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The fiscal industry has been turning at a rapid rate non merely locally but besides internationally. However the industry, particularly retail banking has been confronting many challenges which include internal and external environmental challenges and this has led to shriveling net income borders. These challenges calls for fiscal establishments to place and follow schemes which will give them better competitory advantage and the ability to get by with the invariably emerging environmental challenges in the industry if they are to stay in concern.

As a consequence of these challenges, this survey was carried out to place environmental challenges faced by fiscal sector in Kenya and schemes that can be adopted to get the better of these challenges. To accomplish this, a instance survey of National Bank of Kenya was undertaken by questioning senior and in-between degree staff to place challenges and schemes adopted by the bank against internal and external environmental challenges.

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Structured interview usher was used in roll uping informations from NBK staff in Nairobi caput office and its subdivisions within Nairobi metropolis whereby a sum of 12 respondents were interviewed which included 3 general directors, 4 divisional directors and 5 subdivision directors. Interview guide pretest was carried out a month before the existent information aggregation took topographic point which besides included a reconnaissance visit to selected NBK subdivisions so as to familiarise and book an assignment. Data was analyzed utilizing content analysis with numeral statistics analyzed utilizing MS excel presented utilizing graphs and tabular arraies.

Environmental challenges which include entry of new rivals, high cost of operations, unstable economic conditions, tight policies and ordinances among other were identified. The schemes to get the better of these challenges identified include new merchandise development and stigmatization schemes, following new selling schemes, enlargement, outsourcing, ICT substructure ascent to name a few.

The survey recommends the demand for the fiscal industry to come together and turn to these issues together instead than single bank managing these challenges. The survey concluded by urging farther research on designation of effectual schemes to be adopted by fiscal establishments.

Table OF CONTENTS

List OF TABLES

List OF FIGURES

List OF ABBREVIATIONS AND ACRONYMS

ATM Automatic Teller Machine

BFUB Bank Fusion Universal Banking System

CBK Central Bank of Kenya

DFI’s Development Financial Institution

GDP Gross Domestic Product

HRM Human Resource Management

ICT Information Communication Technology

IMF International Monetary Fund

NBFI ‘s Non-Banking Financial Institution

NBK National Bank of Kenya

PBT Profit before Tax

Chapter ONE: Introduction

1.1 Background of the Study

Organizations operate within an environment that influences its operation either positively or negatively depending on the nature of its concern. As Porter ( 1996 ) explains, “ many houses operate within an environment whereby they are expected to run into assorted stakeholders ‘ outlooks hence the demand to explicate schemes that would assist them run into this demand ” ( p. 61 ) . On the other manus organisation operates within an environment with high competition which influences the house ‘s strategic procedure and hence determines the house ‘s accomplishment and intent ( Sharma, 2008 ) .

Therefore the endurance and success of an organisation can be achieved if the house has the resource capacity to make and aline its schemes to the environmental challenges. This is non merely influenced by the internal environment but besides the external environment. Kumar ( 2006 ) explains that rapid technological alteration, easier entry by foreign rivals and the speed uping dislocation of traditional industry boundaries capable houses to new unpredictable competitory forces. He farther adds that modern-day houses runing in a dynamic market contexts, frequently trade with these eventualities by implementing schemes that permit speedy reconfiguration and redisposition of assets to cover with these environmental alterations

Environmental influence has non spared the fiscal sector either, both locally and internationally. This was observed by Kumar ( 2006 ) when he explains that “ environmental influence has necessitated the demand for fiscal establishments to redefine their manners of service bringing and ends so as to keep and stay relevant in the of all time altering and dynamic environment ” ( p. 104-105 ) . These alterations therefore pose a batch of challenges to fiscal establishment since this alteration comes with a cost.

As a consequence of alterations in the concern environment, schemes adopted by the houses whether locally or internationally necessitate to hold a speedy response to the frequent alterations that are usually experienced in the market. These responses has been referred by Chandler ( 1962 ) as adaptive schemes which mean it considers all the factors predominating in the market at that peculiar clip and its application brings forth a positive impact in the twenty-four hours to twenty-four hours running of concern doing the house a profitable entity.

1.2 Strategic direction

The term scheme is defined as the way and range of an organisation over the long term which achieves advantage in a changing environment through its constellation of resources and competencies with the purpose of carry throughing stakeholder ‘s outlooks. ( Johson, & A ; Scholes, 2006 )

Directors do non do strategic determination in a competitory vacuity. Their company is viing against other companies for clients. The competition is a unsmooth and tumble procedure in which merely the most efficient companies win out ( Charles & A ; Hill, 2008 ) .

One of the cardinal challenges director face is to at the same time bring forth high profitableness and increase the net incomes of the company. The two writers further explain that to maximise stockholder value, directors must explicate and implement schemes that enable their company to surpass rivals-that give it a competitory advantage

1.2.1 Strategic Responses

Harmonizing to Porter, ( 1996 ) , strategic response refers to the procedure of making a unique and valuable place with agencies of a set of activities in a manner that creates interactive chase of the aims of a house.

Firm ‘s strategic responses refer to the procedures employed by the executives of the house in order to cover efficaciously with everything that affects the growing and profitableness of the house so that it can place itself optimally in its competitory environment by maximising the expectancy of the environmental challenges ( Olwany, 2011 )

Johnson and Scholes ( 2002 ) separate strategic response into three classs: internal development schemes, acquisition scheme and joint development schemes. Internal development scheme harmonizing to them refers to the point where an organisation develops through its ain direction new markets and new merchandise. On the other manus acquisition scheme involves amalgamations between two or more companies and involves full ownership between two or more companies and involves full ownership of another company. Third is the joint development scheme which implies that a house can merely accomplish its aims by co-operating with other companies ( Johnson & A ; Scholes, 2002 ) . Therefore strategic response enables organisations to cover with increased turbulency and dynamism of the environment.

1.2.2 The Financial Sector in Kenya

Kenya ‘s fiscal sector can be described as being comparatively diversified in footings of the figure of fiscal establishments. The fiscal system had 51 commercial Bankss, 23 Non-Banking Financial Institutions ( NBFIs ) , 5 edifice societies, 39 insurance companies, 3 reinsurance companies, 10 Development Financial Institutions ( DFIs ) , a Capital Market, 13 Forex agency, and 2,670 nest eggs and recognition concerted societies ( Ngugi & A ; Kabubo, 1998 ) .

Kenya ‘s economic public presentation weakened over the last decennary because of the failure to prolong prudent macroeconomic policies, the slow gait of structural reform, and the continuity of administration jobs. The frequently slack financial policy led to a rapid buildup of short-run authorities debt which, in combination with diminutions in the economy rate, translated into loaning rates in surplus of 20 per centum in existent footings. This, together with other high costs of making concern in Kenya – because of corruptness, a deteriorating substructure, and an inefficient Parastatal sector ( e.g. , public-service corporations, and transit services ) depressed investing and its effectivity, and as a effect economic growing, ( International Monetary Fund, 2000 )

The IMF ( 2000 ) study further explains that “ since early 1998 Kenya ‘s economic public presentation was assorted. It has achieved financial accommodation against the hard background of declining footings of trade, a famine of external funding, and inauspicious conditions conditions. At the same clip, the deliverance of a major bank in late 1998 labored financial policy and temporarily weakened pecuniary policy. In this context, investor assurance has remained weak, and growing has continued to worsen ” , the study concludes.

Kenya ‘s banking industry registered a 16.9 per centum growing in pre-tax net incomes, from 34.9 billion in June 2010 to 40.8 billion as at terminal of June 2011, harmonizing to information published in Central Bank of Kenya ( CBK ) web site. This rate of growing has besides led to increase in manner of service deliver from hall banking to street banking

Monetary value Waterhouse Coopers ( 2012 ) publication explains some of the chief challenges confronting the fiscal sector today which include ; new ordinances imposed on fiscal establishment by the Central Bank, for case, the Finance Act 2008, which took consequence on 1 January 2009 requires Bankss and mortgage houses to construct a minimal nucleus capital of KShs 1 billion by December 2012. This demand was hoped to assist transform little Bankss into more stable organisations.

Ngugi and Kabubo, ( 1998 ) further explain more challenges confronting growing of Kenya ‘s fiscal sector which include unpredictable rising prices rates. They explain that rising prices remained subdued in 1998 and in the first half of 1999, but it increased in the 3rd one-fourth of 1999 chiefly owing to additions in fuel and nutrient monetary values every bit good as the lagged effects of the depreciation of the shilling. Real GDP growing slowed from 2.3 per centum in 1997 to 1.8 per centum in 1998, and it was expected to decelerate farther in 1999, and unemployment continued to increase.

Fiscal Institutions drama a really important function in the Kenyan economic system. Banks, for illustration normally meet the demands of high terminal investors by doing available high sums of capital for large undertakings in the industrial, substructure and service sectors of the economic system. At the same clip, the medium and little ventures must besides hold recognition available to them for new investing and enlargement of the bing units.A

1.2.3 National Bank Kenya

National Bank Of Kenya Limited was incorporated on 19th June 1968.The chief aim of its constitution was to assist Kenyans to acquire entree to recognition and command their economic system after independency ( National Bank of Kenya, 2012 )

National bank in the yesteryear has been runing below its capacity due to increased bad debts in loan portfolio amounting to 36 billion which was politically motivated that pushed the bank into monolithic losingss in the late ninetiess and early 2000. However this state of affairs has changed since late the bank posted a net income before revenue enhancement ( PBT ) of Sh2.6 billion in the twelvemonth 2011 compared to Sh2.1 billion in 2009, harmonizing to its audited fiscal statements. ( NBK, 2012 )

The fiscal alterations outline by different writers above, explains some of the challenges that the fiscal sector is confronting and in peculiar National Bank of Kenya. In this epoch of rapid technological development and alterations in market environment, NBK, has to set its strategic responses right to enable it vie both locally and internationally

1.3 Research Problem

As Kenya ‘s general economic status deteriorated in the early 1980s, the fiscal sector public presentation besides went down. Despite holding a diversified fiscal system, fiscal nest eggs remained at a low degree. The portion of domestic nest eggs held as fiscal assets with the fiscal sector averaged 30 % in 1984-1987, similar to the degrees in the seventiess. Monetization of minutess fell from 34 % to 30 % and 29 % in 1978-1980, 1980- 1984 and although NBFIs were mushrooming in the 1980s, the fiscal system continued to be dominated by the commercial Bankss with approximately 70 % of the entire loans and progresss in 1988. In 1986, the sector faced a crisis with most of the establishments sing undercapitalization jobs. The state of affairs was attributed to the assorted restraints confronting the sector and resulted in the climb of a fiscal sector reform ( Ngugi & A ; Kabubo, 1998 )

The above findings clearly show that fiscal sector has been sing assorted challenges which include both external and internal dazes. These challenges as lineation by Ngugi and Kabubo, ( 1998 ) include cardinal bank regulative differences across fiscal establishments, particularly between commercial Bankss and NBFIs, and among the fiscal instruments unequal regulative and legal models for the fiscal system, together with failing in prudential supervising weak pecuniary policy control by the cardinal bank cleavage of the fiscal sector by activities. In the event that fiscal establishments fail to develop speedy response mechanism against these challenges, this frequently consequences to these establishments registering losingss, and losing its client base to their rivals. It is this strategic determination that will find whether the establishment shall stay profitable in the current and of all time altering market environment.

Franklin et Al ( 2010 ) addresses some of the spreads in literature on the challenges confronting fiscal sector. They point out that the hapless province of African fiscal development raise a figure of of import inquiries on what went incorrect with the fiscal reforms in Africa and on what could be improved. Is African fiscal development slow in itself, or is it simply a contemplation of broader economic and policy failures? Are the degrees of fiscal development achieved outside of Africa, in both developed and developing states, accomplishable for most African states? What factors have inhibited African fiscal development to this point? If those factors were corrected and fiscal development did take clasp, would the finance-growth link clasp in Africa as seen in other topographic points? Understanding these issues is of important importance since, as good documented in the ample empirical grounds ; there is a convincing linkage between fiscal development and economic development. They conclude by indicating out that there is virtually no strict academic research that addresses these inquiries. This research hence seeks to happen replies and papers challenges faced by fiscal sector therefore assist in make fulling the cognition spread in literature as pointed out above.

The research inquiry steering the research is what environmental challenges do fiscal sector in Kenya face and what strategic responses has been put in topographic point against these challenges by fiscal establishment in Kenya and in peculiar NBK.

1.4 Research Objective

The aim of the survey is to place environmental challenges confronting fiscal sector and in peculiar National Bank of Kenya and the strategic responses adapted by the bank to get the better of these challenges.

1.5 Value of the survey

The consequences of this survey has value in the academic field in that it will assist in make fulling bing spreads in literature as associating environmental challenges experienced by organisations and in peculiar fiscal establishments. This is cardinal in academic field as it becomes a valuable depository of cognition to academic bookmans which include pupils, lectors and research workers who will be able to mention to the papers in the hereafter while transporting out related surveies.

The survey will be of importance in policy devising non merely to the bank and other fiscal establishments but besides authorities fiscal regulative organ in developing and ordaining policies which guarantee sustainable operation of fiscal establishments in the state. External and internal environment has a great influence on operations by fiscal establishments, therefore the consequences of the survey will move as a usher to all stakeholders in the fiscal sector in developing operational policies which will guarantee that any strategic responses adopted is effectual in recognizing aims of fiscal establishments.

Furthermore, the survey will be of great value in direction pattern in that the survey will place environmental challenges faced by fiscal establishment in the current times and through its findings, the survey will be able to urge strategic responses that can be adopted by these establishments. In add-on, holding cognition of these environmental challenges, direction will be able to put their precedences and ends in line with the challenges they expect of face hence giving them better competitory advantage in the of all time altering market environment.

Chapter 2: LITERATURE REVIEW

2.1 Introduction

In this chapter, old surveies related to the subject were reviewed. This chapter begins with literature on constructs of scheme, Organization and the environment, internal and external environmental challenges and in conclusion strategic responses to these challenges.

2.2 The Concept of Strategy

Johnson and Scholes ( 2002 ) define scheme as the way and range of an organisation over the long term which achieves the advantage for the organisation through its constellation of resources within a ambitious environment to run into the demands of markets and full fill stakeholder ‘s outlooks. The construct of scheme explains where the establishment is taking to accomplish in the long term and form which activities and resources that will hold to be committed to accomplish the intended ends.

Mintzberg ( 1994 ) defines scheme as a program, a form, position and place. As a program because scheme defines the agencies through which an organisation moves from one province to another that is from bad to good province. Scheme is besides defines as a form since it is concerned with insistent actions over a period of clip. Further, he defines scheme as a position since it provides a clear vision and a sense of way of where the organisation is heading to. Finally he defines Strategy as a place which means that organisations are willing to offer peculiar merchandises and services to new markets other than the bing markets. This therefore implies that they are able to place themselves better in new markets by offering new merchandises or services.

Chandler ( 1962 ) defines scheme as the finding of the basic long term ends and aims of an organisation and acceptance of classs of action and the allotment of resources necessary for accomplishing these ends. He hence considered scheme as a agency of set uping the intent of an organisation by stipulating its long term ends and aims, action programs and resources allotment form or to accomplish the set ends.

Porter ( 1987 ) positions scheme as what makes the corporate whole add up to more than same of its concern units.He farther classifies scheme in two degrees that is corporate degree scheme and concern degree scheme.Corporate degree scheme defines what sort of concern the organisation is in and besides the directors should pull off their assorted concern units.On the other manus concern degree scheme explains how to make competitory advantage in each of the concern unit in which the organisation compete.

Thompson and Strickland ( 2007 ) argues that the construct of scheme defines the assorted attacks that top corporate directors use as to be able to able to accomplish a better public presentation of the set of concern in which the organisation has diversified to. Therefore he stress on the function of cardinal concern units directors to act upon the strategic determination of the concern units that they head to accomplish cross concern synergisms and turn them into a addition of competitory advantage to the organisation.

Ansoff and Mcdonnel ( 1990 ) specify strategic direction as a procedure through which a house manages its relationship with the environment in which it operates. It involves facets of strategic planning and direction of alteration. He argues that strategic direction has the ultimate aim of developing corporate values and managerial capablenesss and through it, the will concentrate the determination of the full organisation in one way.Porter ( 1980 ) outlined really clearly that the construct of strategic direction provides the cardinal intent and way that has enabled direction of organisation to follow the altering environment.

2.2.1 Strategic responses to challenges of competition.

Competition in the recent yesteryear has become one of the major challenge and factor that has contributed to the diverse strategic behaviour among organisations in general. Organizations in Kenya are characterized by an aggressive competitory environment with a batch of rivals which calls from them to re adjust and adjust their schemes frequently so that they can go strategically fit.

This is more common so for illustration in the banking industry in Kenya which is characterized by intensive competition and show aggressiveness for client satisfaction and client trueness. This has posed a batch of challenges to Bankss in Kenya hence there is demand for Bankss to react to these challenges which forces them to reexamine their schemes so as to go strategically fit. This is because of the fact that whenever there is rise in competition it has a negative influence on monetary values of a house ‘s merchandise, its productiveness and eventually the rewards due to employees will decrease taking to restructuring and retrenchment of the organisation as a consequence of the intensive competition.

Porter ( 1987 ) has outlined the assorted challenges and forces that houses face from deriving competitory advantage, they include: purchaser and Sellerss dickering power, menaces of new replacement merchandises and competition among merchandises as out lined in his five forces theoretical account. He farther defines the assorted schemes and strategic responses that can be used by houses to control with the assorted challenges within the environment in relation to competition. They include: cost efficiency scheme, merchandise distinction scheme, focal point scheme, turning away scheme and low cost scheme.

Cost efficiency scheme, one of Porter ‘s generic schemes is cost leading.This scheme chiefly focuses on how houses can derive competitory advantage by holding the lowest cost in the whole full industry ( Porter 1987 ) .He argues that in order to accomplish low cost advantage, a house must hold a low cost leading scheme, low cost fabrication and more so a work force that is willing and committed to the low cost scheme. This helps to accomplish cost efficiency scheme that will surpass rivals in the same markets. In relation to the banking industry this can merely be achieved when Bankss put the cost of their services every bit low as possible so as to derive client trueness and client satisfaction.

Product distinction schemes refer to those schemes that strive to make alone merchandises that can non be easy matched or duplicated by other rivals. This can merely be achieved if house ‘s have a resource-based position scheme ( Porter 1985 ) .This implies that the houses should hold the resource capableness to transport out merchandise distinction.This can merely be achieved through invention and faster velocity of services offered to clients.

Pierce and Robinson ( 2007 ) argue that the distinction schemes are aimed at accomplishing client satisfaction and trueness by emphasizing on properties of a merchandise that will let houses to bear down a premium monetary value for their merchandises.

Third turning away schemes focused on environmental alteration that aims to raise market entry cost. Muendo ( 2011 ) outlines that the challenges of competition within the environment that a house is runing on may take the signifier of increased monetary values, buildup of capacity which may necessitate companies to fore-go short term profitableness in the hope that they will keep a long term presence in the market.

Focus strategies refers to the type of strategic response whereby a steadfast targets a specific section of the market ( Thomas & A ; Strickland, 2007 ) .They outline that a house or organisation can take to concentrate on a selected client groups and specific merchandises that meets the standards and the demand of the selected client groups. This would travel a long manner to guarantee client trueness hence boost the profitableness of the houses.Focus scheme depends upon an industry section that should be big plenty to hold good growing potency that is of importance to the major rivals.

2.3 Organization and the Environment

The environment refers to the form of all the external and internal status that influences or affects the life and development of an entity or a concern organisation. Harmonizing to Johnson and Scholes ( 2007 ) they explain that the organisational environment encapsulates many different influences and hence there is trouble in doing sense of this diverseness. They further argues that the environment is defined by it complexness which arises because of many of the separate issues in the concern environment that are interconnected.

Porter ( 1985 ) observes that the planetary uncertainness in environmental alterations increased dramatically in the 1970 ‘s due to fluctuating natural stuff, monetary values, swings in fiscal and currency markets, electronic revolution among others. Therefore by accepting this diverseness and complexness of the environment, the organisational environment is defined in different beds.

The first general environmental bed is the macro environment bed which consist of the environmental factors that impact to a greater or lesser extent on about all organisations, Scholes ( 2007 ) . The macro-environment is defined by the PESTEL model which can be used to place how future tendencies in the political, economic, societal and technological and legal environment might encroach on the organisation. This would assist place the cardinal drivers of alteration which differs from one organisation to another.

Organization in the universe today operate within an environment that is really dynamic and unsure and this therefore calls for the demand by the direction to strategically place themselves in order to follow to the assorted alterations and dynamism of the environment

Kirapash ( 2010 ) explains that organisation demands to look out for chances to work their strategic abilities and seek betterments in their concern units constructing an consciousness and apprehension of current schemes and success. Porter ( 1985 ) defines the organisational environment into two classs: the external environment which is constituted by the forces that are outside the organisations control. These forces are non-specific but would otherwise impact the houses ‘ activities and schemes. On the other manus, the internal environment ; which consist of all the forces within the organisation, and are within the organisation control.

2.4 Internal Environment.

A steadfast internal environment refers to those facets of the environment that are within the capableness of the organisations. Pierce and Robinson ( 2007 ) has defined a houses internal environment as those elements within the organisation that include the current employees, the direction and the corporate civilization which defines the organisation behaviour.An organisations internal environment is defined by the houses mission statement which clearly describes the intent for being and by and large explains the overall intent which includes the properties that would separate the organisation from other organisations. Therefore we shall discourse the properties that constitute the houses internal environment which includes the houses construction, Organizations civilization, company policies and houses internal resources.

A house ‘s internal environment besides includes the corporate construction of the organisation which comprises of the hierarchal agreements that will specify the assorted undertakings and people that are responsible for the activities traveling on within the organisation. A steadfast construction helps to find the flow of information between the direction and the full staff and hence have an influence on the strategic determination doing procedure of the houses

Second the organisational civilization refers to assorted values that the organisation stands for the civilization of the organisation defines what the nucleus concern of the house are.Just as each individual has a distinguishable personality, so does each organisation. The civilization of the organisation distinguishes it from others and shapes the actions and behaviour of the people working in the organisation ( Johnson & A ; Scholes, 2007 ) .

Third a company policy refers to those guidelines that normally determine how certain state of affairss within an organisation are addresses.Thomas and Strickland ( 2007 ) argue that houses set up policies that provide counsel for directors who make determinations refering the fortunes that occur often within the organisation They further outline that company policies serve as an indicant of a houses personality and should be aligned to its mission statement.

Finally house ‘s resources include the people, installations, information machinery and equipment, and substructure. The most of import and critical resources are the people that work within the organisation and directors need to be professional in manage resources that are available to them.This implies that troughs demands to pull off both human and non-human resources so that they can make value and be of great impact to the organisations environment.

2.5 External Environment

The success of houses in geting the needful resources and profitableness, bettering the quality of goods and services is all based on the impact the external environment has in the house as a whole. It is in this respect that the houses pick of concern schemes is moderated by the environment and that organisations that intend to run into or confront the challenges of a quickly altering environment necessitate direction determination that are founded on well-conceived schemes ( Ward & A ; Lewandaska, 2008 )

Pierce and Robinson ( 2003 ) argue that organisations are non closed systems since they do non run in a vacuity. They are alternatively unfastened systems since they are likely affected by the environment in their operation. A house ‘s concern environment can be loosely categorized into two classs: micro-environment and macro environment. The micro environment involves those stakeholders in whom the organisation with on a regular footing such as providers, distributers, employees and clients ( Muendo, 2011 ) .He argues that these groups are stakeholders who have direct involvement influence on a director ‘s determination devising.

On the other manus a house ‘s macro-environment refers to all the factors that are outside the organisation besides known as the external environment. It includes all the relevant factors and influences outside the organisations boundaries. Therefore a house ‘s external environment is infinite and consists of all the elements outside the boundaries of the house. The house ‘s environment provides all the needed inputs for the house from which the house produces the end products which is eventually delivered to the environments ( Wachira, 2011 ) .The house ‘s distant environment comprises of all political, economic, societal, cultural, technological, ecological and legal factors.

Political factors refer to the regulative parametric quantities within which a house must run and therefore serves as a major consideration for directors when it comes to determination devising. The cognition of authorities ordinance is gained through the scanning of remote environment which can assist a houses avoid unneeded confrontation with the Torahs that govern the environment. They include the revenue enhancement Torahs minimal pay statute law, duties and quotas all of which constitute the legal model.

Ecological factors refers to the relationships and the coexistence between the environment and other populating animal such as the air, dirt and H2O that support them ( Wachira, 2011 ) .He farther suggest that menaces to our life back uping ecology is caused chiefly by human activities, the industrial society and therefore airss a major menace to the public public assistance hence demand for environmental statute law and its impact on corporate schemes in Kenya. In Kenya, NEMA is tasked with the duty of transporting out environment appraisal of any undertaking that is undertaken by companies.

Technological factors refer to inventions which serves as a agency through which houses can react to the assorted proficient challenges that a house confronting within the environment. It refers to all the originative versions that can propose the possibilities for new merchandises or in fabrication and selling techniques. ( Hammer, 1996 )

Economic factors refer to the nature and way of the economic system which the house operates. It refers to all the factors within the economic system that have a direct influence to the economic system and affect strategic determination devising by directors. They include the ingestion patterns that are determined by the income degrees therefore houses need to measure the general handiness of recognition degrees, involvement rates, revenue enhancement rates and the leaning of people to pass money on certain merchandises and services.

Social factors are the effects that affect the organisation and affect beliefs, values, attitude, sentiments and life styles of individuals in the houses external environment as it is developed from cultural demographic, faith, educational and cultural conditionality hence hence houses should aline their schemes to counter alterations within the societal factor.

Chapter 3: RESEARCH METHODOLOGY

3.1 Introduction.

This Chapter highlights the methodological analysis that was adopted by the research worker in order to put to death the survey and recognize its nonsubjective. It included the research design, informations aggregation and information analysis.

3.2 Research Design

This research was conducted as a instance survey of National Bank of Kenya with the aims of placing environmental challenges confronting fiscal sector the strategic responses adopted by National Bank of Kenya to react to these challenges.

The research worker used an interview usher, interviewed direction staff of Corporate Affairs, Finance, Credit, Human Resource and Information engineering subdivisions in the NBK caput of office in Nairobi. Their observation and remarks were noted and this was analyzed to come up with clear and luxuriant replies to the research inquiries which the survey sought to place.

The interview usher was sent to the possible respondents at least two hebdomads before the existent interview. This is meant to give respondents ample clip happen replies to some of the inquiries if they did n’t hold instant replies. An interview usher pre-test was done with indiscriminately choosing staff in one of the NBK subdivisions where they will be interviewed and the responses noted, used to measure if the inquiries to be asked during the interview will be able to reply the inquiries that the research worker sought to happen replies.

3.3 Data Collection

The research worker used an interview usher will be used in roll uping informations during the research procedure. Structured interview usher, sketching relevant inquiries which were necessary in supplying sufficient information required to carry through aim of the survey were used. The research worker in individual will transport out the interview.

Data was collected from the top degree directors of NBK and to accomplish this aim at least six respondents were targeted. They included General Manager-HR, manager-credit, Manager Finance, assorted subdivision directors within Nairobi part, director ICT and director corporate personal businesss. These respondents were resourceful plenty to supply the needed informations.

The research worker farther collected secondary informations from published beginnings such as newspapers, web sites, one-year fiscal statements and the fiscal public presentation informations available at the Nairobi Stock Exchange so as to compare and enrich the informations collected from the interview.

3.4 Data Analysis.

Data was analyzed utilizing content analysis guided by the aim of the survey to set up the responses used by National Bank of Kenya to challenges within the environment. Contented Analysis has been defined as “ a research technique for the aim, systematic, and quantitative description of manifest content of communications ” ( Berelson, 1974 ) . Contented analysis is a research tool focused on the existent content and internal characteristics of media.A It is used to find the presence of certain words, constructs, subjects, phrases, characters, or sentences within texts or sets of texts and to quantify this presence in an nonsubjective mode

The research specifically used issues of dependability and cogency. Reliability of a content analysis survey refers to its stableness, or the inclination for programmers to systematically re-code the same information in the same manner over a period of clip ; duplicability, or the inclination for a group of programmers to sort classs rank in the same manner ; and truth, or the extent to which the categorization of a text corresponds to a criterion or norm statistically. ( Berelson, 1974 )

Advantages of content analysis are that it looks straight at communicating via texts or transcripts, and therefore gets at the cardinal facet of societal interaction. This method of informations analysis besides allows for both quantitative and qualitative operations can provides valuable historical/cultural penetrations over clip through analysis of texts. Restriction with this method is the fact that it can be highly clip consuming and besides it is is capable to increased mistake, peculiarly when relational analysis is used to achieve a higher degree of reading.

Chapter 4: Data ANALYSIS, RESULTS AND DISCUSSION

4.1 Introduction.

The survey had one chief aim, which was to set up the strategic response undertaken by National Bank of Kenya to environmental challenges within the fiscal sector. Primary information was collected by questioning senior and junior NBK staff in the Nairobi caput office and five working subdivisions. The information was analyzed in relation to the survey ‘s nonsubjective and the findings presented in the assorted classs below.

4.2 Study Population and composing

Respondents interviewed during informations aggregation included three General Managers from National Bank Head office located at National Bank Building in Nairobi, five subdivision directors drawn from Times Tower subdivision, Hospital subdivision, Kenyatta avenue subdivision, Card Center and Kitengela subdivisions were interviewed. The survey population besides included four divisional directors drawn from four subdivisions which include Kitengela, Kenyatta Avenue, Hospital and Head office subdivisions. The respondent ‘s term of office is as classs and analyzed in the tabular array below ;

Table: Respondents Tenure

RESPONDENTS TENURE

NO.OF Old ages IN THE BANK

Frequency

Percentage

General Managers

20-30 old ages

3

25 %

Divisional Directors

10-25 old ages

4

34 %

Branch Directors

10-30 old ages

5

41 %

Entire

12

100 %

4.3 National bank of Kenya fiscal public presentation

The current banking environment is quickly altering and the regulations of yesterday no longer use. The Bankss has to maintain gait with rapid alterations it faces every twenty-four hours and of critical importance is that if a bank is non in place to get by with these challenges there is high opportunity of the bank registering Looss and in the long tally many have to shut its concern.

Fiscal public presentation of NBK has been bettering over the recent old ages. Harmonizing to finance director interviewed during informations aggregation, he stated that fiscal public presentation of the banking had registered monolithic betterment since the twelvemonth 2006. Despite this, the director was categorical to indicate out that this procedure has non been a smooth drive. There have been faltering blocks on its recovery way, but harmonizing to him, sound schemes adopted by the bank has brought fiscal success

In order to better understand the challenges and strategic responses put in topographic point by NBK against environmental challenges confronting fiscal sector in Kenya, its fiscal public presentation from the twelvemonth 2007 to 2011 fiscal old ages were analyzed. These consequences were obtained from the finance officer of national bank and to guarantee genuineness of the consequences, merely end twelvemonth audited consequences by were used for the analysis.

Table: National Bank of Kenya fiscal statistics 2007-2012

Net income and Loss Account

31-Dec-07

31-Dec-08

31-Dec-09

31-Dec-10

31-Dec-11

Entire Interest Income

3692399000

3782459000

4485009000

5430761000

6457997000

Entire Interest Expense

774479000

821031000

1152616000

1064055000

1376887000

Net Interest Income/Loss

2917920000

2961428000

3332393000

4366706000

5081110000

Entire Non-Interest Income

1763202000

2101417000

2404245000

2733210000

2714029000

Entire Operating Income

4681122000

5062845000

5736638000

7099916000

7795139000

Entire operating Expenses

3071038000

3266280000

3577197000

4402093000

5351289000

Net income before revenue enhancement and exceeding points

1610084000

1796565000

2159441000

2697823000

2443850000

Net Non-performing Loans and progresss

3720763000

1970322000

1268106000

906634000

1154675000

Entire insider loans, progresss and other installations

2343246000

1514634000

1783136000

2338516000

2899624000

Entire Contingent Liabilitiess

2588659000

2999141000

3286329000

4230839000

4276687000

Entire Capital

4615073000

5866836000

7395712000

9447286000

10003804000

Balance Sheet

Assetss

41414272000

42695700000

51404408000

60026694000

8664516

Entire Liabilitiess

36447037000

36487855000

43496716000

50097083000

58208042

Entire Shareholders ‘ financess

41414272000

42695700000

51404408000

9929611000

10456474

Beginning: NBK audited fiscal studies 2007-2011

Figure: National Bank of Kenya Balance Sheet Items 2007-2011

Figure 1 above shows public presentation tendency of NBK balance sheet points from the twelvemonth 2007 to 2011 as displayed in the Table 2 above. The drumhead presented in the saloon charts in Fig 1 above shows that the bank has assets worth more than 4 million whereby in the bank invested a batch in increasing assets to a melody of about Ksh. 7 Million as per the twelvemonth 2011. Entire liabilities increased in the twelvemonth 2011 likely due to high investing in geting more assets as reflected by high addition in assets in the twelvemonth 2011 as comparison to the other old ages. Share holders ‘ financess increased somewhat between the twelvemonth 2007 and 2008, but dropped in the twelvemonth ‘s 2010 and 2011 as a consequence of the companies move to get more assets. However there was an addition in stockholders fund in the twelvemonth 2009 as a consequence of the company ‘s move to sale portion of its assets which is corroborated by little bead of assets in the same twelvemonth.

Figure: National Bank of Kenya Profit and Loss public presentation 2007-2011

Figure: National Bank of Kenya Profit and Loss % alteration 2007-2012

Figure 2 and 3 above shows companies ‘ Net income and Loss points public presentation tendency from the twelvemonth 2007 to 2011. Sum of all the points in each class represented in the chart was used for analysis. An overview of the consequences indicate that net income before revenue enhancement increased from the twelvemonth 2007 to 2010 but there was a 9 % bead in the twelvemonth 2011 as compared to the twelvemonth 2009. Net non-performing loans and progress decreased between 2007 and 2010 but increased minimally in the twelvemonth 2011. Entire operating disbursals and income has been increasing from the twelvemonth 2007. Company ‘s capital shows an increasing tendency with the twelvemonth 2011 making Ksh10000 million.

4.6 Internal challenges faced by the bank.

Internal challenges refer to those challenges which arise within the organisation day-to-day operations and which are within the control of the organisation. Some of the internal challenges identified during the survey are as explained below: –

4.6.1 Cost of implementing the new ICT substructure

Harmonizing to the general director ICT, The ICT substructure adopted by the bank has brought great success in footings of service proviso by the bank. However harmonizing to NBK merchandise officer, there has been challenges in implementing the new engineering. Information gathered points out that the bank Kshs.500 million in geting new systems. Apart from these cost, there is the cost of engaging trainers, length of clip taken in developing the staff and the upkeep cost for the staff during the preparation. Such cost adds more to the entire disbursals records.

4.6.2 Dishonest employees

The general Manager Human resource pointed out that the Success of any concern ballads with the staff who provide services to the clients and outlined how the direction is able to put policies which will guarantee the staff provides quality services in a crystalline mode. However this has become a challenge in the fiscal sector where by the junior staff who are in most instances new alumnuss have a batch of experience with engineering as compared to their foremans who may non be holding broad experience with the usage of engineering. As the NBK information engineering staff explains, this frequently leads to a scenario where the dishonest staff take advantage of this cognition spread and execute dealing which defrauds the company tonss of money, without the bank direction recognizing this, and if they do, so it is already excessively late. Some of these dishonest staff collaborates with felons who pose as clients and steal money from the bank. This aspect harmonizing to the general director strongly believes that it hinders the Bankss growing since they have to maintain on dismissing and engaging new and competent employees which is difficult to acquire from the market and poses a large challenge to the bank.

4.6.3 High cost of developing staff

Further the general director Human resource pointed out that In the twenty-first century, college instruction is non plenty to guarantee one performs his or her responsibilities good in the work topographic point. There are rapid external and internal alterations that are often adopted by the fiscal sector and to maintain gait with this, staffs have to be trained on a regular basis to guarantee they provide quality services to the clients. These alterations include technological alterations and acceptance of new policies in the fiscal sector which means staffs are to be trained on this. However challenge comes in where the company has to utilize a batch of money in undertaking houses with the accomplishment to transport out the preparation. Other cost arise from the fact that the in easing the staff during the preparation in footings of repasts and transport apart from the cost of engaging the locale. Additional a batch of clip is used in transporting out this preparation and this means the few staff left to go to to clients are frequently under force per unit area to present.

4.6.4 Increased service dislocation

The general director operations pointed out that one of the challenges the bank is confronting is the issue of increased service dislocation. This has manifested itself through delayed blessing of loans. He emphasized that NBK ‘S clients are deal searchers and they ever look for a fiscal establishment that can function them within the minimal clip possible. However, the blessing of loans takes hebdomads or even months depending on the handiness of the needed certification. This hold is dearly-won particularly when the client or a house has a limited clip frame to show that it can raise the needed capital to transport out a peculiar undertaking. More over intrusive certification is of concern. At the point of application for banking services, some Bankss are known to be excessively demanding on certification. Customers feel that the certification required ( such as revenue enhancement conformity certification ) before the blessing of the much needed loans is an invasion into their fiscal privateness. Discouraged by this exercising some clients have opted for other informal fiscal establishments that do non necessitate excessively much item. The operations director besides pointed out the bank has got challenges on flexibleness which has a batch of impacts on client penchants, as they are bound to respond to the value added offerings. He noted Customers have become demanding and the truenesss are diffused since the bank is non functioning them good necessitate hence Customers want to hold a sense of belonging that will maintain them from seeking options.

He noted that the fiscal sector and the economic system in general economic system has become progressively competitory, and there is demand for the bank to develop efficient merchandises that can rapidly fulfill a more demanding client base and construct long-run client trust. Therefore the bank has a challenge to optimise both internal and external invention, while seeking operational excellence at all degrees. Therefore the selling director run intoing these challenges would necessitate new concern and selling schemes that encouragement grosss, better operational efficiency, cut costs, and heighten the overall direction of concern. She emphasized that in today ‘s Bankss are looking beyond traditional patterns to new tactics and tools that analysts and thought leaders have identified as the best for the industry.

4.7 External challenges faced by the bank.

External challenges include those challenges that result outside the company ‘s operations and which the company had really small control. It consequences from the company ‘s interaction with the outside universe in its procedure of service proviso. The following are the external challenges which were identified during the research procedure: –

4.7.1 Competitive banking environment

The Marketing director emphasized that increased competition within the fiscal sector has been one of the biggest challenges that the bank has faced is competition He farther noted that with the liberalisation of the cardinal bank regulations to the fiscal establishment has caused Competition in the fiscal sector to lift at a phenomenal rate. This is chiefly as a consequence of increased alteration of client ‘s demands, gustatory sensation and differences. Other than client base, the fiscal industry is besides characterized by increased figure of fiscal establishments within the industry that have competitively designed and packaged merchandises that have pulled clients from the major Bankss to micro finance establishments and little Bankss within the industry. This state of affairs has kept national bank of Kenya on its toes to introduce merchandises packaged to run into the demands of the clients so as to keep them. Different fiscal establishment in the sector are developing attractive merchandises and supplying quality of service to their client which means if a bank does non maintain the gait with the competitory environment, there is likeliness of it being kicked out of concern. Banks are puting in engineering so as to make and interact with their clients with a batch of easiness. Harmonizing to NBK marketing officer interviewed, she reckons that due to competition, NBK has lost a great trade of its clients to other Bankss. However she was categorical that the bank has put in topographic point schemes to assail former and new clients.

4.7.2 Increased frauds and money laundering

The operations director pointed out that technological inventions are taking topographic point at a really high rate in all sectors of the economic system and banking sector has non been left out. However with such progresss, engineering has become a dual edged blade since despite great benefits it brings to the society, there is besides the negative side whereby instances of engineering maltreatment has risen. Banks are the latest victims of this offense where frauds and production of bogus money has increased. Banks are losing immense amounts of money through on-line minutess while at the same clip production of bogus money has become a challenge for the staff to distinguish existent and bogus money. Money laundering has become a set back to the fiscal sector since this has been done with a batch of easiness by tech-savy persons who carry out this pattern without being easy detected. In add-on, frauds affecting staff and felons have led to the Bankss losing one million millions of shillings and this has derailed banking operations. Despite tight security steps put in topographic point, the hackers come up with new techniques which Bankss have non been able to surpass.

4.7.3 Coiling consequence of Euro zone debt crisis

This refers to a period of clip in which several European states faced the prostration of fiscal establishments, high authorities debt and quickly lifting bond output spreads in authorities securities. The European crowned head debt crisis started in 2008, with the prostration of Iceland ‘s banking system, and spread chiefly to Greece, Ireland and Portugal during 2009.

Harmonizing to Chandler, ( 1962 ) African economic systems have benefited from stronger trade good monetary values and greater foreign direct investing. These additions were constrained by currency grasp in some cases, and more significantly, by lifting nutrient monetary values. So the crisis did feed itself through the trade good channel and the trade goods are a double-edged blade for African economic systems. When the planetary crisis set in, export growing from the Sub-Saharan economic systems declined from an one-year norm of 7.0 per cent between 2000 and 2007 to merely 1.4 per cent between 2008 and 2010

However these did non merely impact on Sub-Saharan economic system, but its impacts was felt even by the local Bankss. As a redress to the this debt crisis recognition was restricted globally and merchandise volumes collapsed around the universe hence the value of existent exports of good and service declined doing the cost of trade to increase as a consequence of addition in cost of imports. The trade limitations imposed by the European states in order to salve the falling economic system affected fiscal sector in footings of decreased adoption and investing. The cost of borrowing loans became so higher to be afforded by investor and members of public and this was made worse since the bank operation cost increased for illustration cost of geting assets increased dramatically coercing Bankss and other fiscal establishment to enforce rigorous ordinances on loan adoption. This harmonizing to marketing officer interviewed led to low adoption, high cost of operations in the bank and the consequence was lessening in net incomes reported.

4.7.4 Political influence

Some subdivision directors pointed out that Banks and fiscal sector in general operate in an unfastened economic system. As a consequence of this, the Bankss frequently experience political influence in the procedure of their services proviso. An interview with human resource director of National bank emerged that since the authorities has a large portion in the company, some strong and influential politicians normally take advantage by backing persons of their ain pick to certain managerial stations therefore locking out qualified and experient people from geting such stations. This frequently leads to hapless determination devising and policy execution by such staff. In add-on, political instabilities such as the one experienced in the twelvemonth 2007 led to foreign investors shying off from puting in Kenyan Bankss since during such period, devastation of belongings caused immense losingss on investors, whom the bank depends for its success.

4.7.5 Industry ordinances

The changeless development of local and international ordinances is a major driving force in the banking industry. The cardinal banking ordinances on the loaning rates, passage of measures steering local and international dealing, minimal cardinal bank demand and the instability of the local currency against foreign currency has been the other challenges experienced by Bankss. Hence debut of these new inadvertence regulations and organic structures has had a far making deduction on the growing and public presentation of the banking industry harmonizing to the NBK selling officer.

4.8 Adaptive schemes adopted by the NBK.

Having analyzed some of the major external and internal challenges that that faced by NBK from deriving competitory advantage, the survey further reveals some of the strategic responses undertaken by national bank to react to the challenges confronting the fiscal sector. Some of the strategic responses were as follows ;

4.8.1 Investing on information engineering

The NBK is following a new nucleus banking platform and updating itsA infrastructureA to efficaciously back up Kenyan concerns for illustration, suiting altering regulative demands – which will pull new trade finance clients. At the same clip, it will drive down operating costs through usage of efficient engineering.

In the twelvemonth 2006, NBK expanded its ICT substructure where they were able to widen service proviso to their clients through increasing the figure of Automated Teller Machine ( ATM ) . This was achieved through partnership with a 3rd party service supplier Pesa Point Limited. This agreement made it possible for the bank to supply services to their clients beyond the countries covered by the Banks ‘ ATM web.

More over the bank late invested Kshs.2.2Billion to get a new banking system known as Bank Universal Fusion Banking systems. This was a great migration from the old Branch Power System which had challenges particularly offline issues. The new system has helped in centralising operations apart from bettering efficiency and effectivity in the operations of the subdivisions. Harmonizing to the operations director the BFUB system would assist the bank travel a long manner to bettering client service and recognize increased client satisfaction.

The bank has besides adopted Mobile and cyberspace banking so as to make its clients wherever they are. The chief ground for this harmonizing to client attention officer was to turn to most of the challenges which their clients, both locally and internationally experienced such as holding to go long distance looking for an ATM and long waiting lines in the banking hall. The acceptance of this engineering has eased congestion in the banking halls, ability of clients to pay for their measures without holding to see the bank. On the positive note, this has seen the gross of the bank rise as a consequence of minutess carried out utilizing nomadic and cyberspace. In add-on, acceptance of this engineering has put the bank a notch higher as compared to the other Bankss, who have besides adopted the same engineerings.

The bank late acquired Bank Fusion Universal Banking System ( BFUB ) worth 2.2 Billion in the twelvemonth 2011 to heighten networking between its subdivisions and the caput office. The system has the capableness of leting minutess carried out in the subdivision transferred automatically to the caput office and to other subdivisions. This has created a cardinal web of all the company ‘s dealing thereby heightening efficiency in run intoing clients ‘ demands in footings of doing sedimentations, backdown and more of import cut downing cost of clip spend in acquiring these services. The BFUB systems have besides led to increase truth by minimising mistakes and lessening opportunities of frauds occurring.

4.8.2 Product invention and Development.

Harmonizing to the selling director and some of the subdivision director interviewed in the survey noted that portion of the strategic responses that the bank has undertaken to responf to a competitory environment is Product invention and development.The bank has gone a long manner to integrate new merchandises to the bing scope of merchandises. This has come about as a consequence of increased competition and increased diverse clients ‘ demands accompanied with increased market niche. To get down of the of bank has made attempts to establish new merchandises which included the Taifa histories, pinnacle histories, Al-mumin savings histories for Muslims, Superchama accounts to add to the bing scope of salvaging histories available to their clients. Other than salvaging histories the bank has made attempts to better their loaning merchandise which includes Superchama loans and stima loan that were non in their loan portfolio. More over more strategic responses observed included the reappraisal of the mortgage policy that would include mortgage for commercial and building purpose other than the mortgage for residential intent.

Further During one of the interviews with the gross revenues director, it came to my attending that the bank has in the recent yesteryear developed new and attractive merchandises. These include different personal and corporate banking histories which meet diverse client demands. Loans offered by the bank besides come with favourable involvement rates and payment periods which attract clients. The bank has besides been running publicities where clients are encouraged to salvage money in their histories and by making this, the base a opportunity of winning tonss of monetary values. This has led to increased nest eggs thereby widening loan loaning base of the bank. All this merchandises have proved to be really attractive and have gained a batch of grasp to both the bing and new clients harmonizing to the merchandise director interviewed.

Sim-ple banking is a new merchandise developed by NBK Banking which allows its clients to have short messages on their nomadic phones incorporating up to-date information about latest minutess on their Histories, every bit good as information about new developments on merchandises and services offered by National Bank to his clients. It is the new Mobile Banking Service from National Bank, offering entree to more than three times as many Bank Functions as any other service presently in the market in Kenya and the purpose is to offer accessible.

4.8.5 Ad and selling scheme

The

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