EFFECTS OF PORTER’S FIVE FORCES ON STRATEGY
FORMULATION: A CASE STUDY OF STANDARD
CHARTERED BANK KENYA
BY
BESSY KAWIRA
UNITED STATES INTERNATIONAL UNIVERSITY-
AFRICA
SPRING 2017
ii
EFFECTS OF PORTER’S FIVE FORCES ON STRATEGY
FORMULATION: A CASE STUDY OF STANDARD
CHARTERED BANK KENYA
BY
BESSY KAWIRA
A Research Report Submitted to the Chandaria School of Business in
Partial Fulfillment of the Requirement for the Degree of Masters in
Business Administration (MBA)
UNITED STATES INTERNATIONAL UNIVERSITY –
AFRICA
SPRING 2017
iii
STUDENT’S DECLARATION
I, the undersigned, declare this my original work and has not been submitted to any other
college, institution or university other than United States University in Nairobi for
academic credit.
Signed __________________________ Date: _________________________
Bessy Kawira (ID No: 627480)
This project report has been presented for examination with my approval as the appointed
supervisor.
Signed __________________________ Date: _________________________
Dr Zachary Mosoti
Signed: __________________________ Date: _____________________________
Dean, Chandaria School of Business
iv
COPY RIGHT
© Copyright by Bessy Kawira, 2016
All rights reserved. No piece of this project might be created or transmitted in any form or
by any methods, electronic, mechanical, including photocopying, recording or any
information storage without earlier written consent from the author.
v
ABSTRACT
The purpose of the study was to examine the effect of porter’s five forces on strategy
formulation at Standard Chartered Bank Kenya. The study aimed at determining how
industry rivalry affect strategy formulation, establishing the effect of the threat of new
entrants on strategy formulation and examining ho buyer power affect strategy
formulation.
The study adopted a cross-sectional descriptive research method in analyzing,
interpretation, and presentation of data. The cross-sectional descriptive research design
appeals for generalization within a particular parameter. Questionnaires were used to
obtain pertinent information from respondents. The study focused on 30 employees in
management and supervisory role at Standard Chartered Bank head office in Nairobi. The
sampling technique that was used was census and the study collected information from all
the population. The study adopted a descriptive and inferential statistics in data analysis
and presentation. Figure and tables were used in data presentation.
The study found that intensity of rivalry among companies makes companies to craft
strategies to achieve market share. Rivalry among existing competitors enhances new
product introduction. The study revealed that organizational services are improved as a
result of intense rivalry. Due to rivalry, companies develop strategies on how to offer
discounts and enhance profitability. The study found that when exit barriers are high, the
intensity of rivalry is greatest. The study revealed that rivals are highly committed to the
business and have ambitions for leadership. This found that persistent price competition
teaches customers to pay less consideration to product features and service.
The study found that entry of new companies to the market affects strategy formulation. It
was noted that flexible licensing regulations enhance strategy formation. From the study,
it was examined that high customer switching costs affect strategy implementation. The
study also found that initial capital requirement regulation affects strategy formulation.
Local conditions facing the organizations affect strategy formulation. The study also
found that high sources of information due to technological development influence
strategy formulation.
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The findings of the study confirmed that the bargaining power of buyers is force that can
affect the competitive position of a company. The study found that technology and
competition are responsible for increased choices of products and services. The study
reveals that companies need to implement new strategies that allow them to deal with
environmental uncertainties created by buyers. Consumers are more sensitive to price if
they are buying goods that are undifferentiated. The study found that capacity building is
essential for successful adoption and implementation of production based approaches.
The study concludes that intensity of rivalry among companies makes companies to craft
strategies to achieve market share. According to the study, rivalry among existing
competitors enhances new product introduction. From the study it was concluded that
entry of new companies to the market affects strategy formulation. This is as a result of
low entry barriers and high customer switching costs. The study also summed up that
purchasers stand for a competitive force because they can demand higher quality and bid
down prices.
The study recommends Standard Chartered Bank and other institutions to develop
strategies that may help them during rivalry in the industry. The study assures that the
intensity of rivalry among companies makes companies to craft strategies to achieve
market share. The study recommends that for companies to achieve great strategy
formulation there is need to understand the initial capital requirement regulation and an
understanding of local conditions facing the organizations. The study also recommends
organizations to study and understand the bargaining power of buyers because it is
confirmed that the bargaining power of buyers is force that can affect the competitive
position of a company.
vii
ACKNOWLEDGMENT
My acknowledgement goes to my supervisor, Dr Mosoti, for the guidance during the
development of this proposal. My family and friends I am truly indebted to you for the
support you have given me this far.
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TABLE OF CONTENTS
STUDENT’S DECLARATION ............................................. Error! Bookmark not defined.
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ABSTRACT ............................................................................... Error! Bookmark not defined.
ACKNOWLEDGMENT ......................................................... Error! Bookmark not defined.
TABLE OF CONTENTS ........................................................ Error! Bookmark not defined.
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CHAPTER ONE ....................................................................... Error! Bookmark not defined.
1.0 INTRODUCTION ........................................................ Error! Bookmark not defined.
1.1 Background of the Problem ...................................... Error! Bookmark not defined.
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2.0 LITERATURE REVIEW ........................................... Error! Bookmark not defined.
2.1 Introduction ................................................................ Error! Bookmark not defined.
2.2 Industry Rivalry and Strategy Formulation ............ Error! Bookmark not defined.
2.3 Threat of New Entrants on Strategy Formulation . Error! Bookmark not defined.
2.4 Bargaining Power of Buyers on Strategy FormulationError! Bookmark not
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3.1 Introduction ................................................................ Error! Bookmark not defined.
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3.2 Research Design ......................................................... Error! Bookmark not defined.
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4.1 Introduction ................................................................ Error! Bookmark not defined.
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REFERENCES .......................................................................... Error! Bookmark not defined.
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Appendix 1: Letter of Introduction ................................... Error! Bookmark not defined.
Appendix 11: Study Questionnaire ................................... Error! Bookmark not defined.
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LIST OF TABLES
Table 3.1: Sample Size Distribution ................................... Error! Bookmark not defined.
Table 4.1: Intensity of Rivalry ............................................. Error! Bookmark not defined.
Table 4.2: Existing Competitors .......................................... Error! Bookmark not defined.
Table 4.3: Organizational Services...................................... Error! Bookmark not defined.
Table 4.4: Enhancing Profitability....................................... Error! Bookmark not defined.
Table 4.5: Exit Barriers ......................................................... Error! Bookmark not defined.
Table 4.6: Leadership Ambitions ........................................ Error! Bookmark not defined.
Table 4.7: Price Competition ............................................... Error! Bookmark not defined.
Table 4.8: Attracting and Retaining Customers................. Error! Bookmark not defined.
Table 4.9: Large Increments ................................................. Error! Bookmark not defined.
Table 4.10: Customer Value ................................................. Error! Bookmark not defined.
Table 4.11: New Product Introduction ................................ Error! Bookmark not defined.
Table 4.12: Entry of New Companies ................................. Error! Bookmark not defined.
Table 4.13: Flexible Licensing Regulations ....................... Error! Bookmark not defined.
Table 4.14: Low Entry Barriers ........................................... Error! Bookmark not defined.
Table 4.15: Customer Switching Costs ............................... Error! Bookmark not defined.
Table 4.16: Capital Requirement ......................................... Error! Bookmark not defined.
Table 4.17: Local Conditions ............................................... Error! Bookmark not defined.
Table 4.18: Economy of Scale ............................................. Error! Bookmark not defined.
Table 4.19: Benefit of Scale ................................................. Error! Bookmark not defined.
Table 4.20: Technological Development ............................ Error! Bookmark not defined.
Table 4.21: Sources of Raw Materials ................................ Error! Bookmark not defined.
Table 4.22: New Entrance .................................................... Error! Bookmark not defined.
Table 4.23: Competitive Force............................................. Error! Bookmark not defined.
Table 4.24: Competitive Position ........................................ Error! Bookmark not defined.
Table 4.25: Technology and Competition .......................... Error! Bookmark not defined.
Table 4.26: Environmental Uncertainties ........................... Error! Bookmark not defined.
Table 4.27: Price Sensitive ................................................... Error! Bookmark not defined.
Table 4.28: Production Based Approach ............................ Error! Bookmark not defined.
Table 4.29: Information Accessibility ................................ Error! Bookmark not defined.
Table 4.30: Monitoring and Evaluation .............................. Error! Bookmark not defined.
Table 4.31: Industry Product ................................................ Error! Bookmark not defined.
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Table 4.32: Negotiating Leverage ....................................... Error! Bookmark not defined.
Table 4.33: Bargaining Power of Buyers ........................... Error! Bookmark not defined.
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LIST OF FIGURES
Figure 4.1: Gender of Respondents ..................................... Error! Bookmark not defined.
Figure 4.2: Age of Respondents .......................................... Error! Bookmark not defined.
Figure 4.3: Level of Education of Respondents ................ Error! Bookmark not defined.
Figure 4.4: Employee Category ........................................... Error! Bookmark not defined.
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1
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the Problem
In the world today, organizations are operating in an ever changing world faster than it
was before. This requires organizations to adopt business strategies to learn how to
analyze the implications of changes modifying how their organizations respond to the
change (Team FME, 2013). The issue of strategy formulation is very vital for
organizational growth (Augustine and Agu, 2013). Augustine and Agu (2013) further
state that firms formulate appropriate strategies which give rise to development of
organization structure through which the set objectives will be achieved. At the
implementation level of formulated strategies there could be further environmental
changes which indicates that there could also be further strategic planning analysis of the
new changes making the process iterative and requiring an effective tool to analyse the
market.
Strategy formulation refers to the process of choosing the most appropriate course of
action for an organization to achieve their vision and the realization of organizational
goals and objectives (Madu, 2010). The process involves six main steps including; setting
organizational objectives, evaluating the organizational environment, setting targets,
aiming in context with the divisional plans, performance analysis and the choice of
strategy (Management Study Guide, 2016). According to McFarlane (2013), the process
of formulating strategy must be undertaken with the vision and mission in mind. The
process is time consuming and difficult but it represents the only viable way for
organizations to survive in the global economy where competititon is contantly on the rise
and where economic, social-cultural and technological and political-legal changes are
constantly in motion to affect strategy effectiveness and results.
The essence of strategy formulation is coping with competition. Yet it is easy to view
competition too narrowly and too pessimistically. While one sometimes hears executives
complaining to the contrary, intense competition in an industry is neither coincidence nor
bad luck (Porter, 2016). Correctly identifying the structure and competitive dynamics of
the industry an organizayion is proposing to enter will create a good general point of
2
reference for judging whether it is worth entering or not. If the general industry profile
does not appear attractive to the assesssor, and the assessor is planning to offer value
propositions that have close industry substitutes, then this may be an important signal that
the proposed venture may need to be reconsidered. But if the industry profile looks
attractive, then this could be a sign that prositive prospects exist (Investment Bank, 2016),
hence the relevance of Porter’s five forces model in strategy formulation
The five forces model was developed by Michael E. Porter in the late 1970s. This model
is seen as influential for identification of power that lies in businesses by using the
outside inter-perspective (Johnson, Scholes and Whittington 2008). Porter’s theoretical
structure is based on a 1979 influential article in the Harvard Business Review which
focused on the analysis of the environment and corporate sector in order to determine
strategic positioning (Aktouf, 2005). The model is an integral part of scholarly work,
books on management in general and on strategy in particular. Thus, the fives model can
be seen as a torch-bearer of robust theory (Krishnamurthy, 2016). Porter’s framework is
attractive in both its relative simplicity to comprehend and, more importantly, relative
ease of co-ordination to implement (Aktouf, 2005).
According to Slater and Olson (2002), the model comprises of five forces that drive
competition in the microenvironment threatening a companies from making profit.
Dälken (2014) supported this argument stating that the market structure is influenced by
the strategic bahavior of organizations in that the successs of the market is independent to
the organizations success. Porter (1979) stated that, the forces can help a company find its
position in the industry that is less vulnerable to be attacked by other companies in the
industry. Mohapatra (2012) stated that it is important to note that the forces have diverse
degrees of impact in certain industries adding that the individual forces and their
collective impact change as macroeconomic, the environment and government policies
change. Barry (2009) adds that, the increasing competition within the industry in which a
company operates is the business unit that is of most concern. He added that Porter
believed that competition is influenced by the threat of new competitors; the level of
competition among existing competitors; threat of substitute services or goods; bargaining
power of suppliers and the bargaining power of buyers (Barry, 2009).
3
The global banking industry is highly fragmented and includes segments such as retail
banking, corporate and investment banking, and asset and wealth management (Lucintel,
2016). The industry underwent mixed results in the post-crisis period from 2008 to 2010.
Sector growth slowed considerably as denoted by the growth rate of assets of the top
1000 banks globally in the post-crisis period (Choudhary, 2016). The global financial
crisis and recent scandals involving the mis-selling of financial products and market
manipulation damaged the reputation of key sectors of this financial system. While
analyzing the failure of key processes and controls to prevent such incidents, the focus of
law makers and regulators has therefore increasingly been on behavioral drivers and
motivation behind the activity i.e, the culture of financial institutions (Deloitte, 2016).
Regionally, West Africa’s growth slowed late in the year 2014 and may only strain
banking profits in 2015, while the region’s largest banking market, South Africa, faced a
second difficult year of weak economic growth. Weakening growth impacted South
Africa and West Africa more than it did in East Africa, although impairment charges
rapidly deteriorated in two of the four east African markets (World Bank, 2013).
However, Africa’s major banking markets remain promising, with growth prospects
among the highest globally making hard decisions about where to compete’, would be
one of the key issues facing banks (Ernst andYoung, 2016).
The outlook for Kenya’s industry is that larger banks will control retail banking for the
foreseeable future, while local big players will dominate growth. Foreign banks operating
in Kenya have focused on serving international clients and the top end of the market,
limited by international banking governance and “know your customer” regulations
(Deloitte, 2016). Kenya’s growing middle class is boosting retail banking and products
such as mortgages and personal loans and is likely to continue to drive acceptance of
credit cards, which have high penetration among wealthy clients. Strength and
convenience of mobile banking may constrain the uptake of more traditional products. As
the busy Kenyan market continues to grow and mature, and with clear sights towards the
huge potential of the region and the rest of Africa, it is envisaged that domestic banks will
have a very busy time in future (Ernst and Young, 2016).
According to Cytonn Investments (2015) Kenya has 43 commercial banks, 10
microfinance and mortgage finance institution all regulated by the Central bank of Kenya.
4
The country has a high ratio of banks with a population of 44million being served by 43
commercial banks compared to Nigeria with a population of 180 million being served by
22 banks and South Africa with 55million people being served by 19 commercial banks.
However Cytonn investment (2015) added that mobile banking, revised prudential
guidelines, credit information sharing systems (CIS) and agency banking have spurred
advanced efficiency in the sector resulting in enhanced competition that has led to a high
number of banks in Kenya’s banking sector. Olaka (2013) also supported this claims
indicating that the continued entry of international banks in the Kenyan market has also
led to the increase in competitive forces in the industry. The large number of commercial
banks in Kenya’s banking sector requires critical analysis when evaluating competitive
forces (Indiastsy et al, 2014). Crucial to success in Kenya is the ability to create and grow
products (innovate) and institutions that respond to the needs of Kenyans for convenience
and efficiency through alternative banking channels such as mobile, internet and agency
banking. This aspect opens growth markets in other segments, including small and
medium-sized enterprises (SMEs) and the informal sector, that have traditionally been
largely absent in formal banking services (Oxford Business Group, 2016).
The first foreign bank to establish its operations in Kenya was Standard Chartered Bank.
It established its operations in Kenya in 1911 and has been in the country for over 100
years. The bank is among the leading banks in the country with over 40 branches spread
out and with 1,698 employees. The bank has remained a public quoted company at the
Nairobi since 1989 and has a local shareholding of about 26% comprised of 32,000
shareholders. Standard Chartered has lead other banks in Kenya by being the first to
introduce a variety of Securities Exchange services in the sector including; introduction of
the first ATM in Kenya and an automated Banking Centre for 24-hour convenience;
provision of priority Banking facilities in Kenya for more affluent customers, introduction
of utility bill payment and satellite television payment over ATM; introduction of
unsecured Personal Loan; the first to launch International Photo Debit Card; banking
Business Solutions for corporate customers and the mobile Top-Up scheme (Standard
Chartered Bank Kenya Limited 2016).
With their advanced experience in the industry, Standard Chartered Bank have formulated
various strategies for the marker therefore they provide a good basis for conducting this
5
research to evaluate the role that Porter’s Five Forces Framework has on their strategy
formulation process.
1.2 Statement of the Problem
Accumulating empirical evidence suggests that at least some strategic management
models originating in developed economies do not necessarily fit the conditions prevalent
in emerging economies (Narayanan and Fahey, 2005). Subsequently, scholars are yet to
determine the generic nature of Porter’s powerful fives forces model. Questions arise as
to whether the model is universally applicable and what its effects would be especially
when managers are requested to exercise caution when it is being applied in emerging
economies (Krishnamurthy, 2016). Narayan and Fahey (2005) therefore concludes that,
there is mounting evidence that firms in emerging economies undertake strategic actions
to address the key uncertainties pertaining to exchange, capital availability and
unrestricted rivalry, and concluded that many of these actions are not derivable from
Porter’s five forces framework.
According to Indiatsy, et. al. (2014) though many practioners and scholars both at local
and international scene still value use of Porter’s five forces model, there has been a high
level debate on the model application to the complex contemporary industry environment
with technological changes and a rapidly changing environment. Some scholars have
argued that internet advancement has done a lot in changing the the indusry environment
thus challenging the model. Karagiannopoulos, Georgopoulos and Nikolopoulos (2005)
add that before the advent of internet every industry consisted of a physical part and an
informational set that was difficult to handle and access making them to further indicate
that as much as the five underlying forces of competition determine the industry
attractiveness, it has also been challenged by its failure to explain the expansion of the
distance learning industry.
Dälken (2014) added that there is doubt that the model that was developed in 1979 is still
relevant in various industries today owing to the fact that there has been technological
advancement taking place. This has raised uncertainities on the effect of Porter’s five
forces model as a tool to conduct industry analysis in strategy formulation and the need
for an investigation especially in the financial sector in Kenya so as to determine beyond
6
doubt it’s relevance and reliability. This is a gap identified that this research is intended to
fill.
1.3 Purpose of the Study
The purpose of this study was to examine the effects of Porter’s five forces on strategy
formulation at standard Chartered Bank Kenya.
1.4 Research Questions
1.4.1 How does industry rivalry, according to porter’s five forces affect strategy
formulation?
1.4.2 What is the effect of the threat of new entrants on strategy formulation according
to porter’s five forces?
1.4.3 According to porter’s five forces how does buyer power affect strategy
formulation?
1.5 Significance of the Study
1.5.1 Standard Chartered Bank
The study informs the management of standard chartered bank on the effects of Porter’s
five forces on their strategy formulation. It helps the management identify strategies to
formulate in the organization recognizing the effects Porters five forces could have on
them and how to address those challenges.
1.5.2 Banking Sector Stakeholders
The knowledge gap of the effects of porter’s five forces and strategy formulation was
addressed in this research. This provides banks, consultants and practioners with the
knowledge they require when formulating strategies for banks looking out to the
drawbacks to avoid when formulating strategies.
7
1.5.3 Scholars
This research adds to the knowledge already available on effects of Porter’s five forces on
strategy formulation more so drawing examples from the banking sector. The study also
is a reference point for gaps identified in this research where future studies are required.
1.5.4 Other Organizations
The study would be used by other organizations to understand forces of strategy
formulation to enhance their competitiveness against their respective competitors.
1.6 Scope of the Study
The focus of the study was on Kenya’s Standard Chartered Bank. The population for the
study was the employees of the bank. The questionnaire was used as a data collection
tool. The study was conducted in five months from July 2016 scheduled for completion in
November 2016
1.7 Definition of Terms
1.7.1 Strategy
This is the scope and direction of an organization over a long period of time that achieves
advantage in a changing environment through the alignment of resources and
competencies (Johnson, Whittington, and Scholes, 2009).
1.7.2 Strategy Formulation
This is a process essential to an organization’s success in which an organization selects
the most suitable course of action to attain their defined goals by providing a framework
for action leading to anticipated results (Mitchell, 2009).
1.7.3 Buyer Power
This is the extent to which customers influence the market sometimes putting pressure to
the market demanding improved quality and low prices (Team FME, 2013).
8
1.7.4 Industry Rivalry
This the extent to which firms in an industry put pressure on each other limiting potential
profits for each other (Wilkinson , 2013).
1.7.5 Threat of New Entrants
This refers to the threat new competitors pose to existing competitors in an industry that
is profitable when they enter the market (Wilkinson , 2013).
1.8 Chapter Summary
This chapter has discussed all elements of chapter one. The elements include the
background of the study, statement of the problem, objectives of the study, and
significance of the study. In addition, the chapter conversed about the scope of the study
and definition of terms. Chapter two is about the literature review of this study based on
the specific objectives of the study. Chapter three is about the research methodology,
chapter four presents the results and findings and the discussion, and finally chapter five
depicts conclusion and recommendations of the research respectively.
9
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
This chapter presents literature review based on the specific objectives of this research
including the effects of industry rivalry on strategy formulation, the effect of the threat of
new entrants on strategy formulation and the effects of buyer power on strategy
formulation. Presented at the end of this chapter is the summary of the whole chapter two.
2.2 Industry Rivalry and Strategy Formulation
2.2.1 Industry Rivalry
Gabriel (2009) asserts that the intensity of rivalry among and between companies within
an industry is apparent when companies in an industry battle achieve market share from
each other. This rivalry goes up and as a result the competition turns out to be stronger
with an increase in the number of companies in the same industry as they push around for
a considerable market share. For instance, in Botswana, there are 12 commercial banks,
registered and 7 of these banks were registered between 2006 and 2013 (9years),
representing 58% of the total registered commercial banks. This is a major increase in the
number of banks contributing actually similar products and they are all struggling to
capture and maintain a market share that will lead to more than above average profits.
The Bank of Botswana has observed the market share of the industry total loans and
advances, total deposits, and total assets for the smaller and recently established banks
grow at the cost of the market share of the a few large private and well established
commercial banks (Bank-of-Botswana, 2012). This circumstance has created intense
competition between the small and the large established banks.
Among existing competitors, rivalry assumes many forms that are familiar. These include
service improvements, advertising campaigns, price discounting and new product
introductions. Profitability of an industry is restricted by high level rivalry. The degree to
which competition brings down an industry’s revenue potential depends, first, on the
force with which organizations compete and, second, on the base on which they compete
(Awuah, 2011).
10
2.2.2 The Intensity of Rivalry
The intensity of rivalry is maximum if (Mguni, 2013) competitors are roughly equal in
power and size or are many. In such state of affairs, competing firms find it hard to stay
away from poaching business. Practices advantageous for the industry as a whole go un-
enforced without an industry leader. The intensity of rivalry, according to Shah and
Siddiqui (2006), is also greatest if the industry growth is slow. Sluggish growth
unexpectedly scrambles for market share. The study also reveals that when exit barriers
are high, the intensity of rivalry is greatest. According to Ernst and Young (2012) exit
obstacles, the rear side of entry barriers, take place because of such things as
management’s devotion to a certain business or very much specialized assets. The
barriers maintain companies in the market place even assuming they may be earning
negative or low proceeds. Excess capacity remains in use as the profitability of strong
competitors experience difficulties as the weak ones hang on.
Rivals are extremely dedicated to the business and have aspirations for leadership,
predominantly if the rivals have ambitions that go further than economic performance in
the main industry. Strong dedication to a business takes place for a mixture of reasons.
For example, competitors that are state-owned may have goals that comprise of
employment or reputation. Units of larger corporations may play a part in an industry for
image motives or to present a full line. Clashes of personality and ego have infrequently
exaggerated rivalry to the shortcoming of profitability in fields such as the media and
high technology (Porter, 2007).
Organizations cannot well read the indications for other for the reason that they do not
have acquaintance with one another, contradictory goals, and unlike approaches to
competing. The power of rivalry mirrors not just the strength of competition but also the
base of competition. The scale on which rivalry takes place and whether competitors
come together to compete on the same scale has a key influence on profitability (Afuah,
2008). According to Bengtsson and Kock (2010), competition is more than ever
disparaging to profitability if it descends completely to price because price rivalry shifts
profits from an industry to customers directly. Price cuts are usually easy for competitors
to notice and match, making succeeding rounds of vengeance likely. Unrelenting price
rivalry also educates customers to pay less deliberation to product features and service.
11
2.2.3 Occurrence of Competition
Services or products of competitors are almost impossible to differentiate and there are
not lots of switching costs for buyers. This gives assurance to rivals to cut prices and win
new customers. These situations in that industry are reflected by years of airline price
wars. Marginal costs are low while fixed costs are high. This creates high pressure for
rivals to cut prices below their average costs, even near to the marginal costs, to steal
incremental clients while still making some involvement to covering up fixed costs
(Covin and Slevin, 2010). For example, aluminum and paper are among the many
essential materials businesses that go through this problem, predominantly if demand is
stagnant. For this reason, delivery companies with permanent networks of routes must be
served in spite of volume (Doole and Lowe, 2004).
Capacity must be expanded in large increments for an organization to be efficient. As in
the polyvinyl chloride business, the need for big capacity extension disrupts the industry’s
supply-demand equilibrium and over and over again leads to extensive and persistent
periods of more than enough numbers and price cutting (Hill and Jones, 2004). The study
also established that price rivalry takes place when the product is perishable. Perish-
ability makes a strong opinion to cut prices and put up for sale a product while it still has
value. Most services and products are perishable than is generally thought. Just as
tomatoes are perishable since they decompose, computer models are perishable because
they quickly become obsolete, and information may be perishable if it diffuses rapidly or
becomes outdated, thus missing its value. Hotel accommodations are among services that
are perishable in the sense that unexploited capacity can never be recovered (Harvey,
2006).
Gabriel (2009) confirms that rivalry on dimensions other than price on brand image,
product features, support services, or delivery time, for example, is less expected to eat
into profitability because it builds up customer value and can maintain higher prices.
Moreover, competition focused on such dimensions can increase value relative to
substitutes or enlarge the barriers facing new entrants. While non-price competition at
times goes sky-high to levels that deteriorate industry profitability, this is not as much of
expected to occur than it is with price competition (Nir, 2009). The scopes of competition
are noteworthy whether rivals compete on the same scopes or not. When all or many
12
competitors seek to meet the same needs or compete on the same traits, the result is zero-
sum rivalry. Here, one organization’s accomplishment is often another’s loss, forcing
down profitability. While price rivalry runs a stronger risk than non-price rivalry of
becoming zero-sum, this may not happen if firms take care to subdivide their markets,
aiming their low-price contributing to different customers (Rajiv and Padmanabhan,
1995).
Tammy (2010) asserts that competition can be positive sum, or in realism improve the
typical profitability of an industry, when every competitor makes an effort to serve the
needs of different customer divisions, with diversity mixes of features, price, products,
services, or brand identities. Such rivalry can not only sustain higher average profitability
but also enlarge the industry, as the needs of more consumer groups are better met.
Shuba, Peter, and Frank (2010) established that the chance for positive-sum rivalry will
be greater in industries serving varied consumer groups. With apparent consideration of
the structural foundations of competition, strategists can from time to time take steps to
move the nature of rivalry in a more positive direction.
Competition in the middle of existing rivals takes many recognizable forms: new-product
introductions, price discounting, service escalation, advertising campaigns, and so forth
(Doole and Lowe, 2004). The extent to which competition weakens an industry’s profit
potential depends, first, on the foundation of which organizations compete and, second,
on the intensity with which they compete. Price is characteristically the most critical basis
of rivalry for industry profitability. Price reductions move profits directly from an
industry to its clientele, and they are more often than not easy for rivals to see and match,
making successive rounds of disciplinary cuts more probable. On the contrary,
competition on features or services can permit industry competitors to sustain good
margins (Serguei, 2014).
2.2.4 Structural Determinants of the Intensity of Competition
Competition in an industry continually works to drive down the rate of return on invested
capital toward the competitive floor rate of return, or the return that would be earned by
the economist's perfectly competitive industry. This competitive floor, or free market
13
return, is approximated by the yield on long-term government securities adjusted upward
by the risk of capital loss (Bengtsson and Kock, 2010). Stakeholders will not put up with
returns below this level in the long-term since their option of investing in other
organizations and industries usually earning less than this return will ultimately go out of
business. The presence of rates of return higher than the adjusted free market return
serves to stimulate the inflow of capital into an industry either through new entry or
through additional investment by existing competitors. The strength of the competitive
forces in an industry determines the degree to which this inflow of investment occurs and
drives the return to the free market level, and thus the ability of firms to sustain above-
average returns (Lee, Kim, and Park, 2011).
The five competitive forces; rivalry among current, bargaining power of buyers,
competitors threat of substitution, and bargaining power of suppliers reveal the fact that
competition in an industry moves well further than the well-known players (Barry, 2009).
Potential entrants, suppliers, customers, and substitutes are all competitors to
organizations in the industry and might be less or more famous depending on the certain
situations. Competition in this bigger sense might be termed extended rivalry (Harvey,
2006).
All five competitive forces mutually define the level of industry competition and
profitability, and the strongest force or forces are prevailing and become critical from the
viewpoint of strategy formulation (Krishnamurthy, 2016). For example, even a firm with
an exceptionally solid market position in an industry where plausible contestants are no
longer danger will get low returns in the event that it experiences a predominant, bring
down cost substitute. Even with no substitutes and blocked entry, intense rivalry among
existing competitors will limit potential returns. The extreme case of competitive intensity
is the economist's perfectly competitive industry, where entry is free, existing firms have
no bargaining power against suppliers and customers, and rivalry is unbridled because the
numerous firms and products are all alike (Ernst and Young, 2012).
14
2.3 Threat of New Entrants on Strategy Formulation
2.3.1 Threat of New Entrants
Gabriel (2009), Foley and Jayawardhena (2000) collectively argues that the possibility of
new firms entering the industry affects competition and makes it difficult for the already
existing firms to protect their market share and continue to be profitable. The cost of entry
into the commercial banking sector is low, licensing regulations are way too flexible,
profits seem very promising and the risk seems manageable and as a result new players
have been entering the commercial banking scene. Insurance companies, retailing firms
and stock-broking firms are also making significant inroads into what has been known as
traditional banking markets due to the low barriers of entry associated with the industry.
These potential competitors have created significant threats to the existing established
large banks.
Both potential and existing companies will influence profitability in an industry. The
entry barrier is the key factor to analyze the threat of new entrants (Karagiannopoulos,
Georgopoulos, and Nikolopoulos, 2005). New entrants will not only bring new producing
ability and new resource, but also occupy the market share, which belongs to other
existing companies (Dagmar, 2008). So it will lead to the conflict of production materials
and decrease the companies’ profit level. The levels of the threat of new entrants depend
on two kinds of factor. One is the new entry barrier. The other is the reflection of existing
companies to new entrants. The threat of new entrants is a function of the height of entry
barriers. The higher the entry barriers are, the weaker is this competitive force (Lee, Kim,
and Park, 2011).
The sources of the entry barriers include economies of scale, brand loyalty, cost
advantages, customer switching costs, initial capital requirement regulation, many more
(Lee, Kim and Park,2011). The main entry barriers include scale economy, product
differences, capital demand, sales channels development, government behavior and policy
and so on. Some barriers are hard to break, using coping and imitating way. Whether a
new company will enter into an industry or not depends on the potential profit, expense
and the risk of being a new entrant (Porter, 1998).
15
Depending on the environment, strategic formulation and implementation are often based
on local conditions facing the organizations and the internal resources provided in
response to them. Therefore, the competitiveness of organizational performance depends
on strategic implementation (Mguni, 2013). Karagiannopoulos et al. (2005) found that
industry forces are valuable for business strategy formulation and implementation. The
business should identify its position in the market area and fight against the competition
that threatens its strategic position before formulating strategies. Furthermore, Covin and
Slevin (2010) showed that industry forces have a major impact on firm strategies. The
notion is that companies must adopt a more dynamic strategy to defend themselves
against industry structures and increase their market share.
2.3.2 Protecting Market Share
New entrants to an industry convey new capability and a desire to expand market share
that lays pressure on costs, prices, and the speed of investment essential to compete.
Predominantly when new entrants are branching out from other markets, they can
influence existing cash flows and capabilities to shake up competition, as Pepsi did when
it got into the bottled water industry, Microsoft did when it began to offer internet
browsers, and Apple did when it got into the music supply business (Awuah, 2011).
The threat of entry, as a result, puts a restriction on the profit probable of an industry.
When the threat is high, incumbents must grip down their prices or enhance investment to
discourage new competitors. In area of expertise coffee retailing, for example,
comparatively low entry barriers means that Starbucks must invest insistently in
modernizing menus and stores (Porter, 2007). Foley and Jayawardhena (2000) argue that
the threat of entry in an industry depends on the height of entry barriers that are in
attendance and on the response entrants can anticipate from incumbents. If entry barriers
are low and newcomers expect small revenge from the well-established rivals, the threat
of entry is far above the ground and industry profitability is moderated. It is the threat of
entry, not whether entry really occurs, that grips down profitability.
2.3.3 Supply-Side Economies of Scale
These economies take place when organizations that makes at larger volumes take
pleasure in lower costs per unit since they can stretch fixed costs over more units, make
16
use of more competent technology, or command superior terms from suppliers. Supply-
side scale economies discourage entry by forcing the hopeful entrant either to come into
the industry on a large scale, which needs extricating entrenched rivals, or to
acknowledge a cost disadvantage (Tammy, 2010).
Scale economies can be found in almost every activity in the value chain; which ones are
most significant differs by industry. In microprocessors, incumbents such as Intel are
secluded by scale economies in investigation, chip manufacture, and consumer marketing.
For lawn care companies like Scotts Miracle-Grow, the key significant scale economies
are established in the media advertising and supply chain. In small-package delivery,
economies of scale crop up in nationwide logistical systems and information technology
(Churchill and Iacobucci, 2008).
2.3.4 Demand-Side Benefits of Scale
McFarlane (2013) asserts that the benefits recognized as network effects happen in
industries where a purchaser’s eagerness to pay for a firm’s product magnifies with the
number of other purchasers who also hold up the organization. Shoppers may trust
superior organizations more for a vital product: Recall the old proverb that no one ever
got fired for purchasing from IBM (when it was the leading computer maker). Buyers
may also value being in a “network” with a larger number of fellow customers. For
example, online public sale participants are paying attention to eBay because it offers the
most prospective trading partners. Demand-side benefits of scale hold over entry by
discouraging the eagerness of customers to buy from a newcomer and by dropping the
price the newcomer can influence until it puts up a large base of customers (Hill and
Jones, 2004).
2.3.5 Customer Switching Cost
Switching costs are fixed costs that purchasers face when they change dealers. Such costs
may well happen because a buyer who changes vendors must, for instance, modify
product specifications, retrain workers to use a new product, or modify information
systems or processes. The bigger the switching costs, the difficulty it will be for an
entrant to achieve customers (Porter, 1998).
17
Enterprise resource planning (ERP) software, according to Hoepfl (2015), is an example
of a product with incredibly high switching costs. Shah and Siddiqui (2006) assert that
once an organization has installed SAP’s ERP system, for instance, the costs of switching
to a new vendor are exorbitant because of implanted data, the reality that internal
processes have been adapted to SAP, main retraining needs, and the mission-critical
nature of the applications.
2.3.6 Capital Requirements
The need to invest a lot of financial resources so as to compete can discourage new
entrants. Capital may be indispensable not only for unchanging facilities but also to build
inventories, extend customer credit, and finance start-up losses (Bank-of-Botswana,
2012). The barrier is for the most part immense if the capital is required for unrecoverable
and therefore difficult-to-fund expenditures, for example research and development or up-
front advertising. While major organizations have the financial resources to enter by force
almost any industry, the vast capital requirements in various fields limit the pool of
possible entrants. On the other hand, in such fields as short-haul trucking or tax
preparation services, capital requirements are minimal and potential entrants’ abundant
(Lee, et al., 2011).
It is imperative not to exaggerate the extent to which capital requirements alone prevent
entry. If industry incomes are good-looking and are expected to remain so, and if capital
markets are efficient, investors will offer entrants with the money they need. For aspiring
air carriers, for example, funding is available to purchase costly aircraft because of their
high resale value, one reason why there have been various new airlines in more or less
every region (Serguei, 2014).
2.3.7 Incumbency Advantages Independent of Size
According to Harvey (2006), incumbent firms, might have quality or cost advantages not
obtainable to potential competitors, no matter what their size. These benefits can stem
from proprietary technology, access to the most excellent raw material sources, favorable
geographic locations, cumulative experience, or government subsidies that has allowed
incumbents to find out how to produce professionally. Such advantages sometimes are
legally enforceable, as they are through exclusive rights.
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2.3.8 Unequal Access to Distribution Channels
The new entrant on the block must, certainly, protect distribution of its service or product.
A new food item, for instance, must put out of place others from the supermarket shelf by
means of price breaks, extreme selling efforts, promotions, or some other means. The
more limited the retail or wholesale distribution channels are and the more that surviving
competitors have tied them up, the harder entry into an industry will be (Hoepfl, 2015).
Occasionally access to distribution channel is so great a barrier that a newcomer must
make its own distribution channels. Thus, upstart low-cost airlines in Europe have
circumvented distribution through travel agents, who have a tendency of favoring
established higher-fare carriers, and have encouraged travelers to book their own flights
through Internet websites (Lucintel, 2016).
2.4 Bargaining Power of Buyers on Strategy Formulation
2.4.1 Bargaining Power of Buyers
Bargaining power of consumers undoubtedly demonstrates that purchasers represent a
competitive force since they can demand higher quality or more services, bid down
prices, and play competitors off not in favor of each other, all at the cost of airlines’
profitability (Porter, 1998). The power of each important buyer group depends on a
number of characteristic of its market situation and on the relative importance of its
purchases from the industry compared with the industry’s overall business. Business class
passengers are an airlines choice of the buyer group which they sell to as a crucial
strategic decision. There is an amount of pressure customers can place on airlines, thus
affecting its prices, volume and profit potential. Virgin Blue for example attracts travelers
that are price sensitive by offering them low fares and those that are convenience oriented
by providing them with frequent flights. The bargaining power of buyers is another force
that can affect the competitive position of a company (Porter, 1998).
Legislations have significantly increased customers’ rights (Shah and Siddiqui, 2006)
while technology and competition on the other hand, are responsible for increased choices
of products and services. Increased volumes of available information on the Internet and
changes in social behavior have reduced the loyalty of customers. Ernst and Young
(2011) also argued that increased competition reduces the loyalty of customers to their
19
main banks and are more likely to try new banks which offer better rates, superior
technology, or more attractive rewards. Customers in Botswana therefore, have more
power posing a serious threat to commercial banks.
2.4.2 The Power of Buyers
The buyer power means that buyers always want to drive down the price of the product
and need good service requirements to improve the quality of products and services in the
industry (Yao, 2010). Lee, et al. (2011) asert that, buyers can threaten the industry by
bargaining down prices or raising the costs by demanding better quality suppliers. Power
of buyers is the mirror image of power of suppliers (Hill and Jones, 2004).
Karagiannopoulos, et al. (2005) found that buyer power is one of the two horizontal
forces that influence the appropriation of the value created by an industry. The most
important factors of buyer power are size and the concentration of customers.
The flip side of powerful suppliers, powerful customers, can capture more value by
pushing down prices, demanding more service or better quality (by this means driving up
costs), and normally playing industry contestants off against one another, all at the
expenditure of industry profitability. Buyers are strong if they have negotiating power
relative to industry players, particularly if they are price sensitive, using their thump first
and foremost to pressure price reductions (Shah and Siddiqui, 2006).
As with suppliers, there may be different groups of customers who vary in bargaining
power. A customer group has bargaining power if: there are few purchasers, or each one
buys in volumes that are high relative to the size of one vendor. Large-volume purchasers
are predominantly powerful in industries with great fixed costs, such as
telecommunications apparatus, bulk chemicals, and offshore drilling. Low marginal costs
and high fixed costs intensify the pressure on competitors to keep aptitude filled through
discounting (Nir, 2009).
2.4.3 Backward Integration
If consumers either are to some extent integrated or front a probable threat of backward
integration, they are in a point to demand bargaining dispensation. The major automobile
producers, General Motors and Ford, are well known for using the threat of self-
20
manufacture as a bargaining lever. They fit into place in the practice of tapered
integration that is, creating some of their needs for a given element in-house and buying
the rest from outside suppliers (Gabriel, 2009). Not only is their risk of further integration
mainly probable, but also partial manufacture in-house gives them a detailed information
of costs which is a huge aid in negotiation. Consumer power can be partially counteracted
when organizations in the industry give a threat of forward integration into the consumers'
industry. Producers of beer and soft drinks have long managed the power of packaging
manufacturers by intimidating to make, and from time to time in point of fact making,
packaging materials themselves (Serguei, 2014).
The study established that a buyer group is price responsive if: the product it buys from
the industry stands for an important fraction of its procurement budget or cost structure.
Here purchasers are likely to shop around and bargain hard, as customers do for home
mortgages. Where the manufactured goods sold by an industry is a small portion of
purchaser’s expenditures or costs, buyers are typically less price sensitive (Bengtsson and
Kock, 2010). The buyer group receives low profits, is impoverished for cash, or is
otherwise on the spot to cut its purchasing costs. Highly cash-rich or profitable customers,
in contrast, are usually less price sensitive (that is, obviously, if the item does not stand
for a large fraction of their costs).
The quality of buyers’ services or products is less affected by the firm’s product. Where
quality is extremely much affected by the firm’s product, buyers are by and large less
price sensitive. For example, when renting or purchasing production quality cameras,
manufacturers of major motion pictures choose for highly dependable equipment with the
latest features. They pay inadequate consideration to price. Industries in which this
situation exists include oil-field equipment, where a malfunction can lead to large losses
(witness the enormous cost of the recent failure of a blowout prevent or in a Mexican
offshore oil well), and enclosures for electronic medical and test instruments, where the
quality of the enclosure can greatly influence the user's impression about the quality of
the equipment inside (Mguni, 2013).
The industry’s product has small effect on the buyer’s other costs. Here, purchasers focus
on price. On the contrary, where an organization’s service or product can pay for itself
again and again over by enhancing performance or reducing material, labor, or other
21
costs, buyers are regularly more concerned in quality than in price. Examples include
services and products like well logging or tax accounting (which measures below-ground
situations of oil wells) that can save or even make the buyer money. In the same way,
purchasers tend not to be price susceptible in services such as investment banking, where
bad performance can be embarrassing and costly (Shuba, et al., 2010).
Most sources of buyer power, according to Foley and Jayawardhena (2000), pertain
equally to customers and to business-to-business customers. Consumers tend to be more
sensitive to price, like industrial consumers, if they are purchasing goods that are costly
relative to their incomes, undifferentiated, and of a type where goods performance has
insufficient consequences. The major distinction with customers is that their requirements
can be more intangible and difficult to quantify. Intermediate consumers who buy the
produce but are not the end user (such as distribution channels or assemblers), according
to Augustine et al. (2013) can be examined the same way as other purchasers, with one
essential addition. Intermediate consumers gain noteworthy negotiating power when they
can manipulate the purchasing decisions of customers downstream. Consumer jewelry
retailers, electronics retailers, and agricultural- equipment distributors are cases in point
of distribution channels that put forth a strong manipulate on end customers.
Manufacturers over and over again attempt to diminish channel clout through fashionable
arrangements with certain retailers or distributors or by marketing directly to end users.
Constituent producers seek to develop power over assemblers by making preferences for
their constituents with downstream consumers. Such is the case with bicycle parts and
with sweeteners (Shah and Siddiqui, 2006). DuPont has made mammoth clout by
advertising its Stain master brand of carpet fibers not only to the carpet makers that in
point of fact buy them but also to downstream consumers. Many customers request Stain
master carpet even though DuPont is not a carpet manufacturer.
2.4.4 The Buyer Information
Where the buyer has full information about demand, actual market prices, and even
supplier costs, this usually yields the buyer greater bargaining leverage than when
information is poor. With full information, the buyer is in a greater position to insure that
22
it receives the most favorable prices offered to others and can counter suppliers' claims
that their viability is threatened (Churchill and Iacobucci, 2008).
Most of the sources of consumer power can be credited to consumers as well as to
industrial and commercial buyers; only an alteration of the frame of reference is
necessary. According to Porter (2007), customers tend to be more sensitive to price if
they are purchasing goods that are undifferentiated, of a variety where quality is not
primarily significant to them, or expensive relative to their returns.
The consumer power of retailers and wholesalers is affirmed by the same rules, with one
imperative addition. Retailers can gain significant bargaining power over manufacturers
when they can influence consumers' purchasing decisions, as they do in audio modules,
appliances, jewelry, sporting goods, and other goods. Wholesalers can gain bargaining
power, similarly, if they can influence the purchase decisions of the retailers or other
firms to which they sell (Awuah, 2011).
2.5 Chapter Summary
This chapter reviewed literature on the effects of Porter’s five forces on strategy
formulation in Standard Chartered Bank Kenya. The study discussed how industry rivalry
affects strategy formulation, the effect of the threat of new entrants on strategy
formulation and how buyer power affects strategy formulation. The next chapter presents
the research methodology exploring the best methodology the research adopted to reach
to the solution of the problem.
23
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Introduction
The chapter portrays the research methodology that was used in carrying out this study. It
considers the research design, population and sampling design, data collection methods,
research procedures and data analysis methods. The study in this chapter concludes with a
chapter summary.
3.2 Research Design
Research design refers to the overall strategy that is chosen to integrate the different
components of the study in a coherent and logical way, thereby, ensuring that one may
effectively address the research problem; it constitutes the blueprint for the collection,
measurement, and analysis of data. This study presumed descriptive research design. This
is a scientific method that entails examining and describing the behaviour of a focus
without influencing it any way. Descriptive research design endeavours to describe a
subject, through gathering of data and the tabulation of frequencies on research valuables
and the research discloses who, what, when, where or how much (Sekaran and Bougie,
2010). Descriptive design was selected because it contributes to high response quality and
low refusal rates. It is a design that is also less time consuming which is fit for this study
(Cooper and Schindler, 2008).
The study was directed by three independent variables including how industry
competition have an effect on strategy formulation; the efffect of threat of new entrants
on strategy formulation and how buyer power affect startegy formulation. The
independent variables investigated the effects of Porter’s five forces on strategy
formulation focusing on Standard Chartered Bank.
3.3 Population and Sampling Design
3.3.1 Population
A population, (Cooper & Schindler, 2008), is a whole collection of components where
suggestions have to be made. This study focused 30 employees in management and
24
supervisory role at standard chartered bank head office in Nairobi. The employees were
spread from top management level to the supervisory employees at the head office. This
target population provided sufficient information regarding the effects of Porter’s five
forces on strategy formulation.
3.3.2 Sampling Design
3.3.2.1 Sampling Frame
This is a list of elements from which a sample is drawn from referring to a correct list of
population members. In this research the sampling frame comprises of all employees in
management and supervisory role at standard Chartered bank head office in Nairobi. This
list was obtained from the human resource office at the head office in Nairobi and
ensured that the list of managers and supervisors are current, complete and relevant for
the attainment of the study objectives.
3.3.2.2 Sampling Technique
Sampling technique is the name or other identification of the specific process by which
the entities of the sample have been selected (Malhotra, 2011). This research adopted non
probability sampling technique which does not rely on chance for selection procedures
but is specific on the individuals to be selected for the research (Malhotra, 2011). The
researcher adopted judgemental sampling design to obtain sample elements for this
research. The elements comprised of top, middle and lower management at the standard
Chartered bank head office in Nairobi.
3.3.2.3 Sample Size
Sample size is the statistical determination of the appropriate sample size which can be
generalized to represent the entire target population (Cooper and Schindler, 2008). To
find the least amount of population sample for this study, the study conducted a census
which is believed to be free from fault and provides 100 percent warranty and
representative of the population (Malhotra and Birks, 2007). Census was the best
approach for this research since the number of managers at the head office are few thus
census was the most appropriate for this research. The research was conducted on
Standard Chartered Bank head office in Nairobi. The sample size was derived from all
managers and supervisors at the head office totalling to 30 as indicated in the table below;
25
Table 3.1: Sample Size Distribution
3.4 Data Collection Methods
Data Collection is the procedure of getting-together and measuring information on
variables of interest, in a recognized systematic manner that enables one to answer
declared research questions, test hypotheses, and weigh up outcomes. This study utilised
both primary and secondary data. Primary data was gathered using questionnaires
recognized as an imperative data collection tool (Malhotra, 2011). The data collection
method is given good reason for because it offers an efficient and effective way of
collecting information within a very short time. Secondary data was collected from
journals books and the internet and was used to give an analysis of what other authors
have to say about the research topic under study. This analysis is presented in chapter two
of this study. To the respondents, questionnaires inform of closed and open ended
questions were presented. The questionnaire provided questions in a semi structured
format while others were open ended questions to capture opinions of the respondents
regarding the performance variables in the study (Cooper and Schindler, 2008). The
close-ended questions were in the form of a 5-point Likert scale (agree, strongly agree,
neutral, disagree or strongly disagree) to investigate the effects of Porter’s five forces on
strategy formulation focusing on Standard Chartered Bank.
3.5 Research Procedures
Research procedure is the method for measuring variables and collecting data to test
hypothesis. Permission to carry out this research was sought from the human resource
office of Standard Chartered Bank at their head office in Nairobi using an official letter
from USIU-Africa research office seeking their authority to collect data. Upon approval
the researcher went ahead to carry out a pilot study to test the questionnaire on two
respondents from the bank who were not part of the final data collection process. The
Level of Management Number of Respondents
Top Management 5
Middle Management 10
Lower Management(Supervisors) 15
Total Sample 30
26
pilot study was directed towards measuring the accuracy, completeness, precision and
clarity of questionnaires.
Amendments were made on the questionnaires and on an agreed date and time with
communication of the human resource manager at the bank, who was instrumental in
informing the targeted respondents on taking part in the research. This assured the
respondents of confidentiality of information obtained. The questionnaires was then
distributed to the respondents with the assistance of a research assistant and in ensuring
high response rate the respondents were reminded via email
3.6 Data Analysis Methods
According to Bihani and Patil (2014), analysis of data is a process of inspecting, cleaning,
transforming, and modeling data with the goal of discovering useful information,
suggesting conclusions, and supporting decision-making. In this chapter, both qualitative
and quantitative data analysis techniques were utilised. Qualitative technique refers to any
kind of research that produces findings not arrived at by means of statistical procedures or
other means of quantification while quantitative research seeks insight through a less
structured and more flexible approach (Hoepfl, 2015). The gathered data for this study
was coded and analysed using Statistical Package for Social Sciences (SPSS) software
with use of descriptive statistics, particularly mean and standard deviation and coefficient
of variation as well as use of inferential statistics including correlation, cross tabulation,
regression and presented using tables and figures to give a clear picture of the research
findings at a fleeting look.
3.7 Chapter Summary
Chapter three has depicted the methodology and processes that was used to bring out the
study. It started with a brief introduction highlighting the general methodology and
structure of the chapter. The chapter also highlighted the method that was used to conduct
the research and its use justified. The population was defined and the sampling technique,
technique, and sample size described. Finally, the data collection techniques and research
procedures used have been discussed. The study also described the data analysis method
27
employed during research. The next chapter is chapter four and discusses the results and
findings of the study.
28
CHAPTER FOUR
4.0 RESULTS AND FINDINGS
4.1 Introduction
Chapter four depicts the analyzed results and findings of the study on the research
questions relating to the information found from the respondents. The first section is
about the background information, which portrays demographic orientation of the
respondents. The second section is about industry rivalry and strategy formulation. The
third section is on threat of new entrance and strategy formulation. The fourth section is
on bargaining power of buyers and strategy formulation and the final section is the
summary of the whole chapter.
4.2 General Information
4.2.1 Gender of Respondents
Figure 4.1 depicts the gender demonstration of the study. From the figure, it is very well
indicated that 27% of the people at the Standard Chartered Bank Kenya is female while
73% is male.
The study means that majority of the population at Standard Chartered Bank are males.
Figure 4.1: Gender of Respondents
29
4.2.2 Age of Respondents
To show the age representation of the population at Standard Chartered Bank Kenya,
Figure 4.2 was used. The figure illustrates that 53% of the respondents represents
individuals who are between 20 to 30 years of age while those who are between 31 to 40
years are represented by 13%. The study also reveals that 17% of respondents are
between 40 to 60 years and 17% are above 50 years of age.
The implication of the study is that majority of the population working at Standard
Chartered Bank Kenya are between 20 to 30 years of age.
Figure 4.2: Age of Respondents
4.2.3 Level of Education of Respondents
Figure 4.3 shows the level of education of respondents. From the figure, it is clearly
shown that 63% of the population has bachelor’s education and 37% has master’s
education.
The study implies that majority of the population at Standard Chartered Bank has
bachelor’s degree.
30
Figure 4.3: Level of Education of Respondents
4.2.4 Employee Category
To show the cadre of employees at Standard Chartered Bank Kenya, Figure 4.4 was used.
The figure indicates that 66.7% represents junior employees, 20% represents supervisors,
6.7% represents lower level management and 6.7% represents middle level management.
The implication of the study is that majority of the population working at Standard
Chartered Bank Kenya are junior employees.
Figure 4.4: Employee Category
4.3 Industry Rivalry and Strategy Formulation
This section aimed at determining how industry rivalry affects strategy formulation. The
aspects addressed included intensity of rivalry, existing competitors, service
improvement, enhancing profitability, exit barriers, leadership ambitions, price
31
competition, attracting and retaining customers, large increments and customer
development.
4.3.1 Intensity of Rivalry
Table 4.1 shows the level at which respondents’ opinions on intensity of rivalry. From
the table, the study confirms that 56.7% of respondents agreed that intensity of rivalry
among companies makes companies to craft strategies to achieve market share. The study
also shows that 43.3% strongly agreed to the statement.
Table 4.1: Intensity of Rivalry
Intensity of rivalry among companies makes companies to craft strategies to achieve
market share
Frequency Percentage
Agree 17 56.7
Strongly Agree. 13 43.3
Total 30 100.0
4.3.2 Existing Competitors
Table 4.2 shows the respondents’ opinions on existing competitors. From the table, 56.7%
of respondents agreed that the rivalry among existing competitors enhances new product
introduction, 30.0% of the respondents strongly agreed to the statement, and 13.3%
disagreed that rivalry among existing competitors enhances new product introduction.
Table 4.2: Existing Competitors
Rivalry among existing competitors enhances new product introduction
Frequency Percentage
Disagree 4 13.3
Agree 17 56.7
Strongly Agree 9 30.0
Total 30 100.0
4.3.3 Organizational Services
Table 4.3 establishes the respondents’ opinions on organizational services. From the
table, 50.0% of respondents agreed that organizational services are improved as a result
32
of intense rivalry, 36.7% strongly agreed to the statement and 13.3% of the respondents
do not know if organizational services are improved as a result of intense rivalry.
Table 4.3: Organizational Services
Organizational services are improved as a result of intense rivalry
Frequency Percentage
Do Not Know 4 13.3
Agree 15 50.0
Strongly Agree. 11 36.7
Total 30 100.0
4.3.4 Enhancing Profitability
Table 4.4 shows the opinions of the respondents on profitability enhancement. From the
study, 70.0% of respondents agreed that due to rivalry, companies develop strategies on
how to offer discounts and enhance profitability, and 20.0% of respondents disagreed
about the latter statement. The study also revealed that 10.0% of respondents strongly
agreed to the statement that due to rivalry, companies develop strategies on how to offer
discounts and enhance profitability.
Table 4.4: Enhancing Profitability
Due to rivalry, companies develop strategies on how to offer discounts and enhance
profitability
Frequency Percentage
Disagree 6 20.0
Agree 21 70.0
Strongly Agree. 3 10.0
Total 30 100.0
4.3.5 Exit Barriers
Table 4.5 reveals the exit barriers in the industry rivalry. The table shows that 76.7% of
the respondents agreed that when exit barriers are high, the intensity of rivalry is greatest,
13.3% of the respondents did not know about the statement but 10.0% of the respondents
strongly agreed that when exit barriers are high, the intensity of rivalry is greatest.
33
Table 4.5: Exit Barriers
When exit barriers are high, the intensity of rivalry is greatest
Frequency Percentage
Do Not Know 4 13.3
Agree 23 76.7
Strongly Agree. 3 10.0
Total 30 100.0
4.3.6 Leadership Ambitions
Table 4.6 shows respondents’ opinions on leadership ambitions. From the table, it is very
clear that 43.3% of respondents agreed that rivals are highly committed to the business
and have ambitions for leadership, 20.0% of respondents disagreed to the statement,
13.3% of respondents strongly disagreed and 13.3% strongly agreed that rivals are highly
committed to the business and have ambitions for leadership. The study also shows that
10.0% of respondents were not aware that rivals are highly committed to the business and
have ambitions for leadership.
Table 4.6: Leadership Ambitions
Rivals are highly committed to the business and have ambitions for leadership
Frequency Percentage
Strongly Disagree 4 13.3
Disagree 6 20.0
Do Not Know 3 10.0
Agree 13 43.3
Strongly Agree. 4 13.3
Total 30 100.0
4.3.6 Price Competition
Table 4.7 reveals the opinions of the respondents on price competition. From the table,
53.3% of the respondents disagreed that persistent price competition teaches customers to
pay less consideration to product features and service, 20.0% of respondents agreed to the
statement, 13.3% of respondents strongly disagreed to the statement and 13.3% of
respondents did not know if persistent price competition teaches customers to pay less
consideration to product features and service.
34
Table 4.7: Price Competition
Persistent price competition teaches customers to pay less consideration to product
features and service
Frequency Percentage
Strongly Disagree 4 13.3
Disagree 16 53.3
Do Not Know 4 13.3
Agree 6 20.0
Total 30 100.0
4.3.7 Attracting and Retaining Customers
Table 4.8 shows respondents’ views on customer attraction and retention. From the table,
60.0% of respondents agreed that as a result to industry rivalry, companies develop
techniques on how to cut on prices to attract and retain more customers, 33.3% of
respondents disagreed to the statement, 3.3% of respondents strongly agreed and 3.3%
did not know that as a result to industry rivalry, companies develop techniques on how to
cut on prices to attract and retain more customers.
Table 4.8: Attracting and Retaining Customers
As a result to industry rivalry, companies develop techniques on how to cut on prices to
attract and retain more customers
Frequency Percentage
Disagree 10 33.3
Do Not Know 1 3.3
Agree 18 60.0
Strongly Agree. 1 3.3
Total 30 100.0
4.3.8 Large Increments
Table 4.9 shows the views of the respondents on the increments. The table shows that
53.3% of respondents agreed that to be efficient, company capacity must be expanded in
large increments, 20.0% of respondents disagreed to the latter statement, and 13.3% of
respondents strongly disagreed to the statement. The study also shows that 13.3% did not
know that to be efficient, company capacity must be expanded in large increments.
35
Table 4.9: Large Increments
To be efficient, company capacity must be expanded in large increments
Frequency Percentage
Disagree 6 20.0
Do Not Know 4 13.3
Agree 16 53.3
Strongly Agree. 4 13.3
Total 30 100.0
4.3.8 Customer Value
Table 4.10 shows respondents’ opinions on rules and procedures. From the table, it is
very clear that 50.0% of respondents agreed and 50.0% of respondents strongly agreed
that competition dimensions other than price on product features, delivery time, support
services, for instance, develops customer value.
Table 4.10: Customer Value
Competition on dimensions other than price on product features, delivery time, support
services, for instance, develops customer value
Frequency Percentage
Agree 15 50.0
Strongly Agree. 15 50.0
Total 30 100.0
4.3.9 New Product Introduction
Table 4.11 reveals a correlation between industry rivalry and new product introduction.
From the study, rivalry among existing competitors enhances new product introduction (r
= 0.907**, p<0.01, N= 30).
Table 4.11: New Product Introduction
Rivalry among existing
competitors enhances new product
introduction
Industry Rivalry Pearson Correlation .907**
Sig. (2-tailed) .000
N 30
**. Correlation is significant at the 0.01 level (2-tailed).
4.4 Threat of New Entrants on Strategy Formulation
36
In this section, the study establishes how the threats of new entrants affect strategy
formulation. The study aspects addressed include: entry of new companies, flexible
licensing regulations, low entry barriers, customer switch costs, capital requirement, local
conditions, economies of scale, benefits of scale, technological development and sources
of raw materials.
4.4.1 Entry of New Companies
Table 4.12 reveals the opinions of respondents on entry of new companies. The table
shows that 30.0% of the respondents agreed that entry of new companies to the market
affects strategy formulation, and 30.0% were uncertain about the statement. The study
also reveals that 20.0% of the respondents disagreed that entry of new companies to the
market affects strategy formulation, 13.3% strongly disagreed to the statement and 6.7%
of respondents strongly agreed.
Table 4.12: Entry of New Companies
Entry of new companies to the market
Frequency Percentage
Strongly Disagree 4 13.3
Disagree 6 20.0
Do Not Know 9 30.0
Agree 9 30.0
Strongly Agree. 2 6.7
Total 30 100.0
4.4.2 Flexible Licensing Regulations
Table 4.13 shows respondents’ opinions on how flexibility licensing regulations. The
table shows that 33.3% of respondents agreed that flexible licensing regulations enhance
strategy formation, 20.0% of respondents disagreed to the latter statement, and 16.7% of
respondents did not know if flexible licensing regulations affect strategy formation. The
study also shows that 16.7% strongly agreed that flexible licensing regulations enhance
strategy formulation and 13.3% strongly disagreed to the same statement.
Table 4.13: Flexible Licensing Regulations
Flexible licensing regulations
Frequency Percentage
37
Strongly Disagree 4 13.3
Disagree 6 20.0
Do Not Know 5 16.7
Agree 10 33.3
Strongly Agree. 5 16.7
Total 30 100.0
4.4.3 Low Entry Barriers
Table 4.14 reveals the views of respondents on low entry barriers. The table shows that
46.7% of the respondents agreed that low entry barriers affects strategy formulation, and
16.7% of the respondents strongly agreed to the statement. The study also reveals that
16.7% of the respondents strongly disagreed that low entry barriers affect strategy
formulation, 10.7% disagreed to the statement and 3.3% of respondents did not know that
low entry barriers affects strategy formulation.
Table 4.14: Low Entry Barriers
Low entry barriers
Frequency Percentage
Strongly Disagree 5 16.7
Disagree 5 16.7
Do Not Know 1 3.3
Agree 14 46.7
Strongly Agree. 5 16.7
Total 30 100.0
4.4.4 Customer Switching Costs
Table 4.15 shows respondents’ opinions on customer switching costs and strategy
formulation. The table shows that 56.7% of respondents agreed that high customer
switching costs affect strategy formation, 16.7% of respondents strongly agreed to the
statement, and 13.3% strongly disagreed about the statement that high customer switching
costs affect strategy implementation. The study also depicts that 10.0% of respondents
disagreed that high customer switching costs affect strategy implementation while 3.3%
did not know that high customer switching costs affect strategy implementation.
Table 4.15: Customer Switching Costs
High customer switching costs
38
Frequency Percentage
Strongly Disagree 4 13.3
Disagree 3 10.0
Do Not Know 1 3.3
Agree 17 56.7
Strongly Agree. 5 16.7
Total 30 100.0
4.4.5 Capital Requirement
Table 4.16 reveals the opinions of respondents on capital requirement and strategy
formulation. The table shows that 46.7% of the respondents agreed that initial capital
requirement regulation affects strategy formulation, 20.0% of the respondents disagreed
to the latter statement and 16.7% of the respondents strongly disagreed that initial capital
requirement regulation affects strategy formulation. The study also shows that 16.7% of
respondents strongly agreed about the statement.
Table 4.16: Capital Requirement
Initial capital requirement regulation
Frequency Percentage
Strongly Disagree 5 16.7
Disagree 6 20.0
Agree 14 46.7
Strongly Agree. 5 16.7
Total 30 100.0
4.4.6 Local Conditions
Table 4.17 shows respondents’ opinions on local conditions facing the organizations.
From the table, it is very clear that 63.3% of respondents agreed that local conditions
facing the organizations affect strategy formulation, 16.7% of respondents strongly
disagreed about the statement, 13.3% of respondents strongly agreed and 6.7% of
respondents did not know that local conditions facing the organizations affect strategy
formulation.
Table 4.17: Local Conditions
39
Local conditions facing the organizations
Frequency Percentage
Strongly Disagree 5 16.7
Do Not Know 2 6.7
Agree 19 63.3
Strongly Agree. 4 13.3
Total 30 100.0
4.4.7 Economies of Scale
Table 4.18 reveals the views of respondents on the economies of scale and strategy
formulation. The table shows that 43.3% of the respondents were uncertain that supply
side of economies of scale affects strategy formulation, and 40.0% of the respondents
agreed to the statement. The study also shows that 13.3% of respondents disagreed to the
statement that supply side of economies of scale affects strategy formulation while 3.3%
strongly disagreed to the statement.
Table 4.18: Economy of Scale
Supply side of economies of scale
Frequency Percentage
Strongly Disagree 1 3.3
Disagree 4 13.3
Do Not Know 13 43.3
Agree 12 40.0
Total 30 100.0
4.4.8 Benefits of Scale
Table 4.19 shows respondents’ opinions on benefits of scale and strategy formulation.
From the table, it is very clear that 43.3% of respondents did not know that demand side
benefits of scale affects strategy formulation, 40% of respondents agreed to the statement,
and 16.7% of respondents disagreed that demand side benefits of scale affects strategy
formulation.
Table 4.19: Benefit of Scale
40
Demand side benefits of scale
Frequency Percentage
Disagree 5 16.7
Do Not Know 13 43.3
Agree 12 40.0
Total 30 100.0
4.4.9 Technological Development
Table 4.20 shows the views of respondents on technological development and strategy
formulation. From the table, it is very clear that 80.0% of respondents agreed that high
sources of information due to technological development affects strategy formulation,
13.3% of respondents strongly disagreed about the statement, and 6.7% of respondents
strongly agreed that and 10.7% strongly agreed that high sources of information due to
technological development affects strategy formulation.
Table 4.20: Technological Development
High source of information due to technological development
Frequency Percentage
Strongly Disagree 4 13.3
Agree 24 80.0
Strongly Agree. 2 6.7
Total 30 100.0
4.4.10 Sources of Raw Materials
Table 4.21 shows respondents’ opinions on sources of raw materials and strategy
formulation. The table shows that 50.0% of respondents agreed that limited sources of
raw materials affect strategy formulation and 50.0% of respondents strongly agreed to the
latter statement.
Table 4.21: Sources of Raw Materials
Limited sources of raw materials
Frequency Percentage
Agree 15 50.0
Strongly Agree. 15 50.0
Total 30 100.0
41
4.4.11 New Entrance
Table 4.22 reveals a correlation between threat of new entrance and other variables. From
the study, entry of new companies to the market communication affects strategy
formation (r = 0.793**, p<0.01, N= 30). The study shows that Flexible licensing
regulations affects strategy formulation (r = 0.875**, p<0.01, N=30). Low entry barriers
affects strategy formulation (r = 0.896**, p<0.01, N=30).
The study reveals that high customer switching costs affects strategy formulation (r =
0.840**, p<0.01, N=30). The study also shows that initial capital requirement regulation
affects strategy formulation (r = 0.885**, p<0.01, N=30). The study shows that local
conditions facing the organizations affects strategy formulation (r = 0.841**, p<0.01,
N=30).
Table 4.22: New Entrance
Threat of New Entrants on Strategy
Formulation
Pearson
Correlation
Sig. (2-
tailed) N
Entry of new companies to the market .793** .000 30
Flexible licensing regulations .875** .000 30
Low entry barriers .896** .000 30
High customer switching costs .840** .000 30
Initial capital requirement regulation .885** .000 30
Local conditions facing the organizations .841** .000 30
4.5 Bargaining Power of Buyers on Strategy Formulation
The study aimed at investigating the effect of bargaining power of buyers on strategy
formulation. The aspects addressed include competitive force, competitive position,
environmental uncertainties, price sensitive, production based approaches, information
accessibility, monitoring and evaluation, industry products, and negotiating leverage.
4.5.1 Competitive Force
Table 4.23 shows the respondents’ opinions on competitive forces and strategy
formulation. From the table, 43.3% of respondents agreed that buyers represent a
competitive force because they can bid down prices and demand higher quality, 43.3% of
the respondents were not aware of the statement and 13.3% disagreed that that buyers
42
represent a competitive force because they can bid down prices and demand higher
quality.
Table 4.23: Competitive Force
Buyers represent a competitive force because they can bid down prices, demand higher
quality
Frequency Percentage
Disagree 4 13.3
Do Not Know 13 43.3
Agree 13 43.3
Total 30 100.0
4.5.2 Competitive Position
Table 4.24: Competitive Position
The bargaining power of buyers is force that can affect the competitive position of a
company
Frequency Percentage
Disagree 8 26.7
Do Not Know 8 26.7
Agree 9 30.0
Strongly Agree. 5 16.7
Total 30 100.0
Table 4.24 establishes the respondents’ opinions on competitive position and strategy
formulation. From the table, 30.0% of respondents agreed that the bargaining power of
buyers is force that can affect the competitive position of a company, 26.7% of
respondents disagreed to the statement, 26.7% did not know that the bargaining power of
buyers is force that can affect the competitive position of a company and 16.7% strongly
agreed that the bargaining power of buyers is force that can affect the competitive
position of a company.
4.5.3 Technology and Competition
Table 4.25 shows the opinions of the respondents on technology and competition in
strategy formation. From the study, 76.7% of respondents agreed that technology and
competition are responsible for increased choices of products and services, 20.0% of
respondents strongly agreed to the statement and 3.3% of respondents disagreed that
43
technology and competition are responsible for increased choices of products and
services.
Table 4.25: Technology and Competition
Technology and competition are responsible for increased choices of products and
services
Frequency Percentage
Disagree 1 3.3
Agree 23 76.7
Strongly Agree. 6 20.0
Total 30 100.0
4.5.4 Environmental Uncertainties
Table 4.26 reveals the environmental uncertainty and strategy formulation. The table
shows that 83.3% of the respondents agreed that companies need to implement new
strategies that allow them to deal with environmental uncertainties created by buyers
while 16.7% of the respondents strongly agreed that companies need to implement new
strategies that allow them to deal with environmental uncertainties created by buyers.
Table 4.26: Environmental Uncertainties
Companies need to implement new strategies that allow them to deal with
environmental uncertainties created by buyers
Frequency Percentage
Agree 25 83.3
Strongly Agree. 5 16.7
Total 30 100.0
4.5.5 Price Sensitive
Table 4.27 shows respondents’ opinions on price sensitivity and strategy formulation.
From the table, it is very clear that 60.0% of respondents agreed that buyers tend to be
more price-sensitive if they are purchasing products that are undifferentiated while
1.3.3% of respondents strongly agreed to the statement. The study also shows that 13.3%
of respondents disagreed and 13.3% of respondents did not know that buyers tend to be
more price sensitive if they are purchasing products that are undifferentiated.
Table 4.27: Price Sensitive
44
Buyers tend to be more price-sensitive if they are purchasing products that are
undifferentiated
Frequency Percentage
Disagree 4 13.3
Do Not Know 4 13.3
Agree 18 60.0
Strongly Agree. 4 13.3
Total 30 100.0
4.5.6 Production Based Approach
Table 4.28 reveals the opinions of respondents on production based approach and strategy
formulation. The table shows that 60.0% of the respondents agreed that capacity building
is essential for successful adoption and implementation of production based approaches,
26.7% were uncertain about the statement and 13.3% of the respondents strongly agreed
that capacity building is essential for successful adoption and implementation of
production based approaches.
Table 4.28: Production Based Approach
Capacity building is essential for successful adoption and implementation of
production based approaches
Frequency Percentage
Do Not Know 8 26.7
Agree 18 60.0
Strongly Agree. 4 13.3
Total 30 100.0
4.5.7 Information Accessibility
Table 4.29 shows respondents’ opinions on information accessibility ad strategy
formulation. From the table, it is very clear that 43.3% of respondents did not know that
when buyers have full information about demand they gain greater bargaining leverage,
30.0% of respondents agreed, 13.3% strongly agreed to the statement. The study also
shows that 13.3% of respondents disagreed that when buyers have full information about
demand they gain greater bargaining leverage.
45
Table 4.29: Information Accessibility
When buyers have full information about demand they gain greater bargaining leverage
Frequency Percentage
Disagree 4 13.3
Do Not Know 13 43.3
Agree 9 30.0
Strongly Agree. 4 13.3
Total 30 100.0
4.5.8 Monitoring and Evaluation
Table 4.30 shows the views of the respondents on monitoring and evaluation and strategy
formulation. The table shows that 43.3% of respondents agreed that a strategy for
monitoring, evaluation and assessment of impact is vital for companies that buyers have
bargaining powers, 43.3% of respondents strongly agreed to the latter statement, and
13.3% of respondents disagreed to the statement.
Table 4.30: Monitoring and Evaluation
A strategy for monitoring, evaluation and assessment of impact is vital for companies
that buyers have bargaining powers
Frequency Percentage
Disagree 4 13.3
Agree 13 43.3
Strongly Agree. 13 43.3
Total 30 100.0
4.5.9 Industry’s Product
Table 4.31 shows respondents’ views on industry’s product and strategy formulation.
From the table, 53.3% of respondents agreed that the quality of buyers’ products or
services is little affected by the industry product, 30.0% of respondents strongly agreed to
the statement while 6.7% of respondents did not know that the quality of buyers’ products
or services is little affected by the industry product.
Table 4.31: Industry Product
The quality of buyers’ products or services is little affected by the industry’s product
Frequency Percentage
Do Not Know 5 16.7
Agree 16 53.3
Strongly Agree. 9 30.0
Total 30 100.0
46
4.5.10 Negotiating Leverage
Table 4.32 reveals the opinions of the respondents on negotiating leverage and strategy
formulation. From the table, 43.3% of the respondents agreed that buyers are powerful if they
have negotiating leverage relative to industry participants, 36.7% of respondents strongly
agreed to the statement, 16.7% were uncertain about the statement and 3.3% disagreed
that buyers are powerful if they have negotiating leverage relative to industry participants.
Table 4.32: Negotiating Leverage
Buyers are powerful if they have negotiating leverage relative to industry participants
Frequency Percentage
Strongly Disagree 1 3.3
Do Not Know 5 16.7
Agree 13 43.3
Strongly Agree. 11 36.7
Total 30 100.0
4.5.11 Bargaining Power of Buyers
Table 4.33 reveals a correlation between bargaining power of buyers and other variables.
From the study, it is clear that buyers represent a competitive force because they can bid
down prices, demand higher quality (r = 0.431*, p<0.05, N= 30). The bargaining power
of buyers is force that can affect the competitive position of a company (r = 0.606**,
p<0.01, N=30). The study found that when buyers have full information about demand
they gain greater bargaining leverage (r = 0.588**, p<0.01, N=30).
Table 4.33: Bargaining Power of Buyers
Bargaining Power of Buyers on
Strategy Formulation
Pearson
Correlation
Sig. (2-
tailed) N
Buyers represent a competitive force because they
can bid down prices, demand higher quality .431* .018 30
The bargaining power of buyers is force that can
affect the competitive position of a company .606** .000 30
When buyers have full information about demand
they gain greater bargaining leverage .588** .001 30
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
47
4.6 Chapter Summary
This chapter has presented the results and findings with respect to the data provided by
the respondents from Standard Chartered Bank Kenya. The chapter provided analysis on
the response rate, background information, industry rivalry, threat of new entrants and
bargaining power of buyers. The next chapter offers the summary, discussions,
conclusions and recommendations.
48
CHAPTER FIVE
5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
Chapter five represents the discussion, conclusions and recommendations of the study. In
section 5.2, the summary of the study is portrayed. The discussion and conclusion of the
study is in section 5.3 and 5.4 in that order. Section 5.5 demonstrates the
recommendations.
5.2 Summary
The purpose of the study was to examine the effect of porter’s five forces on strategy
formulation at Standard Chartered Bank Kenya. The study aimed at determining how
industry rivalry affect strategy formulation, establishing the effect of the threat of new
entrants on strategy formulation and examining ho buyer power affect strategy
formulation.
The study adopted a cross-sectional descriptive research method in analyzing,
interpretation, and presentation of data. The cross-sectional descriptive research design
was the best design for this study as it appeals for generalization within a particular
parameter. To obtain relevant information from respondents, the study utilized
questionnaires. The study focused on 30 employees in management and supervisory role
at standard chartered bank head office in Nairobi. The target population was all involved
in this research. The sampling technique that was used was census and the study collected
information from all the population. The study adopted a descriptive and inferential
statistics in data analysis and presentation. Figure and tables were used in data
presentation.
The study determined how industry rivalry affects strategy formulation. It was found that
intensity of rivalry among companies makes companies to craft strategies to achieve
market share. Rivalry among existing competitors enhances new product introduction.
The study revealed that organizational services are improved as a result of intense rivalry.
Due to rivalry, companies develop strategies on how to offer discounts and enhance
profitability. The study found that when exit barriers are high, the intensity of rivalry is
49
greatest. The study revealed that rivals are highly committed to the business and have
ambitions for leadership. This shows that persistent price competition teaches customers
to pay less consideration to product features and service. The study established that as a
result to industry rivalry, companies develop techniques on how to cut on prices to attract
and retain more customers.
The study established the influence of threat of new entrants on strategy formulation at
Standard Chartered Bank. The study found that entry of new companies to the market
affects strategy formulation. It was noted that flexible licensing regulations enhance
strategy formation. It was determined that low entry barriers affect strategy formulation.
From the study, it was examined that high customer switching costs affect strategy
implementation. The study also found that initial capital requirement regulation affects
strategy formulation. Local conditions facing the organizations affect strategy
formulation. The study also found that high sources of information due to technological
development influence strategy formulation.
The study examined the influence of the bargaining power of buyers on strategy
formulation at Standard Chartered Bank. The study found that buyers characterize a
competitive force since they can demand higher quality and bid down prices. The study
confirms that the bargaining power of buyers is force that can affect the competitive
position of a company. The study found that technology and competition are responsible
for increased choices of products and services. The study reveals that companies need to
implement new strategies that allow them to deal with environmental uncertainties
created by buyers. Consumers tend to be more sensitive to price if they are purchasing
goods that are undifferentiated. The study found that capacity building is essential for
successful adoption and implementation of production based approaches. The study
confirms that a strategy for monitoring, evaluation and assessment of impact is vital for
companies that buyers have bargaining powers.
5.3 Discussion
5.3.1 Industry Rivalry and Strategy Formulation
In this objective, the aim of the study was to determine the effects of industry rivalry on
strategy formulation. The study analyzed the variables arising from this objective and
50
found that 100% of respondents agreed that intensity of rivalry among companies makes
companies to craft strategies to achieve market share. The findings of the research support
the findings of Gabriel (2009) who asserts that the intensity of rivalry among and between
companies within an industry is apparent when companies in an industry battle achieve
market share from each other. The findings also have the same opinion with the findings
of Awuah (2011) who asserts that competition among existing rivals takes many familiar
forms, including price discounting, new product introductions, advertising campaigns and
service improvements. The study found that high level competition restricts the
profitability of an industry.
The study found that 86.7% of respondents agree that rivalry among existing competitors
enhances new product introduction. This conforms to the findings of Awuah (2011) that
states that the circumstance of rivalry has created intense competition between the small
and the large established banks. Awuah (2011) established that the degree to which
competition drives down an industry’s profit potential depends on the concentration with
which firms compete and on the basis on which they compete. The study findings also
defends the findings of Mguni (2013) who confirmed that the level of rivalry is biggest if,
rivals are several or are roughly equal in size and power. In such circumstances, rivals
find it tough to avoid poaching business. The study on the other hand confirms that the
intensity of rivalry is also greatest if the industry growth is slow. Slow growth sudden
fights for market share.
The study revealed that 80% of the respondents confirmed that due to rivalry, companies
develop strategies on how to offer discounts and enhance profitability. The findings of the
study contradicts the findings of Porter (2007) who argues that rivals are highly
committed to the business and have ambitions for leadership, particularly if they have
objectives that go further than economic performance in the predominant industry. Porter
in his research put forward that conflicts of ego and personality have infrequently
overstated competition to the disadvantage of profitability in fields such as the high media
and technology. The study also disagrees with the findings of Afuah (2008) who
established that organizations cannot read each other’s signs well for the purpose that
they are short of familiarity with one another, dissimilar approaches, or differing goals to
competing. Afuah confirms that the power of competition reproduces not just the power
of competition but also the basis of competition. The study confirms that the capacity on
51
which rivalry takes place and whether competitors come together to compete on the same
capacity has a major impact on profitability.
The study found that 86.7% of respondents affirm that when exit barriers are high, the
intensity of rivalry is greatest. These findings support the findings of Ernst and Young
(2012) who state that exit barriers, the flipside of entry barriers, happen because of such
things as management’s devotion to a certain business or highly specialized assets. These
barriers, according to the study done by Ernst and Young, keep firms in the market even
supposing they may be earning low or negative returns. The study of Ernst and Young
reveals that glut capacity remains in use, and the returns of healthy competitors suffers as
the sick ones hang on. Bengtsson and Kock (2010) on the other side affirms that
competition is more than ever disparaging to profitability if it gravitates wholly to price
because price rivalry transfers profits directly to customers from an industry. Price cuts
are generally easy for competitors to see and match, creating successive rounds of
retaliation likely. Unrelenting price competition also teaches customers to pay less
deliberation to product features and service.
The study found that 63.3% of respondents agree that as a result to industry rivalry,
companies develop techniques on how to cut on prices to attract and retain more
customers. The study supports the findings of Covin and Slevin (2010) who assert that
products or services of rivals are almost indistinguishable and there are not many
switching costs for buyers. This, according to Covin and Slevin, offers self-assurance to
rivals to cut prices to win new customers. This forms high pressure for rivals to cut prices
underneath their average costs, even close to their marginal costs, to steal incremental
consumers while still creating some contribution to covering up fixed costs. Alternatively,
Hill and Jones (2004) established that to be efficient, capacity must be extended in large
increments. The need for big capacity expansion, as in the polyvinyl chloride business,
breaks off the industry’s supply-demand balance and over and over again leads to long
and habitual periods of excess numbers and price cutting.
The study revealed that 100% of respondents affirmed that competition on dimensions
other than price on product features, delivery time, support services, or brand image, for
instance, is less expected to erode profitability because it develops customer value and
can sustain higher prices. The findings support the findings of Gabriel (2009) who affirms
52
that affirms that rivalry focused on the above mentioned scopes can enhance value
relative to substitutes or increase the barriers facing new entrants. While non-price rivalry
at times escalates to levels that weaken industry profitability, this is less expected to occur
than it is with price rivalry. The findings also concur with Nir (2009) who believes that
the dimensions of rivalry are significant whether rivals compete on the same dimensions
or not. When all or numerous competitors aspire to meet the same needs or compete on
the same characteristics, the result is zero-sum competition. Here, one firm’s achievement
is often another’s loss, forcing down profitability. Rajiv and Padmanabhan (1995) found
that while price competition runs a stronger risk than non-price competition of becoming
zero-sum, this may not happen if companies take care to segment their markets, targeting
their low-price offerings to different customers.
5.3.2 Threats of New Entrants on Strategy Formulation
The study aimed at assessing how the threats of new entrants affect strategy formulation.
The study revealed that 36.7% of respondents agreed that entry of new companies to the
market influence strategy formulation. This study supports the findings of Gabriel (2009)
who indicates that, the possibility of new firms entering the industry affects competition
and makes it difficult for the already existing firms to protect their market share and
continue to be profitable. The study, on the other hand, supports the findings of Foley and
Jayawardhena (2000) who found that the cost of entry into the commercial banking sector
is low, licensing regulations are way too flexible, profits seem very promising and the risk
seems manageable and as a result new players have been entering the commercial
banking scene. Dagmar (2008) reveals that due to low entry barriers to an industry or
market, both potential and existing companies influence profitability.
From the study, it is found that more than 70% of the respondents affirmed that the entry
barrier is the key factor to analyze the threat of new entrants. The study supports the
findings of Dagmar (2008) who asserts that the new entrants will not only bring new
producing ability and new resource, but also occupy the market share, which belongs to
other existing companies. The study found that 38% of the respondents agree that the
high level of new entrants is as a result of flexible licensing regulations. To emphasize the
findings, Nicole (2012) adds that the high level of new entrants will lead to the conflict of
production materials and decrease the companies’ profit level. The study found that the
53
levels of the threat of new entrants depend on two kinds of factor; the new entry barrier
and the reflection of existing companies to new entrants. Lee, et al. (2011) found in their
study that the threat of new entrants is a function of the height of entry barriers. The
higher the entry barriers the weaker the competitive force.
The study confirms that over 60% of respondents believe that depending on the
environment, strategic formulation and implementation are often based on local
conditions facing the organizations and the internal resources provided in response to
them. The findings of the study agree with the findings of Mguni (2013) who indicates
that the competitiveness of organizational performance depends on strategic
implementation. The study also supports Karagiannopoulos et al. (2005) who found that
industry forces are valuable for business strategy formulation and implementation. The
study adds that business should identify its position in the market area and fight against
the competition that threatens its strategic position before formulating strategies. Covin
and Slevin (2010) believe that companies must adopt a more dynamic strategy to defend
themselves against industry structures and increase their market share.
The study reveals that 40% of respondents affirmed that supply side of economies of
scale affects strategy formulation. The study defends the findings of Tammy (2010) who
establish that supply side of economies comes when organizations that produce at
superior volumes take pleasure in lower costs per unit since they can spread fixed costs
over more units, command better terms from suppliers, or employ more efficient
technology. The study also affirmed to the findings of Churchill and Iacobucci (2008) that
reveal that supply-side scale economies deter entry by forcing the aspiring entrant either
to come into the industry on a large scale, which requires dislodging entrenched
competitors, or to accept a cost disadvantage.
From the study, it is confirmed that 43.3% of respondents are not sure that demand side
benefits of scale affects strategy formulation. The findings of the study do not agree with
the findings of McFarlane (2013) who confirms that the benefits known as network
effects come in industries where a consumer’s eagerness to pay for a firm’s product
increases with the number of other buyers who also patronize the company. Buyers may
trust larger companies more for a crucial product. The study also disagrees with the
findings of Hill and Jones (2004) who assert that demand side benefits of scale dispirit
54
entry by restraining the enthusiasm of consumers to purchase from a newcomer and by
lowering the price the newcomer can domination until it builds up a large base of
customers.
From the study, it is clear that more than 50% of respondents agreed that high capital
requirements affect strategy formulation. The study confirmed the study done by Bank-
of-Botswana (2012) found that the need to invest large financial resources in order to
compete can deter new entrants. Capital may be necessary not only for fixed facilities but
also to extend customer credit, build inventories, and fund start-up losses. Lee, et al.
(2011) revealed that the barrier is particularly great if the capital is required for
unrecoverable and therefore harder-to-finance expenditures, such as up-front advertising
or research and development.
5.3.3 Bargaining Power of Buyers on Strategy Formulation
The aim of the study was to assess how bargaining power of buyers affects strategy
formulation. The study confirms that 43.3% of respondents agreed that buyers represent a
competitive force because they can bid down prices and demand higher quality. This
confirms the study done by Porter (1998) who found that the power of each important
buyer group depends on a number of characteristic of its market situation and on the
relative importance of its purchases from the industry compared with the industry’s
overall business. The study also confirms the findings of Shah and Siddiqui (2006) who
affirm that business class passengers are an airlines choice of the buyer group which they
sell to as a crucial strategic decision. There is an amount of pressure customers can place
on airlines, thus affecting its prices, volume and profit potential. According to Porter
(1998), the bargaining power of buyers is another force that can affect the competitive
position of a company.
According to the study, over 90% of respondents agree that technology and competition
are responsible for increased choices of products and services. The findings support the
findings of Ernst and Young (2011) who assert that increased volumes of available
information on the Internet and changes in social behavior have reduced the loyalty of
customers. Ernst and Young (2011) also affirmed that increased competition reduces the
55
loyalty of customers to their main banks and are more likely to try new banks which offer
better rates, superior technology, or more attractive rewards.
The study found that over 46% of respondents believe that the buyer power means that
buyers always want to drive down the price of the product and need good service
requirements to improve the quality of products and services in the industry. This
supports the findings of Lee, et al. (2011) who found that, buyers can threaten the
industry by bargaining down prices or raising the costs by demanding better quality
suppliers. Karagiannopoulos, et al. (2005) found that buyer power is one of the two
horizontal forces that influence the appropriation of the value created by an industry. The
most important factors of buyer power are size and the concentration of customers. On
the other hand, Shah and Siddiqui (2006) assert that powerful customers, the flip side of
powerful suppliers, can capture more value by forcing down prices, demanding better
quality or more service, and generally playing industry participants off against one
another, all at the expense of industry profitability. The study found that buyers are
powerful if they have negotiating leverage relative to industry participants, especially if
they are price sensitive, using their clout primarily to pressure price reductions.
According to the study, 73% of respondents confirmed that buyers tend to be more price-
sensitive if they are purchasing products that are undifferentiated. The study revealed that
the major difference with consumers is that their needs can be more intangible and harder
to quantify. This supports the findings of Augustine et al. (2013) who found that
intermediate customers or customers who purchase the product but are not the end user
(such as assemblers or distribution channels) can be analyzed the same way as other
buyers, with one important addition. Augustine et al. (2013) add that intermediate
customers gain significant bargaining power when they can influence the purchasing
decisions of customers downstream.
The study found that over 43% of respondents believe that where the buyer has full
information about demand, actual market prices, and even supplier costs, this usually
yields the buyer greater bargaining leverage than when information is poor. The findings
supports the study of Churchill and Iacobucci (2008) who revealed that with full
information, the buyer is in a greater position to insure that it receives the most favorable
prices offered to others and can counter suppliers' claims that their viability is threatened.
56
The study also defends the findings of Porter (2007) who confirmed that the majority of
the sources of consumer power can be accredited to customers as well as to industrial and
commercial purchasers; only an alteration of the frame of reference is obligatory. Awuah
(2011) revealed that the consumer power of retailers and wholesalers is confirmed by the
same rules, with one imperative addition. Awuah (2011) confirms that retailers can gain
significant bargaining power over manufacturers when they can influence consumers'
purchasing choices, as they do in audio modules, sporting goods, appliances, jewelry, and
other goods. Wholesalers can gain bargaining power, similarly, if they can influence the
purchase decisions of the retailers or other firms to which they sell.
The study establishes that 79% of the respondents agreed that if purchasers either pose a
probable threat of backward integration or are partially integrated, they are in a position
to demand bargaining dispensation. The study supports the findings of Gabriel (2009)
who affirms that buyers engage in the practice of tapered integration that is, producing
some of their needs for a given component in-house and purchasing the rest from outside
suppliers. The study also supports the findings of Serguei (2014) who found that buyer
power can be partially neutralized when firms in the industry offer a threat of forward
integration into the buyers' industry. The study revealed that the quality of buyers’
products or services is little affected by the industry’s product. Where quality is very
much affected by the industry’s product, buyers are generally less price sensitive. The
study concurred with the findings of Shuba, et al. (2010) who found that the industry’s
product has little effect on the buyer’s other costs because the buyers focus on price.
Conversely, Shuba, et al. (2010) affirm where an industry’s product or service can pay for
itself many times over by improving performance or reducing labor, material, or other
costs, buyers are usually more interested in quality than in price. Similarly, Mguni (2013)
found that buyers tend not to be price sensitive in services such as investment banking,
where poor performance can be costly and embarrassing.
5.4 Conclusions
5.4.1 Industry Rivalry and Strategy Formulation
The study concludes that intensity of rivalry among companies makes companies to craft
strategies to achieve market share. According to the study, rivalry among existing
competitors enhances new product introduction. As a result of intense rivalry,
57
organizational services are improved. The study concludes that Due to rivalry, companies
develop strategies on how to offer discounts and enhance profitability. Rivals are highly
committed to the business and have ambitions for leadership. The study also concludes
that Persistent price competition teaches customers to pay less consideration to product
features and service. As a result to industry rivalry, companies develop techniques on
how to cut on prices to attract and retain more customers. To be efficient, company
capacity must be expanded in large increments.
5.4.2 Threat of New Entrants on Strategy Formulation
From the study it was concluded that entry of new companies to the market affects
strategy formulation. This is as a result of low entry barriers and high customer switching
costs. The study concludes that Initial capital requirement regulation and local conditions
facing the organizations affect strategy formulation. The study also concludes that supply
side of economies of scale and demand side benefits of scale affects strategy formulation.
From the study, it is believed that high source of information due to technological
development limited sources of raw materials affect strategy formulation.
5.4.3 Bargaining Power of Buyers on Strategy Formulation
The study concludes that buyers represent a competitive force because they can bid down
prices, demand higher quality. The bargaining power of buyers is force that can affect the
competitive position of a company. The study also concludes that Technology and
competition are responsible for increased choices of products and services. From the
study, it is clear that companies need to implement new strategies that allow them to deal
with environmental uncertainties created by buyers. The study concludes that buyers tend
to be more price-sensitive if they are purchasing products that are undifferentiated. From
the study, it is believed that capacity building is essential for successful adoption and
implementation of production based approaches.
58
5.5 Recommendation
5.5.1 Recommendation for Improvement
5.5.1.1 Industry Rivalry and Strategy Formulation
The study recommends Standard Chartered Bank to develop strategies that may help the
company during rivalry in the industry. The study assures that the intensity of rivalry
among companies makes companies to craft strategies to achieve market share. Rivalry
among existing competitors, according to the study, enhances new product introduction.
The bank, as a result of intense rivalry, should also improve organizational services.
Industry rivalry is good for companies as it makes them develop strategies on how to
offer discounts and enhance profitability. The study also recommends employees to have
ambitions for leadership as it makes rivals highly committed to the business. As a result
to industry rivalry, companies develop techniques on how to cut on prices to attract and
retain more customers. The study hence recommends companies to develop viable
techniques that would make them compete on the basis of price because persistent price
competition teaches customers to pay less consideration to product features and service.
5.5.1.2 Threat of New Entrants on Strategy Formulation
The study recommends the bank regulators and stakeholders to flex on the rules and
regulations to allow entry of new companies to the market as it helps the new and existing
companies to formulate good strategies. It is believed from the study that low entry
barriers and high customer switching costs enhances strategy formulation. The study
recommends that for companies to achieve great strategy formulation there is need to
understand the initial capital requirement regulation and an understanding of local
conditions facing the organizations. Supply side of economies of scale and demand side
benefits of scale affects strategy formulation. The study recommends organizations to
enhance their level of technology as they help in attaining high sources of information.
The study revealed that that limited sources of raw materials affect strategy formulation
hence it recommends organizations to develop techniques that would enable them to
easier access to sources of raw materials than their competitors.
59
5.5.1.3 Bargaining Power of Buyers on Strategy Formulation
The study recommends organizations to study and understand the bargaining power of
buyers. It is confirmed that the bargaining power of buyers is force that can affect the
competitive position of a company. Technology and competition are responsible for
increased choices of products and services. Companies need to implement new strategies
that allow them to deal with environmental uncertainties created by buyers. The study
recommends capacity building as it is essential for successful adoption and
implementation of production based approaches. From the study, it is clear that when
buyers have full information about demand they gain greater bargaining leverage. The
study recommends a strategy for monitoring, evaluation and assessment of impact as it is
vital for companies that buyers have bargaining powers.
5.5.2 Recommendation for Further Research
The study aimed at examining the effects of Porter’s five forces on strategy formulation at
standard Chartered Bank Kenya. The study was only carried on one company (Standard
Chartered Bank). Further researchers are recommended to examine the effects of Porter’s
five forces on strategy formulation on other companies in different industries and
compare the relationships. Future scholars are encouraged by this study to explore other
market forces that enhance strategy formation.
60
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APPENDICES
Appendix 1: Letter of Introduction
Dear Sir/Madam;
RE: RESEARCH QUESTIONNAIRE
I am a student at United States International University-Africa taking a Master’s degree in
Business Administration-(MBA). Strategic Management. As partial fulfillment of my
MBA degree, I am conducting a research on “Effects of Porter’s Five Forces on
Strategy Formulation with a focus on Standard Chartered Bank Kenya”.
The results of this study will provide commercial banks in Kenya with information on the
effects of Porters Five Forces on Strategy Formulation.
I request your involvement in answering the questionnaire to the best of your knowledge.
Kindly note that any information given through this questionnaire is confidential and will
only be used for the purpose of this study. Your assistance and response is much
appreciated.
Regards;
Bessy Kawira
67
Appendix 11: Study Questionnaire
Section I: General information
Kindly tick (√) where applicable
1. Gender Male [ ] Female [ ]
2. Age bracket 20 – 30 [ ] 31 – 45 [ ] 46 – 60 [ ] above 61 [ ]
3. Your level of education:
Diploma [ ] Bachelor’s Degree [ ] Master’s Degree [ ] Doctorate Degree [ ]
4. Position within the bank :
Top level Manager [ ] Middle level Manager [ ] Lower level Manager [ ]
Supervisor [ ] Junior Employee [ ]
5. Work experience
Less than 1 year [ ] 2 – 5 years [ ] 6 – 10 years [ ]
11 – 15years [ ] 16– 20 years [ ] Above 21 years [ ]
6. Are you aware of the Porters five Forces applied while formulating strategies in you
organization?
Yes [ ] No [ ]
68
Section II: Industry Rivalry and Strategy Formulation
Kindly tick the extent to which you agree with the following statements on Industry
Rivalry and Strategy Formulation by using a scale of 1 to 5. (1) Strongly Disagree, (2)
Disagree, (3) Do Not Know, (4) Agree, (5) Strongly Agree.
Statement Strongly
Disagree
Disagree Do
not
Know
Agree Strongly
Agree
1. Intensity of rivalry
among companies
makes companies
to craft strategies
to achieve market
share
2. Rivalry among
existing
competitors
enhances new
product
introduction
3. Organizational
services are
improved as a
result of intense
rivalry
4. Due to rivalry,
companies
develop strategies
on how to offer
discounts and
enhance
profitability
5. When exit barriers
are high, the
intensity of rivalry
is greatest
6. Rivals are highly
committed to the
business and have
ambitions for
leadership
7. Persistent price
competition
69
teaches customers
to pay less
consideration to
product features
and service
8. As a result to
industry rivalry,
companies
develop
techniques on how
to cut on prices to
attract and retain
more customers
9. To be efficient,
company capacity
must be expanded
in large
increments
10. Competition on
dimensions other
than price on
product features,
delivery time,
support services,
for instance,
develops customer
value
70
Section III: Threat of New Entrants on Strategy Formulation
Please indicate the extent to which you agree with the following statements on Threat of
New Entrants on Strategy Formulation by using a scale of 1 to 5. (1) Strongly Disagree,
(2) Disagree, (3) Do Not Know, (4) Agree, (5) Strongly Agree.
Statement Strongly
Disagree
Disagree Do
not
Know
Agree Strongly
Agree
1. Entry of new
companies to the
market
2. Flexible licensing
regulations
3. Low entry barriers
4. High customer
switching costs
5. Initial capital
requirement
regulation
6. Local conditions
facing the
organizations
7. Supply side of
economies of scale
8. Demand side
benefits of scale
9. High source of
information due to
technological
development
10. Limited sources of
raw materials
71
Section IV: Bargaining Power of Buyers on Strategy Formulation
Please indicate the extent to which you agree with the following statements on Bargaining
Power of Buyers on Strategy Formulation using a scale of 1 to 5. (1) Strongly Disagree,
(2) Dis agree, (3) Do Not Know, (4) Agree, (5) Strongly Agree.
Statement Strongly
Disagree
Disagree Do
not
Know
Agree Strongly
Agree
1. Buyers represent a
competitive force
because they can
bid down prices,
demand higher
quality
2. The bargaining
power of buyers is
force that can
affect the
competitive
position of a
company
3. Technology and
competition are
responsible for
increased choices
of products and
services
4. Companies need
to implement new
strategies that
allow them to deal
with
environmental
uncertainties
created by buyers
5. Buyers tend to be
more price-
sensitive if they
are purchasing
products that are
undifferentiated
6. Capacity building
is essential for
72
successful
adoption and
implementation of
production based
approaches
7. When buyers have
full information
about demand they
gain greater
bargaining
leverage
8. A strategy for
monitoring,
evaluation and
assessment of
impact is vital for
companies that
buyers have
bargaining powers
9. The quality of
buyers’ products
or services is little
affected by the
industry’s product
10. Buyers are
powerful if they
have negotiating
leverage relative
to industry
participants
THANK YOU FOR YOU