Effect of Dynamic Capabilities on Performance of Commercial Banks

The Kenyan banking industry contributes significantly to the government revenues yet financial reports indicate that Kenya’s listed banks recorded a negative EPS (earnings per share) growth of 0.8% in the financial year 2017, compared to average positive growth of 4.4% in the financial year 2016. Kenya’s listed published their financial year 2018 performance, with an average growth a share, of 13.8%, compared to a 1.0% decrease the past year. All quoted banks in Kenya gave their financial year 2019 reports, realizing average core earnings per share growth of 9.9%, in comparison to 13.8% growth, in the past year. This trend indicates a decline in the growth of the core earnings per share. Previous studies on dynamic capability and performance dwelt on sensing capability, coordination, learning, sensing, seizing, transforming and IC. However, this study focused on all dynamic capabilities. Past studies on the moderator influence focused on alliance management capability, resource planning capability, and environmental dynamism as moderators. However, this study focused on all the dynamic capabilities of the moderator. This demonstrates that dynamic capability is still a plausible moderator. This study focused on the listed banks currently 11 in number. This is because their operations and records Were declared by law to the public. Objective one was regressed from the dependent and the independent variables. In objective two, the dynamic capabilities variable was introduced to establish its effect on the outcome. Objective three combined the dependent, independent variables and the potential moderating variable. The study applied the resource base theory because it looks at the role of internal aspects – resources and capabilities – of the organization during change. Also, the configuration theory because it believes in organizational rejuvenation and restructuring of their core structures to achieve success. Cross-sectional survey design and correlational was done of the eleven listed commercial banks in Kenya. The respondents comprised 68 heads of departments, 11 CEOs, 29 regional heads, and 145 regional managers. Primary data collection was done vide a questionnaire. Reliability was ascertained using Cronbach’s alpha test. The performance scale should indicate a Cronbach alpha of at least 0.7. Face validity was ensured by administering the questionnaire to two senior bank managers. construct validity was established. Content validity was ascertained through subjection of a pool of questions to experts. Data analysis was done using descriptive and inferential statistics. The results discovered that generic strategies by porter, affected commercial banks’ performance, (β=0.645, p=0.000) and accounted for 41.6% variance, dynamic capabilities positively affect performance (β=0.364, p=0.000) and accounts for 12.9% and dynamic capabilities are a positive moderator of the relationship between porters’ generic strategies and performance (β=0.030, p=0.010) with a percentage increase of 1.5%. It is concluded from the findings that porter’s generic strategies and dynamic capabilities positively affect commercial banks' performance while dynamic capabilities moderate the relationship. It was recommended from the findings that companies improve more on the cost strategy and dynamic capabilities to realize better performance. The study would contribute to the existing literature by adding the moderating effect of dynamic capabilities. The study will help bankers to focus on dynamic capabilities while studying performance. The academia will benefit from this study as well.