Porter’s Five Forces Impact on the Performance of Companies in the Banking Industry in Ghana (original) (raw)
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The apex of environmental scanning with regard to competition can only be found in Porter's Five Forces model. This is a long side External environment scanning tools such as Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis and Political, Economic, Social, Technological, Environmental and Legal (PESTEL) analysis and calculate its coping with competition, how to retain or increase a company's market share among others. This requires accurate competitive analysis in the face of these complexities. This may adversely affect the application and continued use of the five forces in Kenya. This study was an assessment of the application of Porter's Five forces model of competitive analysis amidst the rapidly changing environment in the Kenyan Banking industry. The problem in this study was that the failure to use and under-utilisation of the five forces by banks has led to poor performance. The purpose of the study was to assess the application of the five forces model in terms of its benefits and limitations, and how it can be modified to cope with the Kenyan banking industry. This study would be of great significance in enriching the body of knowledge on Porter's five forces model and providing a meaningful and contextual evaluation of the Kenyan banking industry consequently coming up with useful insights. A descriptive survey design was used and a triangulation of both quantitative and qualitative methods. A sample of 62 respondents was randomly selected from the stratified target population of top, middle and operational level managers in Cooperative Bank of Kenya and given questionnaires. The data was analyzed both qualitatively and quantitatively and processed through computer (SPSS) with special emphasis on the facts and emerging themes that addressed the research questions and the resulting correlation and regression analyses results presented, discussed and interpreted. This was a mixed methodology of descriptive and inferential statistics to establish the existing relationships between the independent and dependent variables. Based on the findings, this study concludes that there is a strong positive relationship shown by R value of 0.8 between Porter's Five Forces model and the performance of Cooperative Bank of Kenya. It also concludes that the strength and effects of substitutes should not be ignored; competitors are significant in benchmarking, keeping the management on toes and increasing efficiency and effectiveness thus aiding in success and achievement of competitive edge through innovation; the Bargaining power of buyers within the banking industry is critical in terms of understanding the bank's buyers and successfully meeting their demands as a way of retaining them and achieving high customer satisfaction for repeat sales; the Bargaining power of sellers apply to the banking industry was a factor to watch as increase in the cost of their services leads to an increase in the cost of services offered by Cooperative Bank and the quality of their services also such as assured security and clean working environment determines employee motivation and satisfaction. Threat of new entrants was found to apply to the banking industry and needed mitigation measures as stated in the recommendations of the study.
THE IMPACT OF PORTER'S FIVE FORCES MODEL IN RESPONDING TO COMPETITION IN THE BANKING INDUSTRY
2016
recent past. This trend has triggered a lot of competition in the banking industry. Banks have managed to weather stiff competition in order to survive competitively in the industry. There are so many things happening within the banking industry after the liberalization of the sector. The aspect of competition is now crucial for the operators who are within the banking industry. Porter’s Five Forces Framework is one of the strategic models used to assess the attractiveness of the industry. This model is defined by the five key forces which are; Rivalry among the existing firms, Threat of new entrants, Threat of substitutes, Bargaining power of suppliers and bargaining power of customers. The rivalry among the existing banks, threat of new entrants and bargaining power of customers is found to be unfavorable forces to the industry. Threat of substitutes and bargaining power of suppliers are found to be favorable forces to the industry. Those who are already in the industry need to operate competitively by using a differentiation strategy to win the confidence of the customers who have higher bargaining power. A good customer service is necessary. This can be achieved through synergy and Total Quality Management approach. The forces are not and will never be static but dynamic, hence a need for the banks to be reviewing their strategies from time to time. Porter’s five forces model of competitive analysis amidst the rapidly changing environment in the Kenyan Banking industry. Failure to use and under-utilization of the five forces by banks has led to poor performance. Research and studies have shown that there is a strong positive relationship between Porter’s Five Forces model and the performance of Banks in Kenya. The strength and effects of substitutes should not be ignored. Competitors are significant in benchmarking, keeping the management on toes and increasing efficiency and effectiveness thus aiding in success and achievement of competitive edge through innovation. The bargaining power of buyers within the banking industry is critical in terms of understanding the bank’s buyers and successfully meeting their demands as a way of retaining them and achieving high customer satisfaction for repeat sales. The Bargaining power of sellers apply to the banking industry is a factor to watch as increase in the cost of their services leads to an increase in the cost of services offered by banks and the quality of their services also such as assured security and clean working environment determines employee motivation and satisfaction. Threats of new entrants apply to the banking industry and need mitigation measure
MANAGEMENT AND ECONOMICS REVIEW
This study aims to analyse the competitiveness of the Algerian banking sector by attempting to apply Porter's Five Forces model. Additionally, it examines the attractiveness of the Algerian banking market. To achieve these objectives, a descriptive approach was adopted by analysing statistics from the Algerian Central Bank and the results of previous studies. An inductive method was also used to apply Porter's Five Forces model to the Algerian banking sector. The study concluded that the banking industry in Algeria is unattractive due to the weakness and lack of implementation of all five competitive forces in Porter's model within the Algerian banking sector. However, despite this, entering the Algerian banking market could be profitable if the focus is on improving the weaknesses in the market, such as electronic banking services, financing for freelancers and startups, foreign trade, and Islamic banking services.
An External Analysis of the Financial Industry Using the Porter's Five Forces Analysis
Manchester Metropolitan University, 2023
Empirical data has demonstrated that competition is a vital component in the operation of several organisations, regardless of their specific industry. The dynamics of a market are influenced by five key elements: the capacity of suppliers and buyers to negotiate terms, the risk of new competitors, the level of rivalry among current businesses, and the accessibility of substitute goods and services. Understanding each of these elements in-depth, both individually and together, is beneficial when deciding which markets to join and how to strengthen its competitive position. One important factor influencing an industry's average projected profitability is the impact's size (McGanan, 1997). While a big competitive force might pose a danger, a moderate force may also generate favourable circumstances for a firm. The reason for this is because pricing and profitability have an inverse relationship with the strength of each of the five factors (Hill & Jones, 2016). The Porter's framework is used in this study to analyse the threats in the banking industry and how its participants might leverage each of these risks to gain a competitive advantage especially with the emergency of disruptive innovations of modern banking participants.
Effects of Competitive Strategies on Non-Financial Performance of KCB Bank in Kenya
The financial sector plays a vital role in economic growth for instance it contributed 83.2% of GDP in 2015. Despite being one of the largest banks with an asset base of KES 366 Billion and KES 266 Billion in customer deposits, KCB Bank barely achieved a Net Promoter Score of 35% in 2016 and a Customer Satisfaction Index of 75% which is below the Kenyan Industry benchmark that stands at 92% and other banks such as Diamond Trust Bank, Standard Chartered Bank, and Cooperative Bank at 74.4%, 73.8% and 73.7% respectively. The implication is that KCB bank is not doing well on non-financial performance measures. According to Porter, adoption of competitive strategies can give a firm a competitive advantage over its rivals and subsequently result in superior organizational performance. Previous studies on competitive strategies and firm performance focused on financial perspective of firm performance looking at dimensions such as profitability, growth and sales volumes thereby leaving out non-financial performance measures such as service quality and customer satisfaction. Consequently, the effect of competitive strategies on non-financial performance is not known. The purpose of this study therefore, seeks to establish the effect of competitive strategies on Non-Financial performance of KCB. Specifically, this study will seek to determine the effect of cost leadership strategy on the non-financial performance of KCB, to establish the effect of differentiation strategy on the non-financial performance of KCB and to establish the effect of focus strategies on nonfinancial performance of KCB. The study was guided by resource-based view theory in a correlational survey research design. From a population of 53761 customers of KCB Branches in Homabay County, a sample of 381 respondents was selected using stratified random sampling techniques. Self-administered questionnaires were used to collect data for the study as the main research instrument. Validity of the research instrument was established through expert review while the reliability test yielded a Cronbach’s Alpha coefficient of between 0.88 and 0.91. Regression results also showed that 39.6% (R2 = 0.396, p < 0.05) of variation in KCB Bank’s non-financial performance was explained by competitive strategies. It was further revealed that dimensions of differentiation strategy (β = 0.646, p < 0.05), cost leadership strategy (β = 0.567, p < 0.05), and focus strategy (β = 0.397, p < 0.05) all had significant positive effects on non-financial performance of KCB Bank, Homabay County. The study concludes differentiation, cost leadership, and focus strategies are significant predictors of non-financial performance for KCB Bank, Homabay County. Therefore, the study recommends that the bank should invest significant resource in differentiation, cost leadership, and focus strategies. However, less emphasis should be laid on focus strategy considering it is the least influential dimension of the three competitive strategies. The results of the study are useful to bank management and policy makers such as government and add to theory in academia.
Bank-Specific, Industry-Specific and Macroeconomic Determinants of Performance in Ghanaian Banks
2019
This paper investigates bank-specific, industry-specific and macroeconomic factors that influence the performance of banks in Ghana using unbalanced panel data set from 33 commercial banks employing annual time series data from 1990 to 2010. The study used panel root, cointegration and Fully Modified Ordinary Least Square Methods for the analysis. What is unique about this paper is that it is the first of its kind in Ghana, a developing country with emphasis on macroeconomic variables. Results suggest that bank performance in Ghana is significantly influenced by bank-specific, industry-specific and macroeconomic variables in various ways. These are management efficiency, ownership, competition, financial sector development, required reserve, discount rate, Gross Domestic Product Per Capita, and the Treasury bill rate. The paper's findings are important for central banks, commercial banks and policy makers in Government for efficiency and effectiveness.
Influence of Competitive Strategies on the Performance of Barclays Bank in Garrisa County, Kenya
2017
The study sought to investigate competitive strategies on the performance of Barclays bank Garrisa County, Kenya. Lack of efficient and effective competitive advantage in many commercial banks often culminates to low productivity. In Kenya today, commercial banks are becoming many thus providing a stiff competitive environment. This competition has prompted Barclays Bank to adopt mechanisms to help in maximizing profits. The specific objectives were to examine the influence of focus strategy, cost leadership strategy, differentiation strategy and marketing strategy on performance of Barclays Bank in Garrisa County, Kenya. The study was based on the following theories; Porter’s Theory of Competitive Advantage, Ansoff Theory, Open Systems Theory and Resource Based View Theory. The study adopted a descriptive research design with the target population being the employees at Barclays bank in Garissa County, Kenya. The sample size was 178 respondents comprising of 6 managers obtained thr...
Competitive Strategies and Performance of Commercial Banks in Mombasa County, Kenya
International Journal of Business Management, Entrepreneurship and Innovation
Commercial banks in Kenya and especially Mombasa County are facing firm rivalry demanding the use of competitive strategies so as to improve their performance. Most of the commercial banks are deliberating on ways to enhance their performance, with competitive strategies being one of them to arrive a market and afterwards make sense of and ensure its aggressive position. Therefore, this study aimed at establishing the effect of competitive strategies on the performance of commercial banks in Mombasa County. The specific objectives were to determine the effect of cost leadership strategy, differentiation strategy and focus strategy on the performance of commercial banks in Mombasa County. The study was anchored on the theory of resource-based view, strategic balancing and game theory. A descriptive research design was employed in this study. The target population of this study was 280 commercial banks staff in Mombasa County. The sample size was eighty-four after adopting a stratifie...
The Contributing Factors to Banks Performance in Ghana: Empirical Evidence from
International Journal of Management Sciences and Business Research, 2019
the study used time series methodologies to examine the factors that affect banks' performance in Ghana from 1996 to 2017. The study used methodologies such as multivariate regression, generalized linear model, and granger causality to make its statistical inference. In conclusion, the study infers that there is a positive and statistically significant effect of regulatory capital to risk-weighted assets (capital adequacy ratio), bank concentration, bigger banks, credit to deposit ratio and economic growth on banks' performance in Ghana. However, the study also found that non-interest income to total income ratio has a negative and statistically significant effect on banks' performance. Evidence of causality was also found from bigger banks to return on assets and return on equity as well as bank concentration to return on assets and return on equity. In addition, capital adequacy ratio has a causal relationship with return on equity and non-interest income to total income has a causal relationship with return on assets