Post on 27-Mar-2018
KEY SUCCESS FACTORS AND COMPETITIVE ADVANTAGE OF
DEPOSIT TAKING MICROFINANCE INSTITUTIONS IN KENYA
BY; JOSEPHINE NTHENYA MWANZIA
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS UNIVERSITY OF NAIROBI
NOVEMBER 2013
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DECLARATION
This research project is my original work and has not been presented for examination in any
other university.
Signed…………………….. Date……………………..
JOSEPHINE NTHENYA MWANZIA
D61\73688\2009
This Research Project has been submitted for examination with my approval as a university
supervisor.
Signed………………………….. Date………………………….
DR. Z.B AWINO, Phd.,
SENIOR LECTURER
SCHOOL OF BUSINESS
UNIVERSITY OF NAIROBI
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ACKNOWLEDGEMENTS
My sincere gratitude to all who contributed immensely in one way or another towards the
completion of this project, Special gratitude to my supervisor Dr. ZB Awino for his guidance,
extreme patient and tremendous support throughout the cause of this project. I am also greatly
indebted to my employer Kenya commercial bank for giving me the financial and time resources
that helped me successfully complete this project
To my family: my mother, father, Laura and Amos , thank you for inspiring me, giving me all
the support I needed and understanding even when I was not there for you. I would also wish to
express my sincere appreciation to the University of Nairobi for the knowledge gained, training
they gave me in preparation for this task and availing resources inform of literature that greatly
helped shape this paper.
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DEDICATION
To my family: your support and understanding made this possible. Special dedication to my
daughter Laura: for her undying and unconditional love that cheered me all through.
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TABLE OF CONTENTS
Declaration ............................................................................................................................... ii
Acknowledgement ................................................................................................................... iii Dedication ................................................................................................................................ iv
List of Figures.......................................................................................................................... vi List of Tables ......................................................................................................................... viii
Abbreviations and Acronyms ................................................................................................. ix Abstract .....................................................................................................................................x
CHAPTER ONE: INTRODUCTION ......................................................................................1
1.1 Background of the Study ...................................................................................................1
1.1.1 Key Success Factors in Strategic Management ..........................................................2
1.1.2 Competitive Advantage .............................................................................................3
1.1.3 Key success factors and Competitive Advantage .......................................................4
1.1.4 Deposit Taking Microfinance Institutions in Kenya ...................................................5
1.2 Research Problem .............................................................................................................6
1.3 Research Objective ...........................................................................................................8
1.4 Value of the Study ............................................................................................................8
CHAPTER TWO: LITERATURE REVIEW ..........................................................................9
2.1 Introduction .................................................................................................................... 10
2.2 Theoretical Foundation of the study ................................................................................ 10
2.3 Industry and competitive analysis ................................................................................... 13
2.4 Industry Key Success Factors .......................................................................................... 16
CHAPTER THREE: RESEARCH METHODOLOGY ........................................................ 19
3.1 Introduction .................................................................................................................... 19
3.2 Research Design ............................................................................................................. 19
3.3 Population of Study ........................................................................................................ 20
3.4 Data Collection ............................................................................................................... 20
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3.5 Data Analysis.................................................................................................................. 21
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION .................................... 22
4.1 Introduction .................................................................................................................... 22
4.2 Personal Data analysis .................................................................................................... 23
4.3 Descriptive Statistics ....................................................................................................... 25
4.4 Factor Analysis ............................................................................................................... 27
4.4.1 Communalities ........................................................................................................ 27
4.4.2 Eigen values/variance .............................................................................................. 29
4.4.3 Factor loadings ........................................................................................................ 31
CHAPTER 5: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS ................ 32
5.1 Introduction .................................................................................................................... 32
5.2 Summary of Findings ...................................................................................................... 32
5.3 Conclusion ...................................................................................................................... 35
5.4 Limitations of the Study .................................................................................................. 36
5.5 Area for Further Study .................................................................................................... 36
5.6 Implications of the Study on Theory, Policy and Practice ................................................ 37
REFERENCES ........................................................................................................................ 38
APPENDICES ........................................................................................................................... i
Appendix 1: Questionnaire ..................................................................................................... i
Appendix 2: List of DTMs .................................................................................................... vi
Appendix 3: Table 4.5 The Factor Matrix ............................................................................ vii
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LIST OF FIGURES
Figure 4.1: Years served by the respondents in the studied Institution…………………….23
Figure 4.2: Age of the institutions studied………………………………………………….24
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LIST OF TABLES
Table 4.1: Descriptive Statistics………………………………………………………………...25
Table 4.2: KMO and Berlett’s Test results ……………………………………………………..27
Table 4.3: Communalities ……………………………………………………………………....27
Table 4.4: Total variance explained by factors………………………………………………….29
Table 4.5: Appendix 3…………………………………………………………………………..Vii
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ABBREVIATION AND ACRONYMS
CSFs: Critical Success Factors
DTM: Deposit Taking Microfinance Institution
FSAs: Financial Service Associations
KSFs: Key Success Factors
KWFT: Kenya Women Finance Trust
MFIs: Microfinance Institutions
NGO: Non-Governmental Organization
RBV: Resource Based View
ROSCAS: Rotating Savings and Credit Associations
SACCO: Savings and Credit Co-operative Societies
SMEs: Small and Medium Enterprises
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ABSTRACT
Competition in the 21st century’s global economy is complex, challenging, and filled with competitive opportunities and threats. It exerts pressure on firms to be proactive and to formulate successful strategies that facilitate proactive responses to perceived and actual changes in the competitive environment. In any industry, there are certain key success factors that a business must understand in order to enhance its uniqueness and thereby create competitive advantage. These can significantly affect the overall competitive position of companies within any particular industry. The microfinance sector has elicited a lot of interests in the recent past leading to a subsector within the industry known as the deposit taking microfinance institutions. This study undertook a survey on all the 9 DTMs in the country and sought to provide an insight of the critical success factors that have contributed to the competitive advantage of these institutions. The study established that certain key success factors were crucial for the success of these institutions and were a receipt for any successful organization in the industry. Among the factors identified are strong customer service culture and group based lending model which was rated highly. The study recommended that in order for DTMs to remain profitable; they must maintain an optional level of competency on all the identified KSFs
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CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
Almost all forms of strategic management research are concerned with what makes some
businesses more successful than others. Within any industry, there are usually certain variables –
Key Success Factors (KSF) that a business must understand in order to enhance its uniqueness
and thereby create competitive advantage. These are variables that can significantly affect the
overall competitive position of companies within any particular industry and are crucial to
determining a company’s ability to succeed within that industry (Wheelen and Hunger 2008).
The classic approach to strategy formulation begins with appraisal of organizations competencies
and resources (Andrews 1971). Those which are distinctive or superior relative to those of rivals
may became the basis for competitive advantage if they are matched appropriately with
environmental opportunities
The Resource Based Theory of the firm is an influential theoretical framework for understanding
how competitive advantage within firms is achieved and how that advantage may be sustainable
over time (Barney 1991; Peteraf, 1993). This theory focuses on internal organizations of firms,
and so is a complement to the traditional emphasis of strategy on industry structure and strategic
positioning within that structure as the determinant of competitive advantage (Porter, 1979).
RBV theory assumes that firms can be conceptualized as bundles of resources that if rare,
valuable, inimitable and non-substitutable, they can achieve sustainable competitive advantage
by implementing fresh value creating strategies that cannot be easily duplicated by competing
firms (Wernerfelt, 1995). However; in a rapidly changing and unpredictable market where the
competitive landscape is shifting, the dynamic capabilities by which firms managers integrate ,
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build and reconfigure internal and external competencies to address rapidly changing
environments becomes the source of sustainable competitive advantage (Teece et al., 1997).
Dynamic capabilities therefore are the antecedent organizational and strategic routines by which
managers alter their resource base, acquire and shed resources, integrate them together and
recombine them to generate new value creating strategies (Grant, 1996).
The microfinance industry has elicited a lot of interest among researchers. It has been described
as having played a major role towards poverty reduction, employment creation and economic
development. Currently, interests and knowledge about microfinance industry has grown
substantially. The focus of the institutions has gradually changed from emphasis of the very poor
to the enterprise as the demand of those institutions to become financially sustainable has
gradually changed. MFI are important actors in the financial sector and they are well positioned
to grow and reach the millions of potential clients who currently do not have main stream
financial services, (Gichana 2010). It is therefore important to understand what constitutes their
success and growth.
1.1.1 Key Success Factors in Strategic Management
An industry’s key success factors (KSFs) are those competitive factors that most affect industry
members ability to prosper in the market place-the particular strategy elements, product
attributes, resources, competencies, competitive capabilities and market achievements that spell
the difference between being a strong competitor and a weak competitor-and sometimes between
profit and loss, (Thompson et al., 2007). Key success factors (KSFs) are the major determinants
of financial and competitive success in a particular industry. Key success factors highlight the
specific outcomes crucial to success in the market place and the competences and capabilities
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with the most bearing on profitability. Identifying KSFs in light of prevailing and anticipated
industry and competitive conditions is important for a company that seeks to develop wining
strategies in the market place; besides an in-depth understanding of these critical factors help the
company meet the needs and expectations of particular group of target customers (Thompson et
al., 2007). An industry key success factors can be deduced through environmental scanning.
Wheelen and Hunger (2008), defines environmental scanning as the monitoring, evaluation and
dissemination, of information from the external and internal environment with the aim of
identifying strategic factors for the organizations future success. Sound strategy incorporates
efforts to be competent on all key industry success factors and to excel on at least one factor.
1.1.2 Competitive Advantage
Firms throughout the world face stiff competition and other environmental variables and the only
sure way to succeed in the market place is to develop superior sustainable competitive
advantage. In addition; a major determinant of any companies continued successes is the extent
to which it can relate functionally to the external environment and finding its place in a
competitive situation (Pearce & Robinson, 2002)
Porters concept of strategy is that strategy is about achieving competitive advantage through
being different– delivering a unique value added to the customer, having a clear and exactable
view of how to position yourself uniquely in your industry. He suggested that a firm can achieve
competitive advantage if it possesses ‘capabilities’ that allow it to create not only positive value
but as well additional total value than its competitors. To be sustainable, a business must perform
unique activities that impact on the customer purchasing criteria (Porter, 1985).
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A competitive advantage exists when a firm is able to deliver the same benefits as competitors
but at a lower cost, or deliver benefits that exceeds those of competing products (Porter,1985).
Porter emphasized that businesses must focus on areas of capability where they have distinct
advantage relative to competitors in their target market. A competitive advantage enables the
firm to create superior value for its customers and superior profits for itself. Porter suggested
three main generic business strategies that could be adopted in order to again competitive
advantage namely cost leadership strategy, differentiation strategy and focus strategy.
A business gains competitive advantage by performing its activities either more cheaply than its
competitors or in a unique way that creates superior customer value and commands a price
premium (Sanchez & Heene, 2004). Competitive advantage is therefore at the heart of a firm’s
performance in competitive market. Hence, if a company wishes to achieve a competitive
strategy, it must encompass every aspect of the business so that every manager and employee
knows what the objectives of this strategy are and as a result every decision and action is
consistent with it and serves to put it in practice.
1.1.3 Key success factors and Competitive Advantage
Key success factors are the few areas where satisfactory results will ensure successful
competitive performance for the individual department or organization. Businesses must align
their strategy, skills and resources with the KSFs in order to achieve success. According to
Bullen and Rockart (1981), no organization can afford to develop a strategy which fails to
provide adequate attention to the principal factors which underlie success in the industry.
Identifying KSF is important as it allows firms to focus their efforts on building their capabilities
to meet the key success factors, or even allow firms to decide if they have the capability to build
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the requirements necessary to meet Critical Success Factors. In any organization certain factors
will be critical to the success of that organization, in the sense that, if objectives associated with
the factors are not achieved, the organization will fail. Correctly diagnosing an industry KSFs
raises a company’s chances of crafting sound strategy and thereby enhancing its competitiveness.
A company must develop competencies on its industry key success factors if it has to remain
successful. KSFs by their very nature are so important to future competitive success that all firms
in the industry must pay close attention to them or risk becoming an industry also-ran. How well
a company’s product offering, resources, and capabilities measure up against an industry’s KSFs
determines just how financially and competitively successful that company will be. Identifying
KSFs in light of the prevailing and anticipated industry and competitive conditions is therefore
always a top priority analytical and strategy-making consideration. Company strategists need to
understand the industry landscape well enough to separate the factors most important to
competitive success from those that are less important (Thompson et al., 2010).
1.1.4 Deposit Taking Microfinance Institutions in Kenya
The World Bank defines Microfinance Institutions (MFIs) as institutions that engage in relatively
small financial transactions using various methodologies to serve low income households, micro
enterprises, small scale farmers and others who lack access to traditional banking services. It is
the providing of loans and banking services to the low income small and micro entrepreneurs to
help them engage in productive activities to better organize their financial lives as well as expand
their businesses (Chu and Michael, 1998).
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The Central Bank has broadly categorized MFIs into credit non-deposit taking (credit-only) and
deposit-taking microfinance institutions (DTMs). Deposit-taking microfinance institutions are
licensed and regulated by the Central Bank of Kenya through the Microfinance Act 2006 and are
permitted to mobilize and intermediate (or lend) deposits from the general public.
Micro Finance has been recognized as one of the most important tools for poverty alleviation
(KWFT PILLAR 2005). The potential of using micro- credit and other financial services for
poverty alleviation in Kenya is quite significant. About 18 million people, or 60% of the
population, are poor and mostly out of the scope of formal banking services. According to the
National Micro and Small Enterprise Baseline Survey of 1999, there are close to 1.3 million
MSEs employing nearly 2.3 million people or 20% of the country’s total employment and
contributing 18% of overall GDP and 25% of non-agricultural GDP. The formal banking sector
in Kenya over the years has regarded the informal sector as risky and not commercially viable.
Kenyans today are faced by increased poverty, unemployment and insecurity of the AIDS
pandemic, scarcity of food and rural urban migration among others. MFIs address the above
problems by accessing small loans at affordable repayment rates and other financial services for
Micro and Small Enterprises (SMES). These take the form of self-help projects and individual
enterprises.
1.2 Research Problem
KSFs are the few key areas where 'things must go right' for the business to flourish (Bullen and
Rockart, 1981). Correctly diagnosing an industry KSFs raises company chances of crafting
sound strategy. The goal of company strategists should be to design a strategy aimed at stacking
up well on all of the industry’s future KSFs and trying to be distinctively better than rivals on
one (or possibly two) of the KSFs. Indeed, companies that stand out or excel on a particular KSF
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are likely to enjoy a stronger market position- being distinctively better than rivals on one or two
key success factors tend to translate into competitive advantage. Hence, using the KSFs as a
cornerstone for the company’s strategy and trying to gain sustainable competitive advantage by
excelling at one particular KSF is a fruitful competitive strategy approach, (Thompson et al.,
2007) Microfinance institutions in Kenya have continued to play a key role in economic
development. Traditionally, they were considered as the only major source of financing for
SMEs and the poor since commercial banking concentrated on large enterprises with sufficient
collateral to secure credit facilities. This left the microfinance sector with limited competition in
providing financial services to their target clientele-the SMES. Currently, competition has
intensified in provision of financing to the SME sector. Commercial banks are now coming up
with strategies and products tailor made for this sector which they once considered risky and
unenviable.
The Kenyan government has introduced initiatives aimed at growing this important sector such
as the youth enterprise fund and women enterprise fund. The 2013/2014 Kenyan Budget
allocated 6 Billion Kenya shilling to the youth to help grow their enterprises. Despite the
increase in competition from commercial banks and subsidized loans from the Government, the
microfinance sector still remains significant and popular among many Kenyans. This raises a
fundamental question as to what constitutes their rapid growth to the point of challenging
commercial banks in the art of deposit mobilization.
Several studies have tried to explain the value of understanding KSFs in strategic management.
In the international setting, Al-Mashari and Zairi, (1999) studied the importance of key success
factors in implementation of BPR projects and explained how those factors can influence success
or failure of such projects Kiweu (2009) investigated critical success factors for commercializing
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microfinance institutions in Africa. Gates (2010) investigated the importance of critical success
factors in strategic planning and emphasized on integrated information framework for strategic
planning that can help organizations understand the broad range of interrelated elements that
influence strategy development.
Locally, Mulandi (2010) explored the factors determining profitability of microfinance
institutions in Kenya, Kinyua (2010) sort to determine competitive strategies adopted by MFI
while Macharia (2011) did a survey on overall sustainability of microfinance institutions. These
studies did not analyze industry specific key success factors for competitive advantage of DTM
institutions in Kenya. This study sought to answer the question; what are the Key Success
Factors for competitive advantage of DTM microfinance institutions in Kenya?
1.3 Research Objective
The objective of this study was to determine key success factors for competitive advantage of
DTM microfinance institutions in Kenya
1.4 Value of the Study
The research findings add to existing theories such as the resource based theory by pointing out
that DTMs continued success and superior performance is attributable to unique cluster of
resources, skills and competencies that this industry members possesses. The study defined
superior skills in terms of employee’s competency, sound relationship management and good
governance which the firms leveraged on to achieve sustainable competitive advantage. Further,
the study also highlighted the importance of reconfiguring resources and capabilities to maintain
competitiveness in the face of changing environment by defining dynamic capabilities in the
DTMs industry that the other competitors did not possess.
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Results from this analysis will be useful as a benchmark for building a competitive environment
for performance standards and excellence in DTMs, how well individual firms perform in the
competitive arena is directly proportional to the extent to which the identified success factors are
incorporated in strategy formulation.
The empirical findings add to the understanding of industry key success factors in the
microfinance industry and thereby aid in industry and competitive analysis of players in this
sector. Besides providing insight into factors associated with successful DTMs, Identified factors
will form the springboard for strategy formulation and overall competitive position of
organizations.
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CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter presents a review of literature pertinent to the study as presented by various
researchers. The literature is comprised of the theoretical foundations of competitiveness as
discussed by several scholar and in details explore the resource based theory of firms and the
dynamic capability theory which explains how firms achieves sustainable competitive advantage
by leveraging on their resources. This section also covers key success factors in relation to
competitive advantage of deposit taking microfinance institutions in Kenya
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2.2 Theoretical Foundation of the study
Competitiveness of a company is the ability to provide products and services as or more
effectively and efficiently than the relevant competitors. Several theories have tried to explain
how firms can achieve and sustain their competitive advantage. The resource-based theory of
strategic management postulates that superior firm performance is attributable to endowment
with superior resources. Such resources need to be valuable and rare (Barney, 1991) and must be
difficult for other firms to replicate or substitute (Peteraf, 1993), and that firms need to manage,
adapt, and deploy them in product markets in order to create value (Hitt, & Ireland, 2007). Porter
(1980) argues that it is the industry structure within which organizations compete and how they
position themselves against the industry structure which determines how competitive they will be
(Porters five forces model). The resource based theory in contrast points not to industry structure
but to unique cluster of resources and capabilities that each organization possesses
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According to RBV logic, firms acquire (Barney,1986) or develop (Dierickx & Cool, 1989)
resources that gives them a position of competitive advantage. The resource based view of
competition draws upon the resources and capabilities that reside within an organization or that
an organization may want to develop in order to achieve a sustainable competitive advantage.
Where organizations in an industry have same buddle of resources but difference in performance
can therefore be explained by the extent to which the specific institution has identified and
integrated its buddle of resources in strategy formulation.
Day and Wensley (1988) argue that competitive methods consist of skills and resources that are
available for use by firms in a competitive industry. They define superior skills in terms of staff
capability, systems, or marketing skills not possessed by a competitor. A superior resource is
defined in terms of physical resources that are available to help strategic implementation.
Examples include operating scale, location, comprehensiveness of a distribution system, brand
equity, or manufacturing or processing assets. They concluded that establishing a generic
strategy based on positional advantage in the marketplace will provide a firm with superior
performance.
Bharadwaj (1993) suggested that a competitive advantage can be developed from particular
resources and capabilities that the firm possesses that are not available to competitors. However;
In a rapidly changing and unpredictable market where the competitive landscape is shifting, the
dynamic capabilities by which firms managers integrate , build and reconfigure internal and
external competencies to address rapidly changing environments becomes the source of
sustainable competitive advantage (Teece et al., 1997). This forms the basis for the dynamic
capability theory. Teece et al. (1997) argued that dynamic capabilities enable organizations to
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integrate, build, and reconfigure their resources and competencies and thus maintain
performance in the face of changing business environments. He recognized that while
operational capabilities help sustain an organization’s technical fitness by ensuring its day-to-day
operational efficiency, dynamic Capabilities help sustain a firm’s evolutionary fitness by
enabling the creation, extension and modification of its resource base thereby creating long-run
competitive success.
Collis (1994) distinguished between lower-order operational capabilities which are described as
the purposive combinations of resources that enable an organization to perform functional
activities such as logistics, marketing and sales or manufacturing, and higher-order dynamic
capabilities which deal with change. Winter (2003) also distinguish dynamic capabilities from
operational or ordinary capabilities. Operational capabilities enable firms to perform their
everyday living and while dynamic capabilities are used to maintain the status quo.
Porters’ model of competitive advantage is that a competitive advantage exists when a firm is
able to deliver the same benefits as competitors but at a lower cost, or deliver benefits that
exceeds those of competing products (Porter 1985). Porter emphasized that businesses must
focus on areas of capability where they have distinct advantage relative to competitors in their
target market. He suggested three main generic business strategies that could be adopted in order
to again competitive advantage namely cost leadership strategy, differentiation strategy and
focus strategy. A business gains competitive advantage by performing its activities either more
cheaply than its competitors or in a unique way that creates superior customer value and
commands a price premium.
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2.3 Industry and competitive analysis
Industries differ widely in their economic characteristics, competitive situations, and future
outlooks. The pace of technological change can range from fast to slow, capital requirements can
be big or small and the market can be worldwide or local. Sellers' products can be standardized
or highly differentiated and competitive forces can be strong or weak. Industry and competitive
analysis utilizes a toolkit of concepts and techniques to get a clear fix on changing industry
conditions and on the nature and strength of competitive forces. It is a way of thinking
strategically about an industry's overall situation and drawing conclusions about whether the
industry is an attractive investment for company funds.
Thinking strategically about a company’s industry and competitive environment entails using
some well-defined Concepts and analytical tools to get clear answers to the following seven
questions (Thompson et al., 2007), namely: What are the industry’s dominant economic
features? What kinds of competitive forces are industry members facing, and how strong is each
force? What forces are driving industry changes and what impact will these changes have on
competitive intensity and industry profitability? What market positions do industry rivals
occupy—who is strongly positioned and who is not? What strategic moves are rivals likely to
make next? What are the key success factors for future competitive success? And does the
outlook for the industry offer the company a good opportunity to earn attractive profits?
Because industries differ significantly in their basic character and structure, industry and
competitive analysis begins with an overview of the industry's dominant economic features and
gaining an accurate and insightful view of the industry landscape. An industry’s dominant
economic features are defined by such factors as market size and growth rate, the number and
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sizes of buyers and sellers, the geographic boundaries of the market, whether sellers products are
virtually identical or highly differentiated, the pace of technological change and the extent of
vertical integration (Thompson et al., 2007), identifying an industry dominant economic features
helps managers understand the kinds of strategic moves that industry members are likely to
employ.
The competitive environment, also known as the market structure, is the dynamic system within
which the business competes According to Porter (1980) there are five forces that affect the level
of competition in an industry. Porter identified the five forces as the threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, threat of substitute products and
services and rivalry among the existing firms. Scrutinizing each of the five competitive forces
one by one provides a powerful diagnosis of the state of competition in a given market.
The collective impact of these forces determines what competition is like in a given market. As a
rule, the stronger competitive forces are, the lower the collective profitability of participating
firms. (Thompson et al., 2010), The "ideal" competitive environment from a profit-making
perspective is one in which both suppliers and customers are in a weak bargaining position, there
are no good substitutes, entry barriers are relatively high, and rivalry among present sellers is
only moderate .
In coping with competitive forces, successful strategists craft competitive approaches that will;
insulate the firm as much as possible from the five competitive forces, influence the industry's
competitive rules in the company's favor and provide a strong, secure position of advantage
from which to "play the game" of competition as it unfolds in the industry (Thompson et al.,
2010).
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Industry analysis also involves trying to understand forces driving change in and industry.
According to Thompson, Gamble and Strickland (2010), Industry conditions change because
important forces are driving industry participants (competitors, customers, or suppliers) to alter
their actions. They further asserted that the real value of doing driving forces analysis is to gain
better understanding of what strategy adjustments will be needed to cope with the drivers of
industry change and the impacts they are likely to have on market demand, competitive intensity,
and industry profitability. In short, the strategy- making challenge that flows from driving-forces
analysis is what to do to prepare for the industry and competitive changes being wrought by the
driving forces. Indeed, without understanding the forces driving industry change and the impacts
these forces will have on the character of the industry environment and on the company’s
business over the next one to three years, managers are ill-prepared to craft a strategy tightly
matched to emerging conditions (Thompson et al., 2010),
The final step in evaluating the industry and competitive environment is to review the overall
Industry situation and develop reasoned conclusions about the relative attractiveness or
unattractiveness of the industry, both near-term and long-term. As a general proposition, if an
industry’s overall profit prospects are above average, the industry environment is basically
attractive; if industry profit prospects are below average, conditions are unattractive. However, it
is a mistake to think of a particular industry as being equally attractive or unattractive to all
industry participants and all potential entrants. (Thompson et al., 2007), When a company
decides an industry is fundamentally attractive and presents good opportunities, a strong case can
be made that it should invest aggressively to capture the opportunities it sees and to improve its
long-term competitive position in the business.
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2.4 Industry Key Success Factors
Key Success Factors are those functions, activities or business practices defined by the market
and as viewed by the customers that are critical to the vendor/customer relationship. Pouliot
(2004) defines Key Success Factors by the market and by the customer. They revolve around
skills, processes and systems and it is outstanding performance in those areas that results in to
success. According to Parasuraman & Varadarakan, (1988), key success factors are hence
regarded as those skills and resources which have the highest leverage on value and costs.
Competitive advantage and indirectly business performance can therefore be related to how the
business scores with regard to these skills and resources which can be regarded as the actual
determinants of different performances. How the business scores on these characteristics will in
turn depend on whether the business has adopted a strategy which implies investing into these
skills and resource and this will depend on the perceptions of the decision-makers of the
perceived determinants of differences in performance and also of the perceived skills and
resources in the business.
Key success factors can be distinguished on two dimensions which have implications for the
attainment of competitive advantage. These are their changeability and whether they are
conjunctive or compensatory. Conjunctive key success factors refer to skills and resources which
are necessary conditions for superior performance in a market. The performance of a business
will always be related to the degree to which it has these skills and resources and a lack of skills
and resources here cannot be compensated for by superior skills and resources in other areas
(Boynton & Zmud, 1984).
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Compensatory key success factors refer to a set of skills and resources, where businesses can
choose to emphasize one or several of these. Lower scores with regard to some of these factors
can be compensated for by higher scores on other factors (Jemison, 1981). Businesses which
have decided to build the same set of compensatory key success factors, compete with each
other, based on the same set of skills and resources, and can be considered a strategic group.
Changeability refers to how fast it is possible for a business to acquire the skill or resource in
question. The lower the changeability, the more permanent will be the competitive advantage for
the business having that skill or resource. When the changeability of a compensatory key success
factor is low, entry barriers with regard to the corresponding strategic group will be high
(Galbraith & Schendel, 1983).
Rockart's concept of critical success factors is clearly inspired by the issue of optimum match
between environmental conditions and business characteristics. The surrounding environment is
assumed to possess certain fundamental requirements and limitations, threats and opportunities,
to which businesses must align their strategy, skills and resources in order to achieve success. No
organization, according to Rockart, can afford to develop a strategy which fails to provide
adequate attention to the principal factors which underlie success in the industry. (Bullen &
Rockart, 1981)
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Rockart distinguishes between five sources of critical success factors namely: industry CSFs
such as demand characteristics, technology employed, product characteristics among others;
Competitive strategy and industry position of the business in question which is determined by the
history and competitive positioning in the industry; environmental factors which are the
macroeconomic influences that affect all competitors within an industry and over which the
competitors have little or no influence, such demographics, economic and government
legislative policies; temporal factors, which are areas within a business causing a time-limited
distress to the implementation of a chosen strategy and managerial CSFs.
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CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
The objective of this study was to determine key success factors and competitive advantage of
DTMs microfinance institutions in Kenya. This chapter provided a road map on how this
objective was achieved. A detailed description of the study design of choice was provided as
well as justification for selecting the method. Cross-sectional survey technique was selected for
this research.
Methods of data collection were discussed in this chapter. The study used questionnaires to
collect qualitative data. Data was then analyzed through a combination of factor analysis
technique and descriptive statistic techniques. The section also sought to justify why the
particular methodology was selected
3.2 Research Design
The research design used was descriptive Cross-sectional survey since this was a descriptive
study. Survey research involves acquiring information about one or more groups of people –
perhaps about their characteristics, opinions, attitudes, or previous experiences by asking them
questions and tabulating their answers. The ultimate goal is to learn about a large population by
surveying a sample of that population.
This study was aimed at identifying key success factors for competitive advantage of DTM
microfinance institutions in Kenya. Descriptive survey was deemed to be most appropriate in the
study because it describes what exists at the moment with respect to situational variables and
looks at the relationship between variables. All the institutions in the DTM industry were studied
with the exception of KWFT who declined to participate.
20
3.3 Population of Study
The population of interest in this study consisted of all DTM microfinance institutions in Kenya.
According to CBK, there were 9 DTM in Kenya by 31st May 2013, after licensing of U & I
microfinance Ltd. These 9 institutions (see appendix 2) formed the population for the study.
A study population is a well-defined set of people, services, elements, events, groups, things or
households that are being investigated (Ngechu, 2004). It is generally a large collection of
individuals or objects that are the main focus of study. Target population is the entire group of
individuals or objects to which researchers are interested in generalizing the conclusions.
3.4 Data Collection
Data was collected using self-administered questionnaires. The respondents were the CEO/
directors as well as senior customer service managers of the microfinance institution under study.
These subjects were chosen mainly because they had firsthand information about customer needs
and preferences and also because of their responsibilities in making and implementing strategic
decisions.
The study targeted all 9 DTMs and total of 18 respondents. The questionnaire contained three
sections. Section one sought to establish general information about the respondents, section two
contained closed ended questions whereby respondents were required to select answers that best
reflected their opinion from given alternatives and the last part contained open ended questions.
The raw data used in formulation of the questionnaire was obtained from the researcher’s
detailed analysis of the work of various authors in prescription and conception of potential
success factors for micro finance institutions.
21
3.5 Data Analysis
After receiving the questionnaires, data was edited for completeness and consistency. It was then
coded and analyzed using factor analysis technique. Factor analysis aims to summarize
information requirements and unearth underlying factors that illustrate relationships among a set
of interrelated items. This statistical approach was selected because of its ability to identify a
small number of factors that are critically linked to the domain of interest and to group similar
structures together.
Factor analysis enabled the researcher to find factors among observed variables with similar
characteristics if data contains many variables thus enabling one to produce a small number of
factors from a large number of variables. Descriptive statistics methods such as mean, mode and
standard deviation were also used to summarize the data.
22
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1 Introduction
This chapter represents data findings and analysis on the study to investigate key success factors
and competitive advantage of DTM institution in Kenya. The study targeted all 9 DTM and a
total of 18 respondents. 7 DTMs participated in the study and 17 respondents filled and returned
the questionnaire thus constituting 94% response rate. Data was then analyzed using factor
analysis.This method was employed to identify factors that contribute to competitive advantage
of deposit taking microfinance institutions in Kenya.
Factor analysis (more properly exploratory factor analysis) is concerned with whether the
covariance or correlations between a set of observed variables can be explained in terms of a
smaller number of unobservable constructs known either as latent variables or common factors.
Explanation here means that the correlation between each pair of measured (manifest) variables
arises because of their mutual association with the common factors. Consequently, the partial
correlations between any pair of observed variables, given the values of the common factors,
should be approximately zero. As results, the original data is reduced into factors. The reduction
might be by discovering that a particular linear combination of our variables accounts for a large
percentage of the total variability in the data or by discovering that several of the variables reflect
another ‘latent variable’.
23
4.2 Personal Data analysis
Determination of the age of the institution and the experience in terms of years served by the
respondents to the MFI institutions was vital in order to establish if they had appropriate
experience in dealing with customers and thus knowledgeable enough to respond to questions
seeking to determine the success factors for the institutions. Figure 4.1 shows the numbers of
years the respondents served in the institutions and majority (76%) had a less than two years’
experience.
Figure 4.1: Years served in the institutions
24
The researcher also sought to determine the number of years the institutions under study had
been operational. This was important in order to determine if the key success factors identified
by this study could stand the dynamic environment in which organizations operated in. it was
found that 47% of those studies had been operating in a period less than 5years. Figure 4.2 shows
the number of years the institutions had been operational.
Figure 4.2 age of institutions
25
4.3 Descriptive Statistics
The Table 4:1 below simply shows the means, standard deviations and sample size for each
variable. It appears that the average score for all the tests is very similar and all have a similar
spread.
Table 4: 1 Descriptive Statistics
VARIABLES Mean Std. Deviation
Analysis N
Products and services tailor made for each specific group of our customers 4.6 0.737 15 Regularly introduce new products depending on market requirements 3.93 1.033 15 Have a product development team 3.33 1.633 15 Offer a wide range of products to our customers 4.73 0.594 15 Mobilize deposit from our customers 4.8 0.561 15 We provide financing to investment groups 4.13 0.834 15 ‘Chamas’ form important part of our customer base 4.13 0.834 15 We support community based projects 3.8 1.014 15 We encourage our customers to form ‘chamas’ 3.8 1.146 15 Have products tailor made for persons in investment groups and ‘chamas’ 3.67 1.234 15 Our interest rate is relatively low for group members as opposed to individual borrowers 3.53 1.302 15 Have a customer service department with efficient employees 3.93 1.28 15 Regularly contact customer satisfaction surveys 3.47 1.187 15 Emphasize on providing what the our customers need and have a strong customer service culture 4.47 0.743 15 We know all most of our customers by, their names, the products they prefer or by other important details 3.73 1.223 15 Follow up on customers whose accounts are dormant 4.4 1.056 15 Respond to our customers complains and queries within 24 hours. 4.47 1.125 15 Provide personalized service to our customers 4.67 0.617 15 Customers know our products and therefore advertising is unnecessary 2.67 1.633 15 Inform our customers whenever we launch a new product 4.47 1.246 15 Emphasize on continuous advertisement through media houses and posters 4.07 1.223 15 Current information is available within our branches 3.4 1.121 15
26
Table 4: 1 Descriptive Statistics……………………………………………….continued
Send current updates on our products to customers through mobile phone text messaging
3.53 1.302 15
Know the institutions vision and mission 4.8 0.414 15 Emphasize on strong work ethics and due diligence in our service delivery 4.87 0.516 15 Institution has a competitive process of selecting the best employees 4.6 0.828 15 Am aware of all products and services offered by my institution 4.93 0.258 15 Managers are highly qualified and capable of executing the institutions objectives 4.73 0.458 15 Customers are given enough time to repay their credit facilities 4.33 0.816 15 Customers are required to pay any loan facility within 60 months 2.8 1.821 15 Repayment periods depend on the type of facility advanced 4.8 0.775 15 Repayment period are tailor made for different types of products and customers 4.8 0.414 15 We provide flexible repayment options for our loan facilities 4.8 0.561 15 Have outsourced a professional agent who sells our services on our behalf. 1.47 0.834 15 Employees in my organization are tasked with the responsibility of service delivery 4.8 0.414 15 Employees go to the field to create more awareness on our products and recruit new customers 4.13 1.552 15 Make follow up on development projects we finance 3.93 1.335 15 Have opened branches at strategic locations near our customers 3.93 1.163 15
.
27
4.4 Factor Analysis
Table 4: 2 gives the sampling adequacy test and significance of the data for factor analysis. For
data to qualify for factor analysis, KMO measure of sampling adequacy must be greater than 0.5
and Barlett’s test must be very small. This data meets the criteria in that KMO is O.606 whereas
Bartlett’s test is 0.002. as shown below
Table 4: 2 KMO and Barlett’s Test
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .606
Bartlett's Test of Sphericity
Approx. Chi-Square 36.077 Df 15 Sig. .002
4.4.1 Communalities
Table 4:3 shows the estimated communalities which represent the estimates of that part of the
variability (variance) in each variable that is shared with others, and which is not due to
measurement error or latent variable influence on the observed variable.
Table: 4.3 Communalities
VARIABLES COMMUNALITIES Initial Extraction Products and services tailor made for each specific group of our customers 1 0.932 Regularly introduce new products depending on market requirements 1 0.925 Have a product development team 1 0.926 Offer a wide range of products to our customers 1 0.919 Mobilize deposit from our customers 1 0.995 We provide financing to investment groups 1 0.945 ‘Chamas’ form important part of our customer base 1 0.92 We support community based projects 1 0.937 We encourage our customers to form ‘chamas’ 1 0.976 Have products tailor made for persons in investment groups and ‘chamas’ 1 0.894
28
Table: 4.3 Communalities……………………………continued
Our interest rate is relatively low for group members as opposed to individual borrowers
1 0.923
Have a customer service department with efficient employees 1 0.954 Regularly contact customer satisfaction surveys 1 0.875 Emphasize on providing what the our customers need and have a strong customer service culture
1 0.954
We know all most of our customers by, their names, the products they prefer or by other important details
1 0.791
Follow up calls and visits on customers whose accounts are dormant 1 0.988 Respond to our customers complains and queries within 24 hours. 1 0.949 Provide personalized service to our customers 1 0.948 Customers know our products and therefore advertising is unnecessary 1 0.939 Inform our customers whenever we launch a new product 1 0.973 Emphasize on continuous advertisement through media houses and posters 1 0.879 Current information is available within our branches 1 0.918 Send current updates on our products to customers through mobile phone text messaging
1 0.926
Know the institutions vision and mission 1 0.959 Emphasize on strong work ethics and due diligence in our service delivery 1 0.965 Institution has a competitive process of selecting the best employees 1 0.969 Am aware of all products and services offered by my institution 1 0.972 Managers are highly qualified and capable of executing the institutions objectives
1 0.84
Customers are given enough time to repay their credit facilities 1 0.984 Customers are required to pay any loan facility within 60 months 1 0.926 Repayment periods depend on the type of facility advanced 1 0.945 Repayment period are tailor made for different types of products and customers
1 0.985
We provide flexible repayment options for our loan facilities 1 0.988 Have outsourced a professional agent who sells our services on our behalf. 1 0.978 Employees in my organization are tasked with the responsibility of service delivery
1 0.749
Employees go to the field to create more awareness on our products and recruit new customers
1 0.882
Make follow up on development projects we finance 1 0.953 Have opened branches at strategic locations near our customers 1 0.96
29
4.4.2 Eigen values/variance
Table 4:4 shows the importance of each of the 38 factors which are essentially as results of 38
variables. Only the first 10 have Eigen values over 1.00, and together these explain over 93% of
the total variability in the data. This leads us to the conclusion that a ten factor solution will
probably be adequate. Therefore, the 38 variables in the questionnaire are now reduced into
factors with minimal loss of information.
Table: 4. 4 Total variance explained by factors
variables Initial Eigenvalues Extraction Sums of Squared Loadings
Rotation Sums of Squared Loadings
Component
Total
% of Variance
Cumulative %
Total
% of Variance
Cumulative %
Total
% of Variance
Cumulative %
1 10.30
27.09 27.09 10.30
27.09 27.09 7.79 20.50 20.50
2 5.31 13.96 41.05 5.31 13.96 41.05 4.57 12.03 32.53 3 4.13 10.87 51.92 4.13 10.87 51.92 4.04 10.63 43.16 4 3.68 9.70 61.62 3.68 9.70 61.62 3.30 8.69 51.85 5 3.42 8.99 70.61 3.42 8.99 70.61 3.25 8.55 60.40 6 2.35 6.19 76.80 2.35 6.19 76.80 3.18 8.38 68.78 7 1.84 4.83 81.63 1.84 4.83 81.63 2.92 7.69 76.47 8 1.78 4.69 86.31 1.78 4.69 86.31 2.31 6.07 82.53 9 1.45 3.82 90.13 1.45 3.82 90.13 2.07 5.44 87.98 10 1.19 3.13 93.26 1.19 3.13 93.26 2.01 5.28 93.26 11 0.96 2.52 95.77 12 0.70 1.84 97.61 13 0.55 1.46 99.07 14 0.36 0.93 100.00 15
0.00
0.00
100
16
0.00
0.00
100
17
0.00
0.00
100
18
0.00
0.00
100
19
0.00
0.00
100
30
Table: 4. 4 Total variance explained by factors……………….continued
20
0.00
0.00
100
21
0.00
0.00
100
22
0.00
0.00
100
23
0.00
0.00
100
24 0.00
0.00
100
25 0.00
0.00
100
26
0.00
0.00
100
27
0.00
0.00
100
28
0.00
0.00
100
29
0.00
0.00
100
30
0.00
0.00
100
31
0.00
0.00
100
32
0.00
0.00
100
33
0.00
0.00
100
34
0.00
0.00
100
35
0.00
0.00
100
36
0.00
0.00
100
37
0.00
0.00
100
38
0.00
0.00
100
Extraction Method: Principal Component Analysis.
31
4.4.3 Factor loadings
The formal model linking manifest (original variables) and latent variables (factors) is simply
that of multiple regressions, with each observed variable being regressed on the common factors.
The regression coefficients in the model are known in this context as the factor loadings and the
random error terms as specific variants since they now represent that part of an observed variable
not accounted for by the common factors. However, for ease of interpretation, factor loadings
that fell below 0.3 were excluded to achieve a clear picture on which original variable are
represented in each factor.
The rotation of the factor aids in putting together variables that can be represented into one factor
in this case Factor 1 comprise of variables: 1 up to 12, factor 2 comprises of variables 13 to 18,
factor 3 comprises of variables 14 to 22 and so on. This is based on factor loadings above 0.4.
Table 4.5 ( appendix 3) shows the ten factors extracted .
32
CHAPTER 5: DISCUSSION CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
The objective of this study was to determine key success factors for competitive advantage of
DTM institutions in Kenya. This chapter seeks to determine if the objective was meant as well as
answer the research question formulated in chapter 1 of this study A preliminary analysis
performed to determine how the respondents rated the 38 variables indicated that a number of
them were important for competitive advantage. The importance rating of individual items is
listed in Table 4.1. The mean scores were tabulated for each variable to determine its individual
importance. A variable with the highest mean score is considered as the most important factor.
5.2 Summary of Findings
Factor analysis was performed on the 38 variables that represented factors for competitiveness of
DTM institutions in Kenya and resulted in extraction of ten factor solutions based on Varimax
with Kaiser Normalization rotation method as shown on table 4.5. Factor 1 collects 12 variables
which were grouped together due to their high loading with respect to factor 1. These were
mobilization of deposit from customers, products ranges, short dispute resolution time frames,
emphasize on provision of customers need and strong customer service culture, highly qualified
managers capable of executing the institutions objectives, emphasis on strong work ethics and
due diligence in service delivery, credit repayment period, follow up on customers, knowledge of
the institutions vision and mission and provision of personalized service to customers.
33
All this variables seem to revolve around customer issues and therefore it seems reasonable to
tentatively identify the first rotated factor as “customer service culture’’ this agreed with
Parasuraman & Varadarakan, (1988), observation that customers are where the money comes
from, so in many ways this is the most important success factor.
Factor 2 was loaded onto by six variables that focused on microfinance outreach innovations
namely: group based lending, availability of a customer service department with efficient
employees, service delivery, products and services tailor made for each specific group of
customers, support on community based projects, and product development. Factor 2 was named
‘service delivery and innovations’ in the said microfinance institutions because the entire
variable seemed to measure how services were delivered to the customers and degree of
innovation in the institutions
Factor 3 consisted of four variables relating to employee professionalism. They captured the
people aspect of the organizations and were identified as products knowledge, employee
recruitment and selection as well as outsourcing of professionals to sell and market the
institutions products on their behalf. Factor 3 was therefore named as ‘employee competency and
appropriate management team’
According to table 4.5, factor 4 was loaded by four variables namely: provision of financing to
investment groups, Chamas forming important part of DTMs customer base, employees outreach
responsibilities to groups and having products tailor made for persons in investment groups.
These variables described group based lending practices that were identified as one of the key
34
success factors in DTM institutions. The four were collectively termed as ‘investment group
financing’. This agrees with earlier scholars who agreed that this was vital. Ghatak (2000) as
well as Tassel (1999) showed that group lending achieves self-selection of borrowers and act as a
screening device.
Factor 5 contains four variables. This factor consists of statements which relate to the
management of the DTMs business and its effective leadership. For this reason, they were
termed as Sound relationship management and good governance. They included the following:
making follow up on development projects financed by the institutions, having branches at
strategic locations, market scanning and contacting market intelligence and allowing customers
enough time to repay their credit facilities.
Factor 6 loaded only two variables. The two reflect on how information is made available to
customers. Due to their small capital base, it was established that most of the DTMs do not
venture in to aggressive advertisement; rather Current information is availed to customers within
the institutions branch network. Factor 6 was labeled as product awareness.
Factor 7 was defined by three variables namely: Emphasis on continuous advertisement,
contacting customer satisfaction surveys and knowledge of customers, their likes and
preferences. Emphasis on these variables was mainly on how the microfinance institutions make
follow ups on customers and their products. Factor 7 was therefore named as monitoring and
evaluation practices within the micro finance institutions.
35
Factors 8, 9 and 10 were each described by one factor. These were labeled as communication,
credit repayment period and cost of service respectively. These factors were considered to be of
minor importance because they were loaded by a few variables and also scored less mean score.
The researcher therefore considered factor 1 to 7 to be the most important success factors for
competitive advantage of DTMs in Kenya.
5.3 Conclusion
Using factor analysis and from the above discussion, the study identified seven major key
success factors for competitive advantage of DTMs in Kenya that answered the research question
proposed in chapter one of this project. These factors were labeled as follows: Superior
Customer service culture, Service delivery and innovations, Employee competency and
appropriate management, Investment group financing, Sound Relationship Management and
Good Governance, Product awareness and Monitoring and Evaluation Practices.
The findings above agree to these of other researchers, for instance; a study by IFAD 2007 on
customer satisfaction in rural micro-finance institutions in Uganda, Kenya and Tanzania
suggested that surveyed customers were all satisfied with institutions exhibiting a Customer
Satisfaction Index of 81%. Thus good customer service was identified as a key success factor.
Hamel, (1996), suggested that MFIFs must have a clear commercial orientation for the
scalability of the MFIs per se and for micro-finance as a whole which requires a high degree of
professionalism while other researchers ascertained that Group-based models locally known as
‘Chama’s’ have built impressive portfolios in rural market for DTMIs in Kenya. From the above
findings, the study recommends that in order for DTMs to remain profitable, they must maintain
36
an optional level of competency in both internal and external elements that define the difference
between a strong competitor and a week competitor. Successful DTMs should put more
emphasis on the factors identified above that were found to be the key success factors for those
institutions.
5.4 Limitations of the Study
From figure 4.2, most of the institutions studied had only been in operation for 5 years or less.
This means that most of them lacked appropriate experience and thus data collected was
applicable for young institutions. Since competition in the external environment is highly
dynamic, one cannot therefore conclude with certainty that the identified factors have over years
been the only key success factors for DTMs. In addition, the researcher observed that the rate of
staff turnover in the studied institutions was very high with most management staff being only
two years old in the institutions or less
Most of the respondents were also reluctant to reveal their success strategies in fear that the
information may leak to their competitors and compromise their competitive moves which may
have resulted to withholding of vital information. Further the most experienced DTM of the nine
did not participate in the study thereby the key success factors of the oldest DTM in the market
could not be established.
5.5 Area for Further Study
This study focused on success factors for DTM institutions only. Emerging questions from this
study are for instances why a client would seek for services of microfinance institutions as
opposed to banks and other financial institutions which offer similar products at an affordable
rate yet the level of technology investment and expertise in the banks is highly significant. Future
37
Researchers can critique this question further and perhaps attempt to compare key success
factors for competitive advantage in the DTM industry as opposed to the banking sector.
5.6 Implications of the Study on Theory, Policy and Practice
The research findings include identification of critical success factors that drive sustainable
competitive advantage of deposit taking microfinance institutions in Kenya. The empirical
findings add to the understanding of industry key success factors in the microfinance industry
and thereby aid in industry and competitive analysis of players in this sector and other
competitors in the market
Besides providing insight into factors associated with successful DTMs, Identified factors forms
the springboard for strategy formulation and overall competitive position of organizations.
Policy makers can use the findings of this study in formulation of relevant governing laws.
Further, this study will help the governing bodies design strategies aimed at promoting the
growth of the sector.
Results from this analysis will be useful as a benchmark for building a competitive environment
for performance standards and excellence in DTMs, how well individual firms perform in the
competitive arena is directly proportional to the extent to which the identified success factors are
incorporated in strategy formulation Further the seven key success factors identified by this
research are crucial for proactive management to focus on especially on areas perceived by
customers to be important that if perfected can help build loyalty and thereby defending the
company against competitive forces.
38
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i
APPENDICES
Appendix 1: Questionnaire
SECTION A; PERSONAL DETAILS
1. Name of your institution ------------------------------------
2. How many years have you served in this institution
0-2 [ ]
3-5 [ ]
6-10 [ ]
Above 10 years [ ]
3. How long has your organization been in operation
0-5 [ ]
5-10 [ ]
10-15 [ ]
15-20 [ ]
Above 20 years [ ]
SECTION B. SUCCESS FACTORS
I. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate to group based lending as practiced by
your institution. Tick appropriately.
Factor- group based lending Ratings
I. We provide financing to investment groups
1 2 3 4 5
II. ‘Chamas’ form important part of our customer base
III. We support community based projects
IV. We encourage our customers to form ‘chamas’ in order to
enjoy a wide range of our products
ii
V. We have products tailor made for persons in investment groups
and ‘chamas’
VI. Our interest rate is relatively low for group members as
opposed to individual borrowers
2. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate how the way your institution relates to its
customers
Factor- customer relations ratings
I. We have a customer service department with efficient
employees
1 2 3 4 5
II. We regularly contact customer satisfaction surveys
III. We emphasize on providing what the our customers need and
have a strong customer service culture
IV. We know all most of our customers by, their names, the
products they prefer or by other important details
V. We make follow up calls and visits on customers whose
accounts are dormant
VI. We respond to our customers complains and queries within 24
hours.
VII. We provide personalized service to our customers
iii
3. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate to your range of products
Factor- product ranges ratings
I. we have products and services tailor made for each specific
group of our customers
1 2 3 4 5
II. we regularly introduce new products depending on marker
requirements
III. we have a product development team
IV. We offer a wide range of products to our customers
V. We mobilize deposit from our customers
4. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate to how your institution creates awareness on
its products and services
Factor- marketing and communication ratings
I. Our customers know our products and therefore advertising is
unnecessary
1 2 3 4 5
II. We inform our customers whenever we launch a new product
III. We emphasize on continuous advertisement through media
houses and posters
IV. Current information is available within our branches and
therefore it is assumed that the customers will see it once in the
halls
V. we send current updates on our products to customers through
mobile phone text messaging
iv
5. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate to service provision in your institution
Factor- professionalism ratings
I. I know the institutions vision and mission
1 2 3 4 5
II. We emphasize on strong work ethics and due diligence in our
service delivery
III. My institution has a competitive process of selecting the best
employees
IV. I am aware of all products and services offered by my
institution
V. Our managers are highly qualified and capable of executing the
institutions objectives
6. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate to cost of service in your institution
Factor- Flexible Credit repayment arrangements ratings
I. Customers are given enough time to repay their credit facilities
1 2 3 4 5
II. All customers are required to pay any loan facility within 60
months
III. Repayment periods depend on the type of facility advanced
IV. Repayment period are tailor made for different types of
products and customers
V. We provide flexible repayment options for our loan facilities
v
7. In a scale of 1-5, where 1 is strongly disagree and 5 strongly agree, to what extend do you
agree with the following statements that relate to how services are delivered to your
customers.
Factor- distribution capabilities ratings
I. We have outsourced a professional agent who sells our
services on our behalf.
1 2 3 4 5
II. Employees in my organization are tasked with the
responsibility of service delivery
III. Occasionally our employees go to the field to create more
awareness on our products and recruit new customers
IV. We make follow up on development projects we finance
V. We have opened branches at strategic locations near our
customers
SECTION C
8. Name any other factors apart from the ones above that you feel have helped your institution
achieve success and substantial growth
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
THE END!
Thank you for your time.
vi
Appendix 2: List of DTMs
Deposit Taking microfinances
1. Kenya Women Finance Trust-DTM
2. Rafiki Deposit taking Microfinance Ltd
3. Faulu Kenya DTM
4. SMEP DTM
5. Remu DTM Ltd
6. Uwezo DTM Ltd
7. Century DTM Ltd
8. Sumac Credit DTM Ltd
9. U&I Microfinance Ltd
Source http://www.centralbank.go.ke/financialsystem/microfinance/deposittaking.aspx
vii
APPENDIX 3: Table 4.5 The Factor Matrix
Variables F 1 F 2 F 3 F 4 F 5 F 6 F 7 F 8 F 9 F 10 1 mobilize deposit from
our customers 0.92
2 offer a wide range of products to our customers
0.90
3 Respond to our customers complains and queries within 24 hours.
0.89 0.32
4 emphasize on providing what the our customers need and have a strong customer service culture
0.86 -0.34
5 managers are highly qualified and capable of executing the institutions objectives
0.77
6 emphasize on strong work ethics and due diligence in our service delivery
0.74 0.36
7 Repayment period are tailor made for different types of products and customers
0.71 0.58
8 follow up calls and visits on customers whose accounts are dormant
0.68 0.31 0.34 0.48
9 know the institutions vision and mission
0.67 0.64
10 provide personalized service to our customers
0.61 0.41 0.32 -0.37
11 Repayment periods depend on the type of
0.52 0.38 -0.31 -0.33 -0.40
viii
facility advanced
Table 4.5 The Factor Matrix……………………………………………….continued
12 send current updates on our products to customers through mobile phone text messaging
0.50 0.31 0.45 0.41
13 We encourage our customers to form ‘chamas’
0.83 0.35
14 have a customer service department with efficient employees
0.82 -0.30
15 Employees in my organization are tasked with the responsibility of service delivery
0.68 -0.45
16 products and services tailor made for each specific group of our customers
0.47 0.65 0.42
17 We support community based projects
0.58 0.43 0.31
18 have a product development team
0.48 0.47 0.42
19 We provide flexible repayment options for our loan facilities
0.94
20 am aware of all products and services offered by my institution
0.89
21 institution has a competitive process of selecting the best employees
0.35 0.72
22 have outsourced a professional agent who sells our services
-0.65 -0.45 0.34 -0.42
ix
on our behalf. 23 We provide financing
to investment groups 0.88
Table 4.5 The Factor Matrix……………………………………………….continued
24 ‘Chamas’ form important part of our customer base
0.32 0.56 0.63
25 employees go to the field to create more awareness on our products and recruit new customers
0.57 0.36 0.41
26 Have products tailor made for persons in investment groups and ‘chamas’
0.56 -0.53 0.31
27 make follow up on development projects we finance
0.87
28 have opened branches at strategic locations near our customers
0.46 0.82
29 regularly introduce new products depending on market requirements
0.54 0.65
30 Customers are given enough time to repay their credit facilities
0.35 0.62 -0.40
31 customers know our products and therefore advertising is unnecessary
0.93
32 Current information is available within our branches
0.78 -0.45
33 emphasize on continuous advertisement through media houses and posters
0.82
34 regularly contact 0.32 0.76
x
customer satisfaction surveys
Table 4.5 The Factor Matrix……………………………………………….continued
35 We know all most of our customers by, their names, the products they prefer or by other important details
0.49 0.63
36 inform our customers whenever we launch a new product
0.90
37 customers are required to pay any loan facility within 60 months
0.89
38 Our interest rate is relatively low for group members as opposed to individual borrowers
-0.90