale.
In many settings, the cost leaders attract a large market share because a large portion of
potential customers find paying lower prices for goods and services of acceptable quality to
be very appealing (Srivastava, 2013). This certainly holds true for companies like Walmart
for instance, the need for efficiency means that cost leader’s profit margins can be slimmer
than the margins enjoyed by other companies. However, the cost leader’s ability to make
little bit of profit margins from each large number of customer that translates to total profits
of cost leaders can be substantial. Maiga (2015) argues that in some settings, the need for
high sales volume is a crucial disadvantage of the cost leadership strategy. Highly
fragmented markets and the markets that involve a lot of brand loyalty may not provide an
opportunity to attract a large segment of customers, in industries like beer industries and soft-
drink industry, consumers appear to be willing to pay extra amount to enjoy the brand of
their choice but famous companies such as Coca-Cola, Budweiser and Pepsi still dominate
these markets. The concern is that attaining a high sales volume usually requires significant
upfront investments in distribution and production capacity.
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2.2.2.2 Competitive Edge
Businesses succeed when they possess a relative advantage over their competitors. Gaining
this kind of performance is the objective of the strategy (Krumwiede & Charles , 2014).
Companies that gain performance in their industries they usually adopt specific strategies that
includes innovation, higher quality, improved processes and lower cost marketing in order to
achieve this purpose. When the company has achieved a performance and successfully raises
the barriers to prevent imitation by competitors it therefore resists erosion by the competitor
behavior to achieve a sustainable performance (Allio, 2015). Preventing the imitation
however does not last forever, hence, the company’s ability to delay this eventuality is
crucial to derive the maximum benefit from any performance. The organization is said to
have a performance if it is the acknowledged leader in product quality, offers a different
value chain than rivals and has type of edge over competitors in attracting customers and
coping with the competitive forces (Powers & Hahn, 2014). Despite having many routes to
performance, they all involve building of the brand image, delivering superior value to the
buyers as well as building competences and resource strengths in performing value chain
activities.
Phongpetra & Johri (2011) suggest that cost leadership is one of the Porter’s generic
strategies that a firm could implement in order to secure a sustainable performance over its
competitors within the industry by earning higher profits. Cost leadership strategies dictate
that costs are kept to a minimum while differentiation depends on the unique features that
often require an increased development and production costs. Srivastava (2013) cost
leadership enables the company to establish a performance in the marketplace. This can help
the company increase sales and overall turnover in any expansion plans. Any cost leadership
strategy should be done in which it is able to achieve the lowest cost of operation per unit of
production, compared to others in the same industry. The overall cost leadership strategy
focuses attention on firm’s value chain resulting in low cost services and products. Few
attempts are made to differentiate the service or products from those of competitors and a
wide net is cast over the entire potential market. Ruto & Ayuo (2017) suggest that offering
the lowest possible cost, these firms gain market share through price alone. The most
successful organizations are those that limit down the costs at each point in the value chain.
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2.2.2.3 Market Share
According to Krumwiede & Charles (2014) given how rapidly the market environments can
change, organizational performance may be vulnerable to instability in the face of intense
competition and risk. For them to remain the market leaders enjoying a significant market
share in the industry, they must be able to respond quickly to change. The existence of
turbulence in markets and heavy competition warrants better strategies for competing in both
the international and domestic markets. Sharma (2014) indicates that firms pursue cost
leadership strategy with the intention of expanding their market share by offering affordable
brands and services that enhances their cost reduction while at the same time boosting their
sales margins in the market.
The application of the best-practice organizational processes accompanied with careful
monitoring on purchasing expenditures, application of computer and communication
technology in a cost-effective way, trimming overhead costs a firm is able to achieve cost
reduction which is crucial for its market share (Srivastava, 2013). With the same quality level
but at a lower cost, the low cost company can undermine the price of competing firms. The
reason for cost leadership strategy application is to obtain the advantage by reducing
economic costs among its competitors. Maiga (2015) indicates that low cost strategy
highlights efficiency by producing qualified and standardized service or product at the same
time, with economies of scale and experience curve, the company strives to gain a
sustainable performance among its competitors. In terms of cost focus by the firm, the
managers and their teams dealing with the different aspects of production will focus on
efficiency and putting the cost of the product very low. By this, the company will have a
better performance in that the overall cost involved in the production process will come
down.
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2.3 The Effect of Differentiation Strategy on Organizational Performance
2.3.1 Differentiation Strategy
Differentiation strategy in business is the art of marketing a certain product or a service in a
way that it stands out against other products or services (Knapp, 2015). Differentiation
strategy involves the process of offering products and services that are unique from that of
competitors. The concept of differentiation was proposed by Edward Chambelin in his theory
of Monopolistic Competition in the year 1933. Hassan & Hilman (2017) carried out a study
the influence of differentiation strategy on performance of hotels based on moderating role of
environmental munificence and found out that distinctive marketing competencies should be
regarded as skills that businesses can develop to form the basis for performance. This implies
that differentiation strategy has the potential of creating superior performance to the company
which leads to improved profitability and market share. According to Leigh, Bist & Alexe
(2007) the generic differentiation strategy of Michael Porter involves creation of a market
position that is perceived as being unique industry-wide and it is sustainable over the long
run.
Nandakumar et al (2010) indicate that differentiation strategies are based on offering buyers
with something which is different and unique; makes the firm’s strategic positioning, service
or product that is distinct from its rivals. Superior value creation is as a result of higher
quality product, technical superiority in some way and has special appeal perceived in some
way. Pretorius (2008) in effect, differentiation strategy persuade by a firm builds
performance by making consumers more loyal and less price-sensitive to a given offering
that can be either a product or a service. In addition customer are less likely to search for
other alternative products or services once they are satisfied. Nielsen (2018) Some of the
strategies used during differentiation strategy with the purpose of fostering sales performance
tend to evolve around the integration of various components of the retail mix, they include
providing quality products and services, offering a wide selection, assortment, quality
service, convenient location, conducive atmosphere, after-sale service and own branding. A
combination of these elements are the economically bases of differentiation strategy and can
enable the company increase its revenues, and exploit potential opportunities.
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Haasna & Hilman (2017) emphasize that the benefits of being unique in the business
environment derives from the resource based theory perspective. In this perspective it is
crucial for the company to preoccupy valuable, rare, inimitable and non-substitutable
resources in order to sustain good performance over its competitors. The nature of these
resources require that the company exploit and deploy the resources in a very unique manner
compared to its competitors. Marx (2015) argue that successful strategies are likely to be
imitated by competitors and mimetic behaviors can also arise under the conditions of
uncertainty. A successful firm’s rare and inimitable resources used by the company are
always exposed at a risk of being imitated by its competitors. Therefore, the company should
constantly strive to make itself unique by differentiating its resources for it to sustain its
performance over the long run.
Akombo (2010) analyzed the Kenya’s sugar industry competitiveness and found out that, the
companies achieved differentiation by branding their sugar products, distribution networks
and quality customer service with the vendors (AKombo, 2010). The strategy of
differentiation involves the provision of products and services that are perceived industry
wide as being unique. The firm thus designs to appeal to the customers with special
sensitivity for a particular product attribute or the service that is essential for building
customer loyalty (Iselin, Mia , & Sands, 2008). The loyalty can help the firms charge
premium prices for its products and services, and building performance through
differentiation, the company must search out sources of the uniqueness that can be burden
and time consuming for the rivals to match. Ajmera (2017) argues that though a firm may
have several basis of differentiation strategy, what matters is the customer perception. The
approach of differentiation can take various forms like brand image, technology, product
features, customer service and dealer networks. When used well they can create a perpetual
barriers over competitors as they provide an insulation against rivalry because of brand
loyalty. A good differentiation strategy is the one that a company provides services and
products with unique features that are highly valued by customers.
Today’s business environment has been highly competitive and complex (Amadi & Higham,
2018). As a result companies have been pressured to seek new ways of gaining competitive
edge. The ability to outperform competitors and attain average profits lies in the pursuit of
21
appropriate business strategy. According to Rindova & Martins (2018) globalization has led
to more intense competition among service companies as differentiation strategy offers a
greater scope to produce products that have more value. They also argue that a purely focus
on cost leadership strategy alone may no longer be appropriate in accommodating the diverse
needs of organizations that intend to create real value to its customers. Differentiation
strategy will also push the product marketing team of the service or product to employ better
approaches in trying to reach the different consumer segments (Yu, Cadeaux, & Song, 2012).
There will be innovation in the part of the marketing team as it tries to engage the consumer
in trying to show them the better advantages of the product over the other products of similar
nature in the market.
When applying differentiation strategy by firms, there is need for the process to be agile as it
is at this stage that the teams tasked with the different innovation may find out that their
competitor actually rolled out the same innovation before, therefore making the whole
process futile (Paswan, 2011). There has to be coordinated team work by the different teams
tasked with the innovation and the product development aspect in order to be successful in
launching of the service or product into the market. Products and services are specific to a
select group or a segment in the market. By targeting a specific audience in the market, there
is the need to tailor the product to be appealing to the specific group (Ajmera, 2017). For
example, there are products that are targeted to the youth such as a new fashion trend. For the
fashion house, there is need for the innovation and development of both the physical product
and service or the innovation in the way it engages with the consumers, the youth.
2.3.2 Brand Loyalty
Prayne & Frow (2014) argue that a successful strategy tends to create brand loyalty among
consumers that interact with the firm’s brands at the marketplace. The same marketing
strategy that attracts market share through a perceived quality or cost savings may also create
loyalty from the target market. Paswan (2011) the firm must constantly deliver quality or
value to the consumers in order to maintain customer loyalty. In a competitive business
environment, when the service or product fails to maintain the quality and value it has been
offering to its customers, becomes easy for the organization to lose customer loyalty as
customers switch to the competitors. For instance, for the nationally marketed products and
22
services, brands tend to be associated with celebrities as a way of creating brand loyalty.
Small business enterprises can also use the strategy as well by working closely with locally
well-known celebrities such as television personalities to enhance brand loyalty.
According to Krystallis brand loyalty represent the value of the brand in the minds of
consumers interacting with company’s products. This value is made up of perceived quality
by the consumer, brand awareness, strong brand association, patents and trademarks. From a
marketing perspective, brand loyalty represents the mindset of the customer about the brand
that id formed by expectations, experiences and perceptions and may lead to specific
outcomes in the organization such as increase in sales volume, premium price and
profitability (Koschmann & Sheth, 2018). Brand loyalty can serve as a signal of the product’s
credibility in the market and offer goodwill value that can reduce uncertainty or even serve as
an incremental contribution to the company as the customer’s choice of the brand giving it a
rise to the base product.
2.3.3 Customer Retention
Organizations operate in the dynamic business environment, hence, forced to compete
strategically in differentiating themselves in various dimensions such as quality and service
within the market (Aboyassin & Abood , 2013). Successful organizations strongly focus on
the service model that comes along with investment in technology, personnel policies and
good remuneration framework for its employees. This is vital as the behavior of the
employees have direct impact on the quality the company intends to deliver in order to
enhance customer retention (Felix, 2014). Customer retention is based on customer
satisfaction through the company’s employees and can be experienced when consumers
remain committed to the firm’s brands and make repeated purchases regardless of the price
set or convenience on the brand or service.
According to Huang & Huddleston (2009), the development of a strong and stable brand that
fosters customer retention in the market requires investment since its achievement depends
on regular advertising, promotions and re-launching the products and services. With wide
product selection accessible by consumers, consumers are not likely to accept something less
than excellent service which is highly contributed by differentiation strategy focusing on
23
value creation for the customers. Mbugua (2014), commercial banks have acknowledged the
significance of meeting the consumer’s desires since different consumers demonstrate
different needs, taste and preferences, hence, to enhance customer retention it is crucial for
banks to differentiate its products and services. Commercial banks have strived to be unique
by diversifying and expansion of the financial sector with the aim of demonstrating
commitment to excellence in consumer, shareholders and most importantly employee
satisfaction that translates to customer retention.
2.3.4 Value Proposition
Payne & Frow (2014) define value proposition as the promise of how the organization will
deliver, communicate or acknowledge the intended value to its customers. The belief from
the consumer about how value creation will be delivered, acquired or experienced through
the company’s product offering. Sasmita & Suki (2015) when the firm uses a differentiation
strategy on the cost value of the product as opposed to other similar brands in the market, the
company creates a perceived value among customers and potential customers that may want
to interact with the brand in future. They further indicate that a differentiation strategy that
focuses on value proposition highlights the cost savings or durability of the product in
comparison to other brands. Cost savings should revolve around the initial selling price of the
service or product or even focus on long-term life cycle costs associated with the product.
For instance, an energy saving product, may save the customer’s money in the long run.
Aurier & Lenauze (2012) completion is intense and fierce in most industries, and even when
the company launches a new service or product and create a whole new market niche, the
likelihood of competitive entry is still lurking in the shadows just like the taxi services that
are now shadowed by Uber or travel agents clouded behind Expedia. Currently, companies
have a customer base that is more in control in setting expectations in the marketplace of
what they are willing to accept and willing to pay for, making differentiation strategy
essential by taking into consideration all of these aspects to deliver a value proposition. The
savvy customers of today’s business scene expect to get a quality service or product at a
competitive price in nearly no time that is they either get it today or tomorrow. This is
because value proposition that differentiates the company’s brand position represents a
prospect and time (Fatma, Khan , & Rahman ).
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2.4 The Influence of Focus Strategy on Organizational Performance
2.4.1 Focus Strategy
Yoshikun & Albertin (2018), under a focus strategy a company focuses its efforts on one
particular segment of the market by seeking differentiation or cost advantages in its target
market segment. It seeks the advantage on a narrow competitive scope with a purpose of
becoming well known for offering products or services for that particular segment. Oyewobi,
Windapo & Rotimi (2016), with focus strategy the company form performance by serving
specific needs and wants of their selected niche market. Once the company has selected the
market niche it aims to serve, the company has the option to pursue a differentiation strategy
of cost leadership strategy in order to suit the market segment being selected. According to
Yuliansvah et al (2017), focus strategy is known as a narrow scope strategy since the firm
focuses on a narrow or specific market segment. The strategy has two variables that is cost
focus and differentiation focus. Cost focus variable exploits the difference in cost behavior
while differentiation focus variable focuses on special needs for the buyers in selected market
segment. The adoption of focus strategy, the company ideally focuses on a few target
markets.
Gomes, Najjar & Yasin (2018) states that when firm adopts a narrow focus, it ideally focuses
on a few target markets also known as segmentation or niche strategy. The segments should
be distinct groups with specialized needs. The choice of offering low prices or differentiated
products and services should depend on the needs of the selected segment and resources as
well as capabilities of the company. Chengeta (2014), it is in the hopes of the companies that
a focus on their marketing efforts on one or two narrow market segments and tailoring their
marketing mix to the specialized markets, they can meet the needs of the target market in the
best way possible. The firm typically looks to attain a performance through product
innovation or brand marketing rather than efficiency. A focus strategy is most suitable for
relatively small companies but can also be used by any organization that seek to pursue a
performance in a narrow market segment (Mbugua, 2014).
Focus strategy should target market segments that are less vulnerable to the substitutes or in a
market where competition is weakest to earn above average the return on investment,
25
therefore, the performance of the organization is expected to improve (Banker, Mashruwala,
& Trimpathy, 2014). According to Vithessonthi (2011), adopting a broad focus scope, the
rule is the same in a sense that the company must ascertain the needs and wants of the mass
market and then compete on either differentiation taking into consideration quality aspects,
brand and customization or on price taking into consideration low cost of production and
capabilities. Some organizations have a broad scope and opt a cost leadership strategy in a
mass market while others target the mass market with its movies for instance but use a
differentiation strategy using its unique capabilities in animation and storytelling in order to
produce signature animated movies which are hard copy that consumers are highly willing to
pay for. Telecommunication companies also target the mass market with products but they
combine this broad scope with a differentiation strategy that is based on branding, and user
experience which enables them to charge a premium due to the perceived unavailability of
close substitutes (Munyasia, 2014).
Sengul (2018) argues that Porter identified that a single or one combination of the strategies
is possible referring to combination market segmentation with differentiation. However,
generally, other combination may not be possible due to a conflict that exists between cost
reduction and value added differentiation. Therefore, the firm should retain one main strategy
for it to maintain its performance in the long run. Krumwiede & Charles (2014), focus
strategy tailors a marketing mix for one or more segments that have been identified by
market segmentation. The two critical factors that should be considered when selecting a
target market segment is the attractiveness of the segment and its fit between the segment and
the company’s goals, capabilities and resources. They further added that aspects such as size
of the market segment, its growth rate, nature of competition in the segment, brand loyalty of
the existing consumers, potential market share, promotional budget and sales potential of the
firm should all be considered when selecting a market segment that the firm intends to pursue
its focus strategy.
Aurier & Lanauze (2012) states that each generic strategy provides the company with
advantages that they can potentially leverage to enhance their success as well as the
disadvantages that may undermine their success. With focus differentiation, one advantage
that the firm can get is that premium prices can be charged on products or service that the
26
company is offering. Cost focus on the other hand, a narrow market is defined in different
ways in different contexts. Akombo (2020) some companies deploy focused differentiation
strategy concentrate their efforts on a specific sales channel like selling online and others
target a certain demographic groups such as couples. Differentiation strategy on the other
hand involves offering of unique features that appeal to different group of consumers, the
need of satisfying the desires of a narrow market means that the pursuit of uniqueness is
taken to the next level for companies pursuing differentiation strategy. Sifuna (2014) market
focus strategy consists of the intangible, the informational aspects of selling and servicing the
product as well as tangible, procedural aspects of product delivery. A good market focus
strategy creates a performance for the seller as consumers view the product as superior and
unique.
Successful firms leverage performance in the industry to achieve high levels of performance
(Kapto & Njeru, 2014). Focus strategy identifies a small market segment where the firm can
compete effectively. The strategy matches the market segment attributes with the firm’s
performances to choose markets where the firm’s resources focus is likely to result to the
desired sales volumes, revenues and profits.
2.4.2 Brand Positioning
Jailkala & Keranen (2014) defines positioning as how one communicates the crucial benefits
of their small business to potential customers. Some firms position themselves as affordable
options for consumers buying. Positioning is a way by which the markets attempt to create a
distinct impression in customer’s mind. Brand positioning refers to identifying and
attempting to occupy a certain market niche of a service or product by using the traditional
placemat strategies and aspects like promotion, pricing, packaging and competition (Aurier
& Lanauze , 2012). It ensures that the customer is attracted to the product and service that
makes them be loyal and retained. Wang (2017), brand positioning enables companies to
market their products and services and place them strategically in the minds of the customers
and enhance their retention. Whether the company is focused on emerging technology,
packaged goods or business services they should consider various scopes in when developing
their market positioning plan; brand positioning strategy, competitive positioning strategy.
27
Customers may wonder why a certain service or product is able to sell more or why their
fellow customers are willing to pay more for that service or product, most of the time the
drive behind this phenomenon is the focus strategy behind the company (Amadi & Higham,
2018). In the market where a firm is sells its products dictates the kind of quality they are
offering. In a market where the company has a customer base of a common personal
denominator, they can position their firm to play on their loyalty to their group. For instance
this kind of positioning consists of marketers that advertise their goods as made locally or in
the United States or Christian owned businesses aligning themselves with charity (Iselin, Mia
, & Sands, 2008).
A good product positioning strategy requires the firm to carefully evaluate the narrow market
segment on the basis of cost focus strategy. The firm should look both internally and
externally to have a perfect alignment of the consumer’s perception and needs to address
them effectively (Krystallis, 2013). The company should be positioned appropriately and
then the product portfolio needs be aligned to the company in order to serve well the
identified market segment. When the organization fails to position its brands in the market,
they are likely to experience a lower market share (Allio, 2015).
2.4.3 Pricing
Smith (2012), price is the most significant consideration for the average customer. Customers
that have high brand loyalty are willing to pay a premium price for their brand that is
segmented in respect to their needs and wants. Their purchase intention cannot easily be
affected by the price. In addition, consumers strongly believe in the value and price of their
favorite products so that they can compare and evaluate prices with other brands that they
regard as alternatives. Davidson & Simonetto (2015), the satisfaction of customers can also
be built with a comparison of the perceived costs and values with price. When the costs are
greater than the perceived value of the service or product customers will not purchase the
product or the service, therefore differentiation focus enables companies to charge a premium
price due to the quality and the uniqueness the product offers.
According to Yan (2009) pricing strategy has its roots in the core of competitive position
which is as the result of focus strategy in business environment. When a firm boasts a better
28
service or product that leads in the market reputation then it is likely to have a chance to
command a premium price that will be attractive in the market to enhance repeat purchase
from consumers. When evaluating the firm’s cost strategy the initial question for the firm
becomes; to what extent are consumers price-sensitive. In various cases, especially in small
businesses, the distinctive value offering is likely to result to the best price as its justification.
Additionally, it lacks competitive presence or subjected to a damaging reputation, there is no
amount of pricing reductions that may match the handicap (Mbugua, 2014). The
acknowledging of these dynamics will enable the firm to create a prototype to notify them of
the pricing plan.
2.5 Chapter Summary
This chapter presented the literature review based on the research questions introduced in the
first chapter. It starts with the literature review of the first research question on the effect of
cost leadership strategy on organizational performance, followed by the effect of cost
leadership on organizational performance and the effect of focus strategy on organizational
performance. The next chapter presents the research methodology, procedures and techniques
employed to carry out this study.
29
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Introduction
The research methodology is presented in this chapter. First the research design adopted by
the study is presented, followed by population and sampling design. The population and
sampling design consists of the study population, sampling frame, sampling technique and
sample size. The chapter also presents data collection methods, research procedures and data
analysis methods.
3.2 Research Design
Research design refers to the framework used by the in guiding the structure of his or her
study in terms of the methodology, the kind of data to be collected, methods, instruments of
data collection and how to allocate limited resources to the entire research project (Cooper &
Schindler , 2014). Bryman and Bell (2015) have defined research design as the overall
roadmap which informs the strategy the researcher adopts in conducting the study in a way
that the research questions are addressed accordingly. There are four main types of research
design namely; descriptive research design, exploratory research design, explanatory and
correlation research design. This particular study will use descriptive research design.
Descriptive research design refers to the scientific method that involves the observation and
description of the behaviors of the subject without influencing it in any way (Schindler,
2018). This study will use descriptive research design since it will enable the researcher to
collect data which describes the general characteristics of the study subject without
influencing, changing or influencing the study environment.
30
3.3 Population and Sampling Design
3.3.1 Population
Populations is the grand total of all objects of a research from which the researchers is
interested to make inferences on (Bryman & Bell, 2015). The population of this study
consists of 115 managers working at Safaricom PLC and Airtel Kenya Ltd . The population
distribution is presented in table 3.1.
Table 3.1: Population Distribution Table
Population Distribution
Safaricom
PLC
Percentage
Representation
(%)
Distribution
Airtel
Kenya Ltd
Percentage
Representation
(%)
Customer Care 21 10 7 12
Technology/Network 18 9 6 10
Commercial Business
Unit/Finance
28 13 7 12
Enterprise Business Unit 25 12 8 14
M-Pesa / Airtel Kenya
Ltd Money
22 11 5 9
Risk 14 7 - -
Corporate Affairs 20 10 3 5
Resources (Supply Chain
and HR)
18 9 9 16
Marketing and Sales &
Distribution
42 20 13 23
Total 208 100 58 100
(Source: Data Collected Directly by Researcher from Respective Firm)
3.3.2 Sampling Design
3.3.2.1 Sampling Frame
Sampling frame refers to the list that contains all elements of a study population from which
the study sample is drawn (Schindler, 2018). Sampling frame enables researchers to structure
the parameters of the study by confining the researcher to a certain specific scope. For this
particular study, the sampling frame will be obtained from Safaricom PLC Head office as
well as Airtel Kenya Ltd Head office in Nairobi.
31
3.3.2.2 Sampling Technique
Sampling technique refers to the tactic used by the researcher in selecting a sample size on
which the researchers draws inferences from (Cooper & Schindler , 2014). This study will
adopt stratified sampling technique. Stratified sampling technique refers to a probability
sampling technique whereby the researcher divides the entire population into various groups
or strata and randomly selects the final elements proportionally from different strata (Botev,
2017). This study will use stratified sampling to selects respondents for the study in
telecommunication companies in Kenya. The technique will ensure all managers from the
two telecommunication companies get same opportunity of being sampled.
3.3.2.3 Sample Size
According to Cooper and Schindler (2014) sample size refers to the actual units for the study
sample that the researcher intends to examine and use the findings to extrapolate the entire
study population. This study uses Yamane’s formual in detrmining the appropriate sample
size for the managers working at Safaricom PLC and Airtel Kenya Ltd.
𝑛 =𝑁
1 + 𝑁(𝑒2)
Where
𝑛 = is the sample size
𝑁 = is the population
1 =Is a constant
𝑒2 = is the estimated standard error which is 5% for 95% confidence level
𝑛 =115
1 + 115(0.052)= 89
32
Table 3.2: Sample Size Distribution
Population Distribution Sample Size Percent (%)
Top Level Management
Middle Level Management
Lower Level Management
Total
26
37
52
115
14
30
45
89
16%
33%
51%
100%
(Source: Data Collected Directly by Researcher from Respective Firm)
3.4 Data Collection Methods
Data collection refers to the process of collecting primary or secondary data with the purpose
of answering the research questions (Cooper & Schindler , 2014). Data collection method can
also be defined as the systematic manner in which the researcher gathers data that responds
to the study phenomenon being investigated by the researcher (Sekaran & Bougie, 2013).
This study will use a closed-ended questionnaire with five Likert scale (Strongly disagree,
disagree, neutral, agree and strongly agree) in collecting primary data from the target
respondents. A questionnaire is a research instrument that is made up of a series of questions
with the aim of gathering the information from the respondents (Bryman & Bell, 2015). A
structured questionnaire is the most appropriate data collection instrument for this study since
it restricts the respondents within a given scope making it easy for the researcher to carry out
data analysis. The questionnaire will have four sections, the first section will have
demographics information of the respondents, and second section will have questions on the
effect of cost leadership strategy on performance, followed by questions on the effect of
differentiation strategy on performance and finally the effect of focus strategy on
performance.
3.5 Research Procedures
Research procedure is a detailed set of systematic steps that the researcher uses to conduct a
study from inception, to its data analysis as well as presentation of the findings of the study
33
(Cooper & Schindler , 2014). This proposal will seek approval from the supervisor, upon the
approval a letter of introduction will be drafted to the human resource managers of both
Safaricom PLC and Airtel Kenya Ltd asking for permission to conduct the study in their
premises. Once the permission is granted, the researcher will conduct a pilot study to test the
reliability and validity of the study instrument. Ten percent of the sample size which
accounts for 8 respondents will be used in carrying out the pilot study and will not participate
in the actual study. In case any inconsistency and error is found in the instrument, it will be
corrected before being administered. With the help of research assistants the researcher will
physically visit the premises and locate the respondents for data collection using the
questionnaires. The researcher will use a drop and pick method giving the respondents a
maximum of two weeks to fill the questionnaires. After two weeks, the questionnaires will be
collected and cross-checked for data analysis.
3.6 Data Analysis
Cooper & Schindler (2014) define data analysis as the process of converting raw data into
meaningful information that addresses the study questions. It involves inspecting, cleansing,
modeling and transformation of raw data into useful information. This study will use
Statistical Package for Social Sciences (SPSS) version 24 for data analysis of both
descriptive and inferential statistics. Descriptive statistics will analyze frequencies and
percentages while inferential statistics will analyze correlation and regression analysis to
establish the relationship among the study variables. The analyzed data will then be presented
using tables and figures.
Before processing the responses, the completed questionnaires are edited for completeness
and consistency and the data coded to enable the responses to be grouped into various
categories while employing both descriptive and inferential analysis. According to Collis and
Hussey (2003), descriptive statistics involves a process of transforming a mass of raw data
into tables, charts, with frequency distribution and percentages, which forms a vital part of
making sense of the data (Hussey & Collis, 2003). The inferential analysis entailed the
Pearson’s Correlations analysis to measure strength and form of the relationship between
variables. The regression model is as below:
34
Y = β0 + β1X1 + β2X2 + β3X3 + ε
Where: Y is the dependent variable (Performance);
β0 is the regression constant;
β1, β2, β3 are the coefficients of independent variables;
X1 is the factor that determines cost leadership;
X2 is factors that determine differentiation; and
ε is the error term.
3.7 Chapter Summary
The study methodology has been presented on this chapter. A descriptive research design
will be adopted for this particular study. The study has a population of 115 managers with a
sample of 89. The sampling technique to be used in this study was stratified sampling. A
closed-ended questionnaire was used for data collection and SPSS version 24 for data
analysis. Tables and figures were used for presenting the findings.
35
CHAPTER FOUR
4.0 RESULTS AND FINDINGS
4.1 Introduction
This chapter presents the results established from the data analysis done. It includes results
obtained from the demography analysis and specific research objectives to establish the
influence of Michael Porter’s generic business strategies on the performance of telecoms in
Kenya and specifically for Safaricom PLC and Airtel Kenya Ltd.
4.2 Demographic Information
4.2.1 Response rate
The research issued a total of 42 questionnaires to Safaricom PLC and a total of 37 were
filled; giving a response rate of 88.10%. 23 were issued to Airtel Kenya Ltd and 17 were
filled returned. This represented an 73.91% response rate. This was a reliable response rate
for data analysis as Mugenda & Mugenda (2003) explain that any response above 60% is
adequate for analysis. Based on the analysis, the response was sufficient for the study as
indicated in table 4.1
Table 4.1: Response Rate
Variable Safaricom PLC Airtel Kenya Ltd
Frequency Percentage Frequency Percentage
Filled and Returned 37 88.10 17 73.91
Non-response 5 11.90 6 26.09
Total 42 100.00 23 100.00
36
4.2.2 Reliability Test
A reliability test was done by use of Cronbach Alpha on the variables of cost leadership
strategy, service or product differentiation and focus strategy on building performance over
other Mobile operators in Kenya. Cronbach’s alpha measures the reliability or internal
uniformity. The desired Cronbach alpha value should be above 0.6 (α >0.6) For the study the
value all the values were above 0.6 hence making the variables very reliable as indicated in
table 4.2.
Table 4.2: Reliability Statistics
Variable Cronbach’s Alpha N of Items
Strategy Implementation 0.647 8
Cost Leadership 0.651 10
Service/Product Differentiation 0.849 10
Focus Strategy 0.847 9
4.2.3 Gender
To analyze the gender, the proportion of women in senior management at Safaricom PLC
was 32%, and men 68%; the female employees constituted 10% of the management positions
and 89% of male at Airtel Kenya Ltd as shown in figure 4.1.
Figure 4.1: Gender
Gender at Safaricom Ltd
Female
Male
Gender at Airtel Ltd
Female
Male
37
4.2.4 Age
The results indicate that majority of the respondents accounting for 48.7% were between the
ages of 31-35 years while 29.6% of the respondents were between the ages of 36-40 years.
14% were in the age bracket of 41-45 years whereas 4.3% of the respondents were 45-50
years, then 3.4% were above 50 years. Based on the findings, the respondents who were over
45 years were the minority as indicated in Figure 4.2.
Figure 4.2: Age
4.2.5 Education
The results from the respondents from both organizations established that majority of
respondents accounting for 67.6% had attained a first-degree education; 2.2% had a
postgraduate diploma level and 30.2% had a post graduate degree. There was no respondent
who had a Diploma as the highest education level as shown in Table 4.3.
0
10
20
30
40
50
60
31-35 36-40 41-45 46-50 Above 50
Pe
rce
nta
ge
Age
Age
38
Table 4.3: Education
Variable Frequency Percent
Post Graduate Level 16 30.2
Post Graduate Diploma
Level
1 2.2
First Degree Level 37 67.6
Diploma 0 0
Total 54 100
4.2.4 Duration Served
To look into how many years’ respondents have served in their current position, the study
reveals that a majority have served for 4-7 years and represented 40.5%, those who have
served for 0-3 years followed at 29.7% while individuals of 8-11years represented 24.3%.
The finding also established that those who had served for 12-15 years, and over 15 years
represented 2.7% respectively as shown in Table 4.4.
Table 4.4: Duration Served
Variable Frequency Percent
0-3 16 29.7
4-7 22 40.5
8-11 13 24.3
12-15 2 3
More than 15 years 1 2.5
Total 54 100
4.2.5 Division
As per the findings to analyze respondents by the division they belong at Safaricom PLC, the
study established that marketing had the highest response rate at 19%, and this was followed
closely by Commercial Business Unit at 16%, while Customer Care, Enterprise Business
Unit, M-Pesa and Corporate Affairs each represented 11% while Resources (Supply chain
and HR) and technology were at 8%. Risk recorded the least at 5%.
39
Table 4.5 (a): Division
Variable Frequency Percentage
Representation
(%)
Customer Care 4 11
Technology 3 8
Commercial Business Unit 6 16
Enterprise Business Unit 4 11
M-Pesa 4 11
Risk 2 5
Corporate Affairs 4 11
Resources (Supply Chain and HR) 3 8
Marketing 7 19
Total 37 100
The analysis carried out at Airtel Kenya Ltd showed that Sales and Distribution and
Enterprise Divisions had the highest response at 17%; while Finance, Customer Care and
Network had 12%. Human Resource, Corporate Affairs and Legal Regulatory, Airtel Kenya
Ltd Money, Supply Chain and Marketing recorded the least at 6% as shown in Table 4.5 (b):
Division
Table 4.6 (b): Division
Variable Frequency Percentage Representation (%)
Finance 2 12
Human Resource 1 6
Corporate Affairs & Legal Regulatory 1 6
Sales and Distribution 3 17
Airtel Kenya Ltd Money 1 6
Customer Service 2 12
Supply Chain 1 6
Network 2 12
Marketing 1 6
Enterprise 3 17
Total 17 100
40
4.2.6 Market Share
The study sought to analyze what market share Safaricom PLC and Airtel Kenya Ltd control
and a greater number of the respondents from both firms indicated that Safaricom PLC
commanded more market share, followed at a huge margin by Airtel Kenya Ltd as in Figure
4.3: Market Share
Figure 4.3: Market Share
4.3 Cost Leadership Strategy Implementation on Performance
In order to achieve cost leadership strategy, the respondents were to rate how cost leadership
strategy influences the performance of the Mobile Network Operators using the following
scale where; Strongly Disagree=1, Disagree=2, Not Sure =3, Agree = 4, Strongly Agree =5
4.3.1 Descriptive of Cost Leadership Strategy Implementation
The findings show that Airtel Kenya Ltd extensively uses cost leadership strategy (m=4.57,
sd=.647) by setting up an integrated network infrastructure to deliver excellent network
0
5
10
15
20
25
30
35
0-19 20-39 40-59 60-79 80-100
Pe
rce
nta
ge
Market Share
Safaricom Limited
Airtel Kenya
41
experience for its customers therefore lowering the costs of production and offer products
and services at significantly reduced prices than the rivals and record good performance
(m=3.97, sd= 1.139). Safaricom PLC keeps overheads within the industry brackets (m=4.38,
sd=.953) and outsourcing network equipment operation & management is a cost leadership
strategy that they employ to boost their brilliant performance (m=4.30, sd=.777). The
activation of new service features has enhanced performance of the firms; Safaricom PLC’s
new video call feature on 4G network and Airtel’s Google assistant based digital customer
care (m=3.65, sd= 1.033) am=3.19, sd=1.023). The telecommunication firms use knowledge
they have accrued from past experiences and knowledge sharing to manage performance
(m=3.70, sd=.878; m=3.92, sd=.954). The firms keep charges similar to each other and
competitors to increase performance (m=3.78, sd=1.058; m=3.62, sd=1.139) and each tries to
charge their products and services lower than that of the rivals (m=4.24, sd=.830;
m=3.70,sd=.878). The mobile companies also experience staff retention by offering a good
working environment and social benefits to their employees (m=3.92, sd=.829; m=3.70,
sd=.878). Finally, cost leadership strategy has helped both Safaricom PLC and Airtel Kenya
Ltd in their respective strengths perform well in the turbulent mobile economy (m=4.68,
sd=.530; m=4.57, sd=.647) as shown in Table 4.7.
42
Table 4.7: Descriptive of Cost Leadership Strategy Implementation
Variable Firm 1 2 3 4 5 Mean SD
Your firm uses cost leadership strategy Safaricom 0 13.5 13.5 37.8 35.1 4.24 .641
Airtel 0 2.7 0 35.1 62.2 4.57 .647
The use of latest technology has helped
reduce your firm's costs of production
hence improving performance
significantly
Safaricom 0 0 10.8 54.1 35.1 3.62 1.040
Airtel 0 13.5 13.5 35.1 37.8 3.97 1.139
Keeping overheads (like employee
salaries, staff training costs, network
equipment costs, administrative etc)
within the industry brackets offer your
organization a platform to perform better
than competitors
Safaricom 5.4 13.5 16.2 43.2 21.6 4.38 .953
Airtel 0 10.8 16.2 43.2 29.7 4.38 .639
Activation of new service features (like
use of self-customer service) enhance
your performance in the industry
Safaricom 2.7 2.7 8.1 27 59.5 3.65 1.033
Airtel 5.4 18.9 35.1 32.4 8.1 3.19 1.023
Keeping overheads lower than
competitors by outsourcing network
equipment operation & management help
boost performance
Safaricom 5.4 2.7 35.1 35.1 21.6 4.30 .777
Airtel 0 0 9.7 20.1 70.2 4.68 .530
The use of knowledge from past
experiences and knowledge sharing
enhance your organization’s performance
Safaricom 0 2.7 10.8 40.5 45.9 3.70 .878
Airtel 0 10.8 16.2 43.2 29.7 3.92 .954
Keeping charges similar to competitors
(e.g. Safaricom's flexi bundles and Airtel
Kenya Ltd Unliminet data and voice
package) help improve your performance
Safaricom 0 13.5 16.2 56.8 13.5 3.78 1.058
Airtel 0 0 10.8 54.1 35.1 3.62 1.139
Keeping charges for products and
services lower than that of competitors
would enhance your organization’s
performance
Safaricom 2.7 10.8 18.9 40.5 27.0 4.24 .830
Airtel 0 2.7 10.8 40.5 45.9 3.70 .878
Staff retention by offering a good
working environment and social benefits,
positively influences your firm’s
performance
Safaricom 0 5.4 8.1 43.2 43.2 3.92 .829
Airtel 0 2.7 10.8 40.5 45.9 3.70 .878
Cost leadership strategy has played a
crucial role in your firm’s performance
Safaricom 2.7 0 21.6 54.1 21.6 4.68 .530
Airtel 0 2.7 0 35.1 62.2 4.57 .647
43
4.3.2 Correlation of Cost Leadership Strategy on Performance
To establish the relationship between cost leadership and performance, Pearson correlation
analysis was employed and it showed a positive relationship (r=0.327, p≤ 0.050) as indicated
in table 4.8. Therefore, an increase in cost leadership leads to an increase in performance.
Table 4.8: Correlation of Cost Leadership Strategy on Performance
Strategy Implementation
Cost Leadership Pearson Correlation .327*
Sig. (2-tailed) .050
N 37
*. Correlation is significant at the 0.05 level (2-tailed).
4.3.3 Regression of Cost Leadership Strategy on Performance
The relationship between the dependent variable (performance) against cost leadership was
analyzed. The results revealed that the R2 value was 0.107 hence 10.7% of the variation in
performance was explained by the variations in cost leadership as illustrated in table 4.9.
Table 4.9: Model Summary of Cost Leadership Strategy on Performance
Model R R
Square
Adjusted
R
Square
Std
Error of
the
Estimate
Change Statistics
R
Square
Change
F
Change
df1 df2 Sig. F
Change
1 .327a .107 .082 .37946 .107 4.194 1 35 .050
a. Dependent Variable: strategy implementation
b. Predictors: (Constant), cost leadership
44
4.3.4 Anova of Cost Leadership Strategy
ANOVA analysis result of the regression between dependent variable (performance) against
cost leadership at 95% confidence level, the F critical was 4.194 and the P value was (0.048)
therefore significant the results are illustrated below in table 4.10
Table 4.10: Anova of Cost Leadership Strategy
ANOVAa
Model Sum of
Squares
df Mean
Square
F Sig.
1 Regression .604 1 .604 4.194 .050b
Residual 5.040 35 .144
Total 5.644 36
a. Dependent Variable: strategy implementation
b. Predictors: (Constant), cost leadership
4.3.5 Coefficients of Cost Leadership Strategy on Performance
The regression equation illustrated in Table 4.11 established that taking cost leadership into
account and other factors held constant performance increases by 3.101 and both variables
were significant.
Y = β0 + β1X1 + ε
Y = 3.101+ 0.298X1 + 0.3794
Where:
Y is the dependent variable (performance)
β0 is the regression constant;
β1 coefficients of independent variables;
X1 factors that determine cost leadership, and ε is the error term.
45
Table 4.11: Coefficients of Cost Leadership Strategy on Performance
Coefficient
Model Unstandardized Coefficients Standardized
Coefficients
t Sig.
B Std. Error Beta
1 (Constant) 3.101 .592 5.236 .000
Cost
Leadership
.298 .145 .327 2.048 .050
a. Dependent Variable: strategy implementation
b. Predictors: (Constant), cost leadership
4.4 Differentiation Strategy Implementation on Performance
Competing companies have been known to offer unique product and services that differ from
the rivals to its various market segments. Thus, this study intended to establish how
differentiation strategy influences Airtel Kenya Ltd’s and Safaricom PLC’s performance
using the following scale: Strongly Disagree=1, Disagree=2, Not Sure =3, Agree = 4,
Strongly Agree =5
4.4.1 Descriptive of Strategy Implementation on Performance
The findings revealed that the firms use differentiation strategy at different scales (m=4.32,
sd=.852; m=4.30, sd=.702). Their brand image influence their performance against the
competitors in the industry (m=4.70, sd=.520). Service delivery differs between the two
players (m=4.24, sd=.863; m=4.24, sd=.863). The results also established that Safaricom
PLC's distribution network influences their performance (m=4.08, sd=.829) over Airtel
Kenya Ltd. (m=4.43, sd=.555) same to its product and service quality (m=4.49, sd=.692;
m=4.30, sd=.702).
Product and service attributes enhance the firms’ performance within the telecommunication
industry (m=4.27, sd=.693; m=4.24, sd=.641) and the telecoms utilize innovation leadership
(m=4.49, sd=.607; m=4.16, sd=.553) together with the use of value added services (m=4.38,
sd= .721; m=4.30, sd=.777) and customer experience offered to enhance performance
(m=4.38, sd=.639; m=4.51, sd=.607). Differentiation strategy has therefore helped the firms
to increase their performance (m=4.51, sd=.607; m=4.16, sd=.553).
46
Table 4.12: Descriptive of Differentiation Strategy on Performance
Variable Firm 1 2 3 4 5 Mean SD
Your firm uses differentiation
strategy
Safaricom 0 0 8.1 45.9 45.9 4.32 .852
Airtel 0 0 5.4 37.8 56.8 4.30 .702
Your organization's brand image
influences its performance against
the competitors in the industry
Safaricom 0 2.7 5.4 51.4 40.5 4.43 .555
Airtel 0 0 2.7 27 70.3 4.70 .520
Your firm’s service delivery
compared to its competitors has an
impact on your performance
Safaricom 0 8.1 0 43.2 48.6 4.24 .863
Airtel 0 0 6.4 52.1 40.5 4.43 .555
Your organization's distribution
network deliver better performance
over its competitors
Safaricom 0 0 2.7 24.3 73 4.08 .829
Airtel 0 13.
5
13.5 37.8 35.1 4.24 .641
Your product and service quality
enhance performance over your
competitors
Safaricom 0 5.4 10.8 37.8 45.9 4.49 .692
Airtel 0 3.1 0 40.1 56.8 4.30 .702
Your organization’s product and
service attributes enhance your
performance within the
telecommunication industry
Safaricom 0 5.4 13.5 48.6 32.4 4.27 .693
Airtel 0 6.5 20.5 39.8 33.1 4.24 .641
Customers’ perceptions of your firm
as being innovative influence your
overall performance in the industry
Safaricom 0 2.7 2.7 37.8 56.8 4.49 .607
Airtel 0 0 13.5 43.2 43.2 4.16 .553
Value added services that you offer
in your products and services
enhance your performance
Safaricom 0 2.7 5.4 54.1 37.8 4.38 .721
Airtel 5.4 2.7 35.1 35.1 21.6 4.30 .777
The customer experience offered by
your organization play a role in your
performance
Safaricom 0 0 5.4 40.5 54.1 4.38 .639
Airtel 2.7 0 13.5 37.8 45.9 4.51 .607
Differentiation strategy has helped
your organization perform better
than the other industry players
Safaricom 0 2.7 5.4 43.2 48.6 4.51 .607
Airtel 0 7.2 6.3 43.2 43.2 4.16 .553
47
4.4.2 Correlation of Differentiation Strategy on Performance
Pearson correlation analysis revealed a positive correlation (r=0.605, p≤ 0.010) between
differentiation strategy and performance as indicated in table 4.13; meaning, an increase in
differentiation leads to an increase in performance.
Table 4.13: Correlation of Differentiation Strategy on Performance
Strategy Implementation
Differentiation Pearson Correlation .605**
Sig. (2-tailed) .000
N 37
**. Correlation is significant at the 0.01 level (2-tailed).
4.4.3 Regression of Differentiation Strategy on Performance
The research analyzed relationship between the dependent variable (performance) against
differentiation. The results showed that the R2 value was 0.366 hence 36.6% of the variation
in performance was explained by the variations in differentiation as illustrated in table 4.14.
Table 4.14: Model Summary of Differentiation Strategy on Performance
Mode
l
R R
Square
Adjusted
R Square
Std Error
of the
Estimate
Change Statistics
R
Square
Change
F
Change
df1 df2 Sig.
F
Cha
nge
1 .605a .366 .348 .31963 .366 20.242 1 35 .000
a. Dependent Variable: Strategy Implementation
b. Predictors: (Constant), Differentiation
48
4.4.4 Anova of Differentiation Strategy on Performance
ANOVA analysis result of the regression between dependent variable (performance) against
differentiation at 95% confidence level, the F critical was 20.242 and the P value was (0.000)
therefore significant the results are illustrated below in table 4.15
Table 4.15: Anova of Differentiation Strategy on Performance
ANOVAa
Model Sum of
Squares
df Mean
Square
F Sig.
1 Regression 2.068 1 2.068 20.242 .000b
Residual 3.576 35 .102
Total 5.644 36
a. Dependent Variable: Strategy Implementation
b. Predictors: (Constant), Differentiation
4.4.5 Coefficients of Differentiation Strategy on Performance
The regression equation illustrated in Table 4.16 established that taking differentiation into
account and other factors held constant performance increases by 2.035 and both variables
were significant.
Y = β0 + β1X1 + ε
Y = 2.0.5+ 0.518X1 + 0.3196
Where: Y is the dependent variable (performance)
β0 is the regression constant;
β1 coefficients of independent variables;
X1 factors that determine differentiation, and
ε is the error term.
49
Table 4.16: Coefficients of Differentiation Strategy on Performance
Coefficient
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1 (Constant) 2.035 .508 4.006 .000
Differentiation .518 .115 .605 4.499 .000
a. Dependent Variable: Strategy Implementation
b. Predictors: (Constant), Differentiation
4.5 Focus Strategy Implementation and Performance
Organizations create particular products and services to meet a unique or specific need of a
given target market (Niche Market, known as focus strategy. With regards this study was
aimed at establishing to what extent focus strategy influences Safaricom PLC’s performance
using the following scale: Strongly Disagree=1, Disagree=2, Not Sure =3, Agree = 4,
Strongly Agree =5
4.5.1 Descriptive of Focus Strategy Implementation
Both telecoms employ focus strategy (m=4.16, sd=.553; m=4.57, sd=.502) and the firms
focus on market segments to enhance performance (m=4.14, sd=.887; m=4.24, sd=.830).
Focus strategy is utilized by applying cost-varying products and services to consider the cost-
sensitive customers (m=4.57, sd=.502; m=4.30, sd=.777) not forgetting to focus on the high
quality higher- priced products for consumers who prefer to pay more to get better quality
(m=4.24, sd= .895; m=4.57, sd=.502).
Findings established that the firms focused on maintaining, if not improving, the brand image
to enhance performance (m=4.30, sd= .702; m=4.34, sd=.735) as well as focus on Service
delivery to achieve customer satisfaction (m=4.51, sd=.607; m=4.34, sd=.619). Additionally,
they focus on value added services to create good customer experience (m=4.43, sd=.555;
m=4.68, sd=.530). Both firms have also employed focus on innovation to ensure that they are
offering the best products and services in the industry (m=4.30, sd= .702; m=4.37, sd=.698)
50
while the use of thise strategy has helped boost their performance (m=4.51, sd=.607; m=4.42,
sd=.610).
Table 4.17: Descriptive of Focus Strategy Implementation
Variable Firm 1 2 3 4 5 Mean SD
Your organization uses focus strategy Safaricom 0 0 13.5 43.2 43.2 4.16 .553
Airtel 3.2 5.2 4.9 62.4 24.3 4.57 .502
Your firm's focus on market segments
enhances your organization’s
performance
Safaricom 0 0 5.4 37.8 56.8 4.14 .887
Airtel 2.7 10.8 18.9 40.5 27.0 4.24 .830
Your firm focus on cost-sensitive
customers using the cost-varying
products and services enhances
performance
Safaricom 0 0 8.1 67.6 24.3 4.57 .502
Airtel 0 2.7 35.1 40.5 21.6 4.30 .777
Your organization’s strategy to focus on
the high quality higher- priced products
for consumers who prefer to pay more
to get better quality influence your
performance in the industry
Safaricom 2.7 0 16.2 43.2 37.8 4.24 .895
Airtel 0 0 8.1 67.6 24.3 4.57 .502
Your firm's focus on maintaining the
brand image enhances performance
Safaricom 0 0 0 43.2 56.8 4.30 .702
Airtel 0 13.6 5.8 44.9 35.7 4.34 .735
Focus on service delivery to achieve
customer satisfaction influence your
performance in the industry
Safaricom 2.7 0 13.5 37.8 45.9 4.51 .607
Airtel 5.3 10.5 17.3 33.4 33.5 4.34 .619
Your firm's focus on value added
services to create good customer
experience enhance performance
Safaricom 0 2.7 5.4 51.4 40.5 4.43 .555
Airtel 2.7 0 21.6 54.1 21.6 4.68 .530
Your organization's focus on innovation
to ensure that they are offering the best
products and services
Safaricom 0 0 5.4 37.8 56.8 4.30 .702
Airtel 2.7 0 13.5 37.8 45.9 4.37 .698
Focus strategy has helped your
organization’s performance
Safaricom 0 0 2.7 51.4 45.9 4.51 .607
Airtel 0 0 16.2 39.8 43.9 4.42 .610
51
4.5.2 Correlation of Focus Strategy on Performance
A Pearson correlation analysis was done to establish the relationship between focus and
performance and a positive relationship was revealed; an increase in focus would therefore
lead to an increase in performance (r=0.305, p > 0.050) as in table 4.18.
Table 4.18: Correlation of Focus Strategy on Performance
Strategy Implementation
Focus Pearson Correlation .305
Sig. (2-tailed) .066
N 37
4.6 Chapter Summary
The chapter presents the results and findings achieved from the data collected with the aim of
establishing the influence of generic business strategies on the performance of mobile
operators in Kenya, and specifically for Airtel Kenya Ltd and Safaricom PLC. The
demography data was the first section. The subsequent section the data is presented in line
with the specific objectives of the study which sought to determine the effect of cost
leadership, differentiation and focus strategy on performance. Chapter five presents the
findings of the study, discussions and conclusions.
52
CHAPTER FIVE
5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter is a summary of the major findings; discussions; conclusions and
recommendations of the study. This will be achieved by comparing previous literature related
the influence of generic strategies on performance. In addition, this chapter points at a
direction for further studies and presents some recommendations for future consideration and
policy making by the relevant authorities. Questionnaires were used to gather primary data.
The research questions which sought to establish the effect of cost leadership strategy,
service or product differentiation and focus strategy on building performance over other
telecommunication firms in Kenya.
5.2 Summary of the Study
The main objective of this research was to establish the influence of generic business
strategies on the performance of mobile operators in Kenya and specifically for Airtel Kenya
Ltd Safaricom PLC. The study was steered by three research questions which sought to
determine the effect of cost leadership, service or product differentiation and the effects of
focus strategies on increasing performance over other Mobile operators in Kenya.
This study used a descriptive research design and the target population for this research was
managers at Airtel Kenya Ltd. and Safaricom PLC. The selection of this population was
informed by the strategic roles of formulation and implementation that managers play. The
target population was 23 strategic management managers from all the ten divisions at Airtel
Kenya Ltd. and 42 from the nine departments at Safaricom PLC. The probability stratified
sampling technique was an appropriate method to be used as this method enables the
researcher to increase the representation of the sampled population. This method also
allowed the researcher to obtain sufficient data from the diverse subpopulations. The
managers were selected from different departments in order to cover the various strategies
53
utilized by the different departments. This sample size was arrived at founded on the
accessibility of the managers was a factor also considered, as well as the number of managers
involved in strategic formulation and implementation.
In this study, primary data was used. It was collected through self-administered
questionnaires containing closed questions. The analysis was performed with the aid of
Statistical Package for Social Sciences (SPSS) software. Figures and tables were employed to
submit the data collected for ease of analysis and understanding. The inferential analysis
involved the Pearson’s Correlations analysis to assess strength and form of the relationship
between variables.
The Pearson correlation analysis revealed a positive correlation between performance and
cost leadership (r=0.327, p ≤ 0.050). This means that an increase in cost leadership leads to
an increase in performance. The study analyzed the relationship between the dependent
variable (performance) against cost leadership (one of the three independent variables). The
results showed that the R2 value was 0.107 hence 10.7% of the variation in performance was
explained by the variations in cost leadership. ANOVA analysis result of the regression that
was conducted between dependent variable (performance) against cost leadership (one of the
three independent variables) at 95% confidence level, the F critical was 4.194 and the P value
was (0.050) therefore significant. The regression equation established that taking cost
leadership into account and other factors held constant performance increases by 3.101 and
both variables were significant.
A Pearson correlation analysis to substantiate the relationship between performance and
differentiation, the finding showed a positive relationship (r=0.605, p≤0.010). Therefore, an
increase in differentiation leads to an increase in performance. The research examined the
relationship between the dependent variable (performance) against differentiation (one of the
three independent variables). The results showed that the R2 value was 0.366 hence 36.6% of
the variation in performance was explained by the variations in differentiation. ANOVA
analysis result of the regression between dependent variable (performance) against
differentiation (one of the three independent variables) at 95% confidence level, the F critical
was 20.242 and the P value was (0.000) therefore significant. The regression equation
54
illustrated that taking differentiation into account and other factors held constant performance
increases by 2.035 and both variables were significant.
From Pearson correlation analysis to establish the relationship between performance and
focus, the finding revealed a positive relationship (r=0.305, p≤0.066) although not
significant. The research also analyzed relationship between the dependent variable
(performance) against focus strategy (one of the three independent variables). ANOVA
analysis result of the regression between dependent variable (performance) against cost
leadership and differentiation at 95% confidence level, the F critical was 8.208 and the P
value was (0.000) therefore significant. The research analyzed relationship between the
dependent variable (performance) against co factors (cost leadership and Differentiation).
The results showed that the R2 value was 0.382 hence 38.2% of the variation in performance
was explained by the variations in cost leadership and differentiation.
5.3 Discussion
5.3.1 Effect of Cost Leadership Strategy in Gaining Performance
A Pearson correlation analysis revealed a positive relationship between cost leadership and
performance (r=0.327, p≤ 0.050). Therefore, an increase in cost leadership leads to an
increase in performance. Similar findings were recorded by Kyengo (2016) in a study to
determine the competitive strategies adopted by telecommunication companies in Kenya, it
was concluded that telecommunication companies in Kenya had adopted cost leadership
strategies as a competitive strategy to spur their performance in the highly volatile
telecommunication industry (Kyengo, 2016). The telecommunication firms use knowledge
they have accrued from past experiences and knowledge sharing to manage performance.
The study also brought out an angle that inferred to that cost leadership strategies contribute
most to the performance of the telecommunication companies in Kenya.
The research analyzed relationship between the dependent variable (performance) against
cost leadership. The results showed that the R2 value was 0.107 hence 10.7% of the variation
in performance was explained by the variations in cost leadership. Airtel Kenya Ltd. has
found itself taking up a cost leadership strategy in order to compete in the Kenyan Market.
55
Afande (2015) pegs Safaricom PLC as a cost leader in the Kenyan Mobile operator market.
He bases his argument on the fact that in a bid to fight its competitor, Zain currently trading
as Airtel Kenya Ltd. This move caused a big growth to Safaricom PLC’s subscribers mainly
due to the fact that its competitor took a while to copy the same. Afande (2015) described
Safaricom PLC’s cost reduction measured as a vigorous and highly efficient at the same
time. This he explained is visible from Safaricom PLC’s stable and quality network for their
customers as well as outstanding customer service (Afande, 2015).
Hunger and Wheelen (2015) explained that an overall low-cost strategy is aimed at a mass
market. It requires a company to be involved in actions like, cost minimisation in research
and development, service, sales force and advertising. By engaging in such actions, a
company will be in a position to offer its services and sell its products at a smaller price than
its competitors, while at the same time achieve reasonable profit margins. They also pointed
out that by using such a strategy, companies are able to create an entry barrier for new market
entrants since it would be difficult to match the low cost of the existing producer (Wheelen,
Hunger, Hoffman, & Banford, 2015).
The regression equation established that taking cost leadership into account and other factors
held constant performance increases by 3.101 and both variables were significant. (Omae,
Langat , & Ndung'u, 2015) are quick to point out that Safaricom PLC have established
themselves as a cost leader by making it possible for their customer to use their services at
low cost tariffs and affordable rates for their internet services. According to Simister (2011),
a low-cost strategy surrounds the capability of a company in mention to produce and deliver
products of competitive quality at lower costs. Cost leadership strategy has more attached to
it than just cost reduction initiatives. Simister (2011) maintains that for a company that excels
in a cost leadership, major factors that get a lot of prominence are those that are pointed at a
bottom line of improving the company efficiency. Some companies use their efficient cost
structures to protect their markets from the competitors by responding to competitors' moves
by reducing prices. Such reactive responses may make a company majorly inward focused. A
company that is able to transform the efforts of cost reduction into a cost advantage for its
customers is referred to be successfully pursuing low cost leadership strategy (Simister,
2011).
56
For a firm that is looking to achieve a low-cost advantage over others, the organization must
have a low-cost leadership strategy, low-cost manufacturing, and a workforce committed to
the low-cost strategy (Malburg, 2000). An organization must be willing to halt any activities
which do not have a cost advantage and should consider outsourcing activities to other
organizations that will offer a cost advantage. Cost leadership strategy seeks to achieve
above-average returns over competitors through low prices by driving all components of
activities towards reducing costs.
5.3.2 Effect of Product on Service Differentiation in Building Performance
From Pearson correlation analysis was done to establish the relationship between
differentiation and performance, the finding revealed a positive correlation (r=0.605, p ≤
0.010). Therefore, an increase in differentiation leads to an increase in performance. For a
company when using differentiation strategy, it focuses its efforts on providing a unique
service or product (Bauer, 2001). Attributed to the fact that the service or product provided
by the supplier is unique in its own ways this strategy provides high customer loyalty
(Hlavacka, 2001). A Successful differentiation can mean greater product flexibility, greater
compatibility, and more features.
Product differentiation fulfills a customer need and involves tailoring the service or product
to the customer therefore it allows organizations to charge a premium price to capture market
share that is uncontended for by other suppliers. Differentiation of the products and services
is noted in the unique product and service features, stable relationships with clients and
suppliers as well as efficient customer service. This therefore suggests that a firm is at liberty
to charge a premium for the differentiated product and service. This specialty is linked to the
brand image and design, technological features, the supplier network or customer service.
The differentiation strategy is effectually implemented when a business or a business entity
provides a unique or superior value to the customer through product quality, features and
specifications, or after-sale support. Firms following a differentiation strategy often are
allowed to charge a higher price for their products based on the product characteristics, the
delivery system, the quality of service, or the distribution channels.
57
The research analyzed relationship between the dependent variable (performance) against
differentiation. The results showed that the R2 value was 0.366 hence 36.6% of the variation
in performance was explained by the variations in differentiation. Miller (1986) noted that
there are at least two different types of differentiation strategies; those based on product
innovation and those based on intensive marketing and image management (Miller &
Friesen, 1986). Differentiation strategy appeals to an erudite or well-informed user interested
in a unique or quality product and willing to pay a higher price. A crucial step in devising a
differentiation strategy is to determine what makes a company different from a competitor's.
The first strives to create the most up-to-date and attractive products by leading competitors
in quality, efficiency, design innovations, or style. The second attempts to create a unique
image for a product through marketing practices. At a more theoretical level, some attributes
of a business may indicate a value for one of the dimensions without indicating anything
about the other (Miller & Dess, 1993). For example, employee productivity says something
about the efficiency of the business without saying anything about its differentiation or scale
or scope.
When it comes to differentiation, there is always a requirement to obtain a balance between
differentiating a product and maintaining an efficient way of doing things. However, there
has been argument that while choosing differentiation as a strategy then maintaining
efficiency is not possible. It may be true though, Porter argues that efficiency and
differentiation are generally discordant, but they are not opposite ends of a single continuum.
Hall however noted that despite this notion from Porter, some competitors have managed to
excel at both like Toyota and Caterpillar (Hall, 2008).
The regression equation illustrated that taking differentiation into account and other factors
held constant performance increases by 2.035 and both variables were significant. Dahlén
(2006) advocate that differentiation as a firm’s strategy leads to greater market share. This is
dependent on the basis that the product appeals to customers. A business therefore must
identify and pursue customer preferences if it wishes to gain increased market shares through
differentiation (Dahlén, 2006). This is crucial in that the client would derive value for what
they need and at the point in which they need it. Addressing the customers’ needs would be a
significant pointer to the firm to anticipate demand and the needs of the customers have and
58
work on meeting. Explicitly, when customer preferences are encouraging; in terms of the
firm’s resources, skills processes and history; differentiation allows a firm to expand its
market shares via decreased price elasticity of demand (Karlsson, 2006). Torbjörn Persson,
2006, in his interview at Spanga suggests an essentially similar explanation by explaining
that differentiation allows a firm to offer a larger product portfolio, hence appeal to a broader
market and consequently face superior demand both through increase number of customers
or number of purchases per customer (Torbjörn, 2006). This however, is conditional upon
customer preferences and market and industry conditions.
5.3.3 Effect of Focus Strategy on Building Performance
Focus strategy identifies a small market segment where the firm can compete effectively. The
strategy matches the market segment attributes with the firm’s competitive advantages to
choose markets where the firm’s resources focus is likely to result to the desired sales
volumes, revenues and profits. A Pearson correlation analysis was done to establish the
relationship between focus and performance. The finding revealed a positive relationship
(r=0.305, p>0.050) although not significant. The research also analyzed relationship between
the dependent variable (performance) against focus strategy. A focused business usually
needs to choose between cost leadership and differentiation which is achieved either by
lower costs in serving the target market, differentiation by better meeting the needs of the
target market or both (Amit, 1986).
Firms using focus strategy aim at growing the market share by operating in a niche market or
in markets that have been overlooked or appear not attractive to the other competitors. The
strategy behind this approach is for the firm to limit its attention to one or a few segments in
the market that it can serve better than the rivals seeking to influence the entire market.
However, for the strategy to be successful, the segment should be large enough to offer good
growth potential.
The ability to significantly increase performance and reduce costs is one of the key
competencies for organizations. Control and analyzing of costs are no longer simply engaged
with monitoring departmental budgets, but are concerned with classifying a cost structure
and strategy after thorough analysis has been conducted that will be of benefit to the firm by
59
optimizing the processes, which will add value to the product and service. But, as Porter
notes, the possibility of combining the two approaches is fairly good, because the business is
already dedicated in its endeavors. Differentiation focus and cost focus are based on the
differences of a given market segment from other segments in the market, that is, unique
needs of a segment or differences in cost behavior. The strategy therefore entails tailoring
activities of a chosen segment exclusively which is not properly served by broadly-targeted
competitors. However, some firms may choose to create a separate business unit under the
same corporate entity to serve the unique segments (Porter, 1985).
The results showed that the R2 value was 0.093 but not significant hence 9.3% of the
variation in performance was explained by the variations in Focus. According to Amit (1986)
the key attributes that makes the segment attractive for focusing include; the size of the
segment should be big enough to be profitable; However, the size of the segment should be
small enough to be of secondary interest to large competitors; The segment should have a
good growth potential; The segment should be less vulnerable to substitutes; The segment
should not be crucial to the success of major rivals as this would attract stiff competition;
There should be no other competitor concentrating on the segment; Buyers in the chosen
segment require unique or customized product attributes (Amit, 1986).
Due to the segment focus aspect, this strategy is considered to be a narrow scope strategy. As
such, the firm must ensure that the segment is well defined and possess unique characteristics
whose needs can be clearly identified and addressed. Since the companies using focus
strategy concentrate on a given niche market, they are able to develop unique low-cost or
well specified products for the segment as the concentration on a small segment enables the
company to understand the dynamics of that market and the unique tastes and preferences of
customers within it. As the company serves customers in the chosen segment uniquely well, a
strong brand loyalty is build amongst their customers. This makes the market segment less
attractive to the competitors. Focus strategy has the same limitation as differentiation strategy
in that they both present a limitation when it comes to acquiring a large market share. Porter
(1980) points out that focus strategy involves a trade-off between profitability and the
volume of sales (Porter, 1980).
60
Kapto and Njeru, in their research on strategies implemented by mobile companies in Kenya
to gain performance, found out that focus alone is normally not enough on its own. Whether
the firm chooses cost-focus or differentiation-focus, the key to be successful in this strategy
is to ensure that “something extra” is being added as the company serves only that market
niche. It is not sufficient for a company to focus on only one market segment because the
firm is too small to serve a broader market as this would risk competing against well-
resourced broad market firms’ offerings. The firm must add “something extra” which
contributes to reducing cost or contribute towards increased differentiation through deep
understanding of customer needs (Kapto & Njeru, 2014).
5.4 Conclusions
5.4.1 Effect of Cost Leadership Strategy in Gaining Performance
Airtel Kenya Ltd and Safaricom PLC have been utilizing cost leadership strategy to gain
performance, the two firms have achieved this by keeping overheads within the industry
brackets or at times lowering it to a level that the competitors cannot meet by outsourcing
Network equipment operation and management. Thus, keeping charges for products and
services lower than that of competitors.
5.4.2 Effect of Product or Service Differentiation in Building Performance
Safaricom PLC as a company uses differentiation strategy and this has been achieved by
having a strong brand image and offering value added services in the products and service,
enhanced customer experience and being an innovation leader. In addition, the firm also
offers to its clients quality product and service quality thus enhance performance over its
competitors.
5.4.3 Effect of Focus Strategy on Building Performance
The findings show that Airtel Kenya Ltd has a focus on cost-sensitive customers using the
cost-varying products and services; whereas Safaricom PLC has put a lot of focus on value
added services to create good customer experience. This has been through offering service
delivery to achieve customer satisfaction to gain performance over its competitors.
61
5.5 Recommendations
The recommendations below lay out steps that not only the two firms, but also the
government should take to develop and sustain a multifaceted, reinvigorated
telecommunications.
5.5.1 Recommendations for Improvement
5.5.1.1 Effect of Cost Leadership Strategy in Boosting Performance
In order for a company to realize the lowest cost in the industry, it must pursue a price
leadership mindset and must be willing to discontinue any activities in which they do
not have a cost advantage and factor in outsourcing activities to other organizations
with a cost advantage The new technology offered to customers should be one that helps
the company reduce its costs of production. Additionally, market players need to invest more
in the activation of new service features so as to be able to communicate more with the target
audience.
5.5.1.2 Effect of Service or product Differentiation in Building Performance
There is need for the institution to improve customers’ perception through offering of value
added services in their products and services. The firm also needs to ensure customer have
the best experience with the network, to maintain its market share. Organizations should steer
clear of the ‘Stuck in the middle’ syndrome, whereby firm is unable to
differentiate its product or service from a competitors', often
resulting in poor financial performance.
5.5.1.3 Effect of Focus Strategy on Increasing Performance
Organizations can choose to adopt a narrow competitive scope within an industry. Market
segmentation is key in order to focus and address various needs accordingly. This ensures
that the entire market is well taken care of. By focusing the marketing mix on the
defined target markets, an organization can position itself to increase brand loyalty and
customer satisfaction
62
5.5.2 Recommendation for Further Research
This study focused on establishing influence of generic business strategies on the
performance of mobile operators in Kenya and specifically for Airtel Kenya Ltd. and
Safaricom PLC. The study recommends the need for the institution to improve customers’
perception through value addition in their products and services. Market segmentation is key
for addressing specific needs accordingly. The study recommended that leaders need to focus
on the best strategy to employ in order to achieve a great organizational performance in their
respective organizations. In order to develop and sustain a multifaceted, reinvigorated
telecommunications, research program is key thereby fostering the conception, development,
and implementation of major telecommunication advances. It is also imperative to carry out
further studies by channeling the questions to the consumers.
63
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Appendix I: Introduction Letter
Jane Muthuri
United States International University-Africa
P.O. Box 25486-00100 Nairobi, Kenya
Mobile: +254-706513615
Email: [email protected]
10-July-2019.
Dear Respondent,
I am a Masters of Business Administration (MBA) student at United States International University’s
Chandaria School of Business. In partial fulfillment of the requirement for the degree, I am carrying
out a research project on “Influence of Competitive Strategies on Organizational Performance of
Telecommunication Firms in Kenya: A Case of Safaricom PLC and Airtel Kenya Ltd”.
I would be very grateful if you could kindly grant me an interview session with yourself/ complete the
enclosed questionnaire to allow me to complete the enclosed interview questions which will be used
to collect the data relevant to my study. Completing the survey will take 20-25 minutes. I kindly look
forward to your acceptance for an honest and objective interview session/ respond as honestly and
objectively as possible. Thank you very much in advance.
All data gathered through this survey will be used in a form that will make it impossible to determine
the identity of the individual respondents or their organizations. Confidentiality of all responses is
guaranteed. Names of respondents will only be used for administrative purposes for this study.
If you have any questions or concerns about the enclosed interview questions, please do not hesitate
to contact me at any time through my contact provided at the top of this letter.
I highly appreciate your assistance and the time you have spared to fill the questionnaire. Once again,
thank you for your participation and kind cooperation in advance.
Thank you.
Yours Sincerely,
Jane Muthuri
MBA Student-Researcher
United States International University-Africa
Appendix II: Questionnaire
Kindly respond to the following questions by ticking on the appropriate box (√) or filling the
answers in the blank spaces (Finish Sampling Technique in Chapter 3).
SECTION A: DEOMOGRAPHIC INFORMATION
1. Gender (Tick appropriate answer)
a) Male ( )
b) Female ( )
2. Please indicate your age
a) 31-35 ( )
b) 36-40 ( )
c) 41-45 ( )
d) 46-50 ( )
e) Above 50 ( )
3. Highest level of education (Tick appropriate answer)
a) Diploma Level ( )
b) First Degree Level ( )
c) Post Graduate Diploma level ( )
d) Post Graduate Level ( )
e) Other (specify) ………………………………………………………..
4. How many years have you served in your current position?
a) 0-3 ( )
b) 4-7 ( )
c) 8-11 ( )
d) 12-15 ( )
e) More than 15 years ( )
5. Which division do you belong to?
a) Customer Care ( )
b) Technology/Network ( )
c) Commercial Business Unit/Finance ( )
d) Enterprise Business Unit ( )
e) M-Pesa/Airtel Money ( )
f) Risk ( )
g) Corporate Affairs ( )
h) Resources (supply chain and human resource) ( )
i) Marketing and Sales & Distribution ( )
6. In your opinion, what market share does your firm control?
a) 0-20 ( )
b) 21-40 ( )
c) 41-60 ( )
d) 61-80 ( )
e) 81-100 ( )
7. Please list your organization’s main product lines in the order of their importance:
a) ..........................................................................................................................................
b) ..........................................................................................................................................
c) ..........................................................................................................................................
d) ..........................................................................................................................................
e) ..........................................................................................................................................
f) ..........................................................................................................................................
8. Which organization would you consider as being your firm’s competitors?
(List in order of importance)
a) ..........................................................................................................................................
b) ..........................................................................................................................................
c) ..........................................................................................................................................
d) ..........................................................................................................................................
e) ..........................................................................................................................................
SECTION B: INFLUENCE OF COST LEADERSHIP STRATEGY
IMPLEMENTATION ON PERFORMANCE
Cost leadership is a competitive strategy, although neglecting quality, service and other
areas, accentuates on setting of low cost relative to the competition. Cost leadership or “low-
cost” strategy is achieved through various ways which includes economies of scale,
experience curve, reduction and control of administrative costs and use of technology. Rate
how cost leadership strategy influences the performance of Mobile Network Operators using
the following scale:
Strongly Disagree=1, Disagree=2, Not Sure =3, Agree = 4, Strongly Agree =5
a) Your firm uses cost leadership strategy. ( )
b) The use of latest technology has helped reduce your firm's costs of production hence
improving performance significantly. ( )
c) Keeping overheads (like employee salaries, staff training costs, network equipment
costs, administrative etc) within the industry brackets offer your organization a
platform to perform better than competitors. ( )
d) Activation of new service features (like use of self-customer service) enhance your
performance in the industry ( )
e) Keeping overheads lower than competitors by outsourcing network equipment
operation & management help boost performance. ( )
f) The use of knowledge from past experiences and knowledge sharing enhance your
organization’s performance. ( )
g) Would you agree that keeping charges similar to competitors (e.g. Safaricom's flexi
bundles and Airtel Kenya Ltd Unliminet data and voice package) help improve your
performance? ( )
h) Keeping charges for products and services lower than that of competitors would
enhance your organization’s performance. ( )
i) Would you agree that staff retention by offering a good working environment and
social benefits, positively influences your firm’s performance? ( )
j) Cost leadership strategy has played a crucial role in your firm’s performance. ( )
SECTION C: INFLUENCE OF DIFFERENTIATION STRATEGY
IMPLEMENTATION ON PERFORMANCE
Competing companies have been known to offer unique product and services that differ from
the rivals to its various market segments. This is also known as differentiation strategy. With
regards to this, to what extent do you agree with the below statements. Rate how
differentiation strategy influences your organization’s performance using the following scale:
Strongly Disagree=1, Disagree=2, Not Sure =3, Agree = 4, Strongly Agree =5
a) Your firm uses differentiation strategy. ( )
b) Your organization's brand image influences its performance against the competitors
in the industry. ( )
c) Your firm’s service delivery compared to its competitors has an impact on your
performance. ( )
d) Your organization's distribution network deliver better performance over its
competitors. ( )
e) Your product and service quality enhance performance over your competitors. ( )
f) Your organization’s product and service attributes enhance your performance within
the telecommunication industry. ( )
g) Customers’ perceptions of your firm as being innovative influence your overall
performance in the industry. ( )
h) Value added services that you offer in your products and services enhance your
performance. ( )
i) The customer experience offered by your organization play a role in your
performance. ( )
j) Differentiation strategy has helped your organization perform better than the other
industry players. ( )
SECTION D: INFLUENCE OF FOCUS STRATEGY IMPLEMENTATION ON
PERFORMANCE
"Focus" involves competing in a narrow segment that can be based on buyer type, product
type, geography, or other factors. The idea here is to serve well a limited group of customers
much better than the rivals who serve a broad customer range. Companies usually develop
specific products and services to meet a unique or specific need of a given market segment
(Niche Market). This is known as Focus Strategy. With regards to this, to what extent do you
agree with the below statements. Rate how Focus strategy influences your organization’s
performance using the following scale:
Strongly Disagree=1, Disagree=2, Not Sure =3, Agree = 4, Strongly Agree =5
a) Your organization uses focus strategy. ( )
b) Your firm's focus on market segments enhances your organization’s performance. ( )
c) Your firm focus on cost-sensitive customers using the cost-varying products and
services enhances performance. ( )
d) Your organization’s strategy to focus on the high quality higher- priced products for
consumers who prefer to pay more to get better quality influence your performance in
the industry. ( )
e) Your firm's focus on maintaining the brand image enhances performance. ( )
f) Focus on service delivery to achieve customer satisfaction influence your
performance in the industry. ( )
g) Your firm's focus on value added services to create good customer experience
enhance performance. ( )
h) Your organization's focus on innovation to ensure that they are offering the best
products and services. ( )
i) Focus strategy has helped your organization’s performance. ( )