Strategic Measurement System Design and Performance of Medium Sized Service Firms in Kenya

Abstract

Strategic measurement systems (SMS) are essential management tools for operationalizing firm strategy. One of the obstacles to better performance of small and medium sized firms, is lack of adequate strategic capabilities linked to adoption of inappropriately designed SMS, which do not offer comprehensive information for the development and execution of sustainable competitive strategies. Studies on the subject have primarily focused on identifying the types of measures without examination of how properties of these measures influence performance. Moreover, most studies have focused on large manufacturing firms. The study sought to establish the effect of SMS design on performance of medium sized service firms in Kenya. Specifically, the study sought to determine the effect of breadth of SMS on performance of medium sized service firms in Kenya; establish the effect of depth of SMS on performance of medium sized service firms in Kenya; investigate the effect of strategic alignment of measurement system on performance of medium sized service firms in Kenya; examine the effect of flexibility of SMS on performance of medium sized service firms in Kenya; establish the mediating effect of customer value on the relationship between the SMS and performance of medium sized service firms in Kenya; and establish the moderating effects of organizational context on the relationship between the SMS and performance of medium sized service firms in Kenya. The study was descriptive and was guided by resource-based view, dynamic capabilities, organizational learning, and decision-making theories. The target population was 3,058 registered firms’ employing between 50 and100 in the service sector in Kenya as at 2016. A sample size of 323 was derived using Krejcie and Morgan sampling table and stratified random sampling technique used to select participants. The units of observation were the chief executive officers while the units of analysis were the medium sized service firms. Unlike large, small and micro manufacturing firms, medium sized service firms have unique peculiarities which hinders effective application of models developed for other categories of firms. Primary and secondary data was collected using semi structured questionnaire with both closed and open-ended questions. Validities and reliabilities of the tools were established through exploratory factor analysis. Descriptive and inferential statistics methods were used to analyse quantitative data while qualitative data analysis involved categorizing responses into common themes. The study concludes that firms with broad, detailed, strategically aligned and flexible SMS seem to perform better. The findings were such that breadth of SMS had the largest single effect on performance followed by strategic alignment, flexibility, and depth in that order. Customer value was found to partially mediate the relationship between SMS and performance. Moreover, organizational structure moderates mediated relationship between SMS and performance. The contribution of this thesis is that it unravels in detail the extent of adoption and design of SMS in this less explored realm of the service sector in developing economies. Further it shows the comparative contributory effects of various design elements of SMS. Management of service firms can use the findings for re-engineering and re-designing of SMS for optimal benefits. Practitioners and other policy makers can also use the findings in formulation of policies that promote better strategic management.