THE EFFECTSOF STRATEGIC MANAGEMENT PRACTICES ON

ORGANAZTION PERFORMANCE:

THE CASE OF SOME SELECTED PRIVATE BANKS IN ETHIOPIA

DEBRE BERHAN UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

MBA PROGRAM

BY: ABEBE TIMKETIE

JUNE, 2021
DEBRE BERHAN, ETHIOPIA
THE EFFECT OF STRATEGIC MANAGEMENT PRACTICES: THE CASE
OF SOME SELECTED PRIVATE BANKS IN ETHIOPIA

THESIS SUBMITTED TO DEBRE BERHAN UNIVERSITY COLLEGE OF

BUSINESS AND ECONOMICS
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF MASTER OF BUSINESS ADMINISTRATION (MBA)

By: ABEBE TIMKETIE (GPE/226/11)

Advisor:
GEBEYAW ADUGNA(ASSISTANT PROFESSOR)

June, 2021
 COLLEGE OF BUSINESS AND ECONOMICS
MBA COORDINATION OFFICE

THE EFFECT OF STRATEGIC MANAGEMENT PRACTICES: THE CASE

OF SELECTED PRIVATE BANKS IN ETHIOPIA

BY: ABEBE TIMKETIE (GPE/226/11)

APPROVAL OF THE THESIS

As members of Board examiners of the final MBA, Thesis open defense examination, we
certify that we have read and evaluated the thesis prepared by Abebe Timketie entitled “The
Effects of Strategic Management Practice: - The Case Of Selected Private Banks
InEthiopia” and examined the candidate. We recommend that thesis be accepted as fulfilling
the thesis requirement for the degree of masters of Business Administration (MBA).

Board of Examiners

External Examiner ________________________ ____________________

Internal Examiner _________________________ _____________________

Chair person _______________________ ______________________

Date: _____________________

i
Declaration
I, the under signee declare that this thesis is my original work, prepared under the guidance of
Gebeyaw Adugna (Assistant Professor). All source of materials used for the thesis have been duly
acknowledged. I further confirm that the thesis has not been summited either in part or in full to
any other higher learning institution for the purpose of earning any degree.

Abebe Timketie
Signature: - _____________
Date: - ______________

ii
Endorsement
This thesis “Assessment of Strategic Management Practices: The Case of selected Private Banks
in Ethiopia” has been submitted to DebreBirhan university College of Business and Economics,
MBA Program for examination with my approval as a university Advisor.

Gebeyaw Adugna (Assistant Professor)

Signature: - ___________________

Date: - _______________________

iii
Acknowledgements

First, my deepest appreciation and gratitude is to Gebeyaw Adugna (Assistant Professor), my

advisor, for his unreserved advises, very prompt responses and guidance throughout the
preparation of this thesis.
Second, I would like to thank all Managers and Directors who allow me to distribute my
questionnaire to their employees and also I thank all the respondents of my research
questionnaire, because their kindness to share their very precious time and very valuable
feedback was in did the pillar of this thesis. A very deep sincere gratitude also belongs to my
colleagues Teferi G/egziabherand Kibrete Kitaw they gave me their valuable support.

iv
 TABLE OF CONTENT

Contents pages
Declaration ................................................................................................................................................ii
Acknowledgements .................................................................................................................................. iv
LIST OF TABLES ................................................................................................................................. viii
LIST OF FIGURES.................................................................................................................................. ix
ABSTRACT .............................................................................................................................................. x
CHAPTER ONE ...................................................................................................................................... 1
1. Introduction ...................................................................................................................................... 1
1.2. Statement of the problem ......................................................................................................... 2
1.3. Research Questions .................................................................................................................. 3
1.4. General Objective ..................................................................................................................... 4
1.4.1. Specific Objectives ........................................................................................................... 4
1.5. Scope of the study .................................................................................................................... 4
1.6. Significance of the study .......................................................................................................... 5
1.7. Organization of the study ......................................................................................................... 5
1.8. Definition of terms ................................................................................................................... 6
CHAPTER TWO ..................................................................................................................................... 7
2. REVIEW OF RELATED LITERATURE ....................................................................................... 7
2.1. Theoretical review .................................................................................................................... 7
2.1.1. Strategic Management ...................................................................................................... 7
2.1.2. Components of the Strategic Management Process ......................................................... 9
2.2. Environmental scanning ......................................................................................................... 10
2.3. Strategy Formulation .............................................................................................................. 14
2.4. Strategy Implementation ........................................................................................................ 17
2.5. Monitoring and evaluation of strategies ................................................................................. 19
2.6. Challenges in Strategic Management ..................................................................................... 21
2.7. Business Performance ............................................................................................................ 22
2.8. Empirical Review ................................................................................................................... 25
2.9. Conceptual or theoretical framework of the Study ................................................................ 26

v
 2.10. Model Estimation ............................................................................................................... 27
CHAPTER THREE................................................................................................................................ 28
3. RESEARCH METHODOLOGY ................................................................................................... 28
3.1. Research Design ..................................................................................................................... 28
3.2. Target Population and Sampling Technique ............................................................................... 28
3.2.1. Target Population ................................................................................................................. 28
3.2.2. Sampling Technique and Sample Size ........................................................................... 30
3.3. Sources of Data ...................................................................................................................... 31
3.3.1. Primary Data ...................................................................................................................... 31
3.3.2. Secondary Data .............................................................................................................. 31
3.4. Method of Data Analysis........................................................................................................ 31
3.5. Ethical Consideration ............................................................................................................. 31
CHAPTER FOUR .................................................................................................................................. 32
4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION ............................................ 32
4.1. Demographic Information of the Respondents ........................................................................... 32
4.2. Reliability Test ....................................................................................................................... 34
4.3. Validity................................................................................................................................... 35
4.4. Results or findings of the Study ............................................................................................. 35
4.5. Environmental Scanning ........................................................................................................ 35
4.4. Strategy formulation............................................................................................................... 36
4.5. Strategy implementation ........................................................................................................ 37
4.6. Strategy evaluation ................................................................................................................. 38
4.7. Firm Performance ................................................................................................................... 39
4.8. Test results for the classical linear regression model assumptions ........................................ 40
4.8.1. Test for average value of the error term is zero (E (ut) = 0) .......................................... 40
4.8.2. Test for homoscedasticity assumption (Var (ut) = σ2) ................................................... 40
4.8.3. Multi-Co-Linearity Test. ................................................................................................ 41
4.8.4. Normality Test................................................................................................................ 42
4.9. Correlation Analysis between Strategic management practice and Organizational
performance........................................................................................................................................ 43
4.10. Multiple Regression Analysis ............................................................................................ 45
CHAPTER FIVE .................................................................................................................................... 48

vi
5. SUMMARY OF FINDINGS, CONCLUSIONS & RECOMMENDATIONS .......................... 48
5.1. Summary of findings .............................................................................................................. 48
5.2. Conclusions ............................................................................................................................ 49
5.3. Recommendations .................................................................................................................. 49
REFERENCES ....................................................................................................................................... 51
APPENDEX ........................................................................................................................................... 55

vii
 LIST OF TABLES
Table 3.1. List of selected Private Banks with staff strength and year of establishment ....................... 29
Table3.2. Sample size Determination .................................................................................................... 30
Table 4.1. Respondent‟s demographic information ............................................................................... 33
Table 4.2. Reliability Test Statistics....................................................................................................... 34
Table 4.3. Environmental Scanning ....................................................................................................... 35
Table 4.4. Strategy formulation.............................................................................................................. 36
Table4.5. strategy implementation ........................................................................................................ 37
Table 4.6. Strategy evaluation ................................................................................................................ 38
Table4.7. Firm Performances ................................................................................................................ 40
Table 4.8. Multi-Co-Linearity test using VIF value ............................................................................. 42
Table 4.9.The relationship between Strategic Management practices and organizational performance 44
Table 4.10. Model Summary .................................................................................................................. 45
Table 4.11. ANOVA Coefficients .......................................................................................................... 46

viii
LIST OF FIGURES

Figure 1: Basic Elements of the strategic management process............................................................. 10

Figure 2:- conceptual framework. .......................................................................................................... 26
Figure 3:- Test of homoscedasticity ....................................................................................................... 41
Figure 4:- Normality Test....................................................................................................................... 43

ix
ABSTRACT
The strategic planning process is used by management to establish objectives, set goals, and
schedule activities for achieving those goals and includes a method for measuring progress
Therefore, the general the objective of this paper is to exanimate effect of strategic
management practices on firm performance in private banks in Ethiopia. The study explored
the effects of Strategy formulation, strategy implementation and strategy control and
evaluation on firm performance of private banks in Ethiopia The target population of this
study was top managers, middle managers and normal employee of some private banks in
Ethiopia. There are more than sixteen private banks in Ethiopia but our study will focus on
fourprivate banks in Ethiopia. The target population of this study was 63,348. Therefore, since
the study population (N) is 13,220. Error of tolerance used was 0.05. Thus, the sample size is
388 respondents. The study collected primary data which was analyzed using descriptive
statistics including frequencies tables, percentages, mean scores, standard deviation. Data
collected from questionnaires will code and keyed into a computer. Quantitative data will
analyze using the Statistical Package for Social Sciences (SPSS). Descriptive statistics
including the means and standard deviations were used to analyze quantitative data and
capture the characteristics of the variables under study. Regression model was applied to
determine the relationship between Strategy Formulation, Strategy implementation and
Strategy control and evaluation as the independent variables and firm performance of private
banks in Ethiopia as the dependent variable. Pearson's product moment correlation analysis
is also used and it's a powerful technique for determine the relationship among variables.
Correlation coefficient will be used to analyze the strength of the relations between variable.

Key words: environmental scanning, strategy formulation, strategy implementation, strategy

evaluation.

x
CHAPTER ONE
1. Introduction
Strategic Management is a concept that concerns making decisions and taking corrective actions
to achieve long-term targets and goals of an organization. It is a set of decisions and actions that
result in the formulation and implementation of plans designed to achieve a company‟s
objectives. Strategic management practices therefore include strategic planning; strategy
implementation and strategy evaluation and control, which have in the past studies been seen to
influence the competitive positioning of the firm in the industry, thus determine the performance
(Maroa & Muturi, 2015). Strategic management has been touted as one of the effective
management tools in strengthening organization performance through effective decision making
and systematic strategic formulation and implementation. Although, strategic management was
more prevalent in the private sector since the concept was first developed, the interest of using
strategic management in the public sector has increased over the last decade (Smith, 1994). Since
1980‟s there have been a series of reforms taking shape in the public sector, resulting from
increased awareness on the importance of quality in the public sector (Juma & Okibo, 2016).
Strategic management process consist of developing a strategic mission, setting objectives,
situation analysis, developing a strategy, strategy implementation and evaluation. The process is
dynamic and continuous; a change in one component can necessitate a change in the entire
strategy, Strategy formulation entails consideration of economic, social, political, technological,
and ecological and industry environment factors which include entry barriers, competitive
rivalry, availability of substitutes, and bargaining power of buyers and suppliers. Managing
strategy in action is concerned with ensuring that chosen strategies are actually put into action
through the development of appropriate strategies, structuring an organization to support
successful performance, resourcing strategies in the separate resource areas and managing
strategic change (Njeru, 2015).
Strategic management is a thought that has already revealed remarkable outcomes in market
operations. Nowadays, it is almost impossible to find a serious revenue organization which does
not apply the methods and approaches of strategic planning in their business. Organizations that
have a clearly defined concept of strategic planning are more likely to achieve their goals.
Organizations that do not apply strategic planning in their business have little chance of survival
in the market (Salkić, 2014).

1
Strategic Management defines the purpose of the organization and the plans and actions to
achieve that purpose. It is that set of managerial decisions and actions that determine the long
term performance of a business enterprise. It involves formulating and implementing strategies
that will help in aligning the organization and its environment to achieve organizational goals.
Strategic management provides overall direction to the enterprise. Firms that pursue sustainable
strategic management base the formulation, implementation, and evaluation of their strategies on
an analysis of the ecological issues they face, the values they hold that support sustainability, and
the ecological interests of their stakeholders (Nyariki, 2013).
Strategic planning, according to Kroon (1993), makes it possible to lead the enterprise
continuously, considering the enterprise's situation (strengths and weaknesses) and the external
environment (opportunities and threats), and to exploit the market with the greatest possibilities
for the effective presentation and the profitable sale of a product or service. Kroon (1993) also
states that strategic management concentrates on effectiveness while tactical management
concentrates on efficiency (Langat & Auka, 2015).

1.2. Statement of the problem

Strategic management increases the efficiency and effectiveness of firms by improving both
current and future operations. Strategic planning provides a framework for management‟s vision
of the future. The process determines how the organization will change to take advantage of new
opportunities that help meet the needs of customers and clients. Strategic planning is a difficult
process which requires that people think and act creatively. The strategic planning process is
used by management to establish objectives, set goals, and schedule activities for achieving those
goals and includes a method for measuring progress. These goals can be accomplished through
the steps of the strategic plan, beginning with an external and internal analysis, a clearly defined
mission statement, goals and objectives, formulation of specific strategies, concluding with the
implementation of the strategy and managed control process (Julian, 2013).

The aim of conducting a research on this topic was to determine the effect of
strategicmanagement practice (strategy formulation, implementation and evaluation) on
performanceof private commercial bank of Ethiopia. Adoption of strategic management
practices conceptually enables firms to understand their strategic position and identifying
how to make strategic choices for the future and manage strategy in action. Employing

2
strategic management is critical to firm‟s performance (Johnson et al., 2008). Strategic
management demands efficient systems to counter unpredictable events that can sustain their
operations and minimize the risks involved (Pearce and Robinson, 2007). Theoretical and
empirical evidence supports the argument that adoption of superior strategies leads to
improved organization performance. The development on the field of strategic management with
in two decades has been mentioned as dramatic by Hoskisson et.al. (1999) and it grows large
every day. As management scholarship expands its geographical interest from western and
eastern developed economies to the rest of the world, it‟s time to bring Africa in to our
mainstream research and theories (George et.al. 2016). It‟s fair to say that, almost all of our
existing knowledge about firm strategies have emerged from outside of Africa, since Africa is an
under researched region, it seems to be a worth-while effort to test whether our theories apply on
Africa like else were or the continent really differ. Christou (2015) argues that all organizations
are heading somewhere, but unfortunately some organizations do not know where they are
going. The need for organizations to use strategic management concepts and techniques arises
from this. The strategic management process is becoming more widely used by small firms, large
companies, nonprofit institutions, governmental organizations and multinational conglomerate
alike. However, Top managers of private banks in Ethiopia ignore in most cases that strategic
management practices influence on organizational performance. Therefore, this study
investigates the effect of strategic management practices on organizational performance in
private commercial bank of Ethiopia.

1.3. Research Questions

This study was guided by the following research questions:
i. What is the effect of strategy environmental scanning on firm performance of private banks in
Ethiopia?
ii. What is the effect of strategy formulation on firm performance private banks in Ethiopia?
iii. What is the effect of strategy implementation on firm performance of private banks in
Ethiopia?
iv. What is the effect of strategy evaluationon firm performance of private banks in Ethiopia?

3
1.4. General Objective
The main objective of the research was to exanimate effect of strategic management practices on
firm performance in private banks in Ethiopia.

1.4.1. Specific Objectives

The specific objectives of the study were:
i. To determine the effects environmental scanning on firm performance of private banks in
Ethiopia.
ii. To identify the effects strategy formulation on firm performance of private banks in Ethiopia
iii. To examine the effects strategy implementation on firm performance of private banks in
Ethiopia
iv. To evaluate the effects strategy evaluationon firm performance of private banks in Ethiopia

1.5. Scope of the study

This research aims to determine the effects of strategic management practices in private banks in
Ethiopia. But, this research is constrained by a number of barriers basically the lack of
cooperation from many private banks to give detailed information about their strategy. On the
other hand the target population may not be perfectly accurate due to researchers‟ lack of data on
the direct and indirect involving parties of the strategy management process of the selected
banks. The research was forced to focus only on to what extent the strategy of selected private
commercial banks in Ethiopia is environmental scanning formulated, implemented, evaluated
and monitored. The research also covered the view of management and non-management
employees of the banks head office departments, branches and district offices after reviewing
previous researches evidenced that Dauda et.al. (2010) effective strategy formulation and
execution involves everyone in the organization.

4
1.6. Significance of the study
I hope this study benefits the management, sector/banks, academician and other researchers.
The management- The discoveries of the research will be valuable and help the management of
private commercial banks of Ethiopia and in general banking sector in enabling and guaranteeing
that whether enterprises are formulating, implementing and evaluating the strategy.

Banking sector- It will help them to understand how strategy formulation, implementation and
evaluation affect their performance as well as which issue is more influence performance and in
which strategic issue should they focus on.

Academicians and Researchers- The study will also use as a reference material for future
researchers on similar points and thus help various academicians who will conduct similar
studies. This study also gives importance to other areas that have not been researched on.

Potential investors in the sector- Potential investors in the sector will learn the dynamics of the
business before committing their capital. They will be in a position to carry out objective
environmental analysis (strengths, weaknesses, opportunities and threats- SWOT analysis) and
determine where they fit in the market.

For the researcher- a researcher can understand and know many concepts about strategic
management. The result will motivate the researcher to conduct this particular topic in another
sector in the future/particularly on the biggest organization. And also significant to complete the
graduating class (MBA) program.

1.7. Organization of the study

To carry out this research the researcher has classified in to five chapters. The first chapter talks
about the study background, statement of the problem, general and specific objectives including
the research questions, importance of the research, scope and limitation of the study. The second
chapter focuses on the literature review both theoretical and empirical about strategic
management, performance and private commercial bank of Ethiopia. The third chapters entirely
focus on the methodology of the study and the fourth chapter talks about the data interpretation
and analysis, and the fifth and last chapter is focused on the key findings, recommendations, and
conclusions of the study as well as suggestions for future research.

5
1.8. Definition of terms
Strategic management:- it is the process of examining the present and future environments,
formulating the organizations vision and mission statement, setting objectives, formulating,
implementing and evaluating/controlling strategies focused on achieving the predetermined
objectives in the present and future environments (David, et al, 2017).

Strategy formulation: - deals with developing a vision and mission statements, identifying an
organization‟s external opportunities and threats, determining internal strengths and weaknesses,
establishing long-term objectives, generating alternative strategies, and choosing particular
strategies to pursue (David, et al, 2017).

Strategy implementation: - in this process of strategic management, firms have to set up annual
objectives, devise policies, inspire employees, and assign resources so that formulated strategies
can be executed (David, et al, 2017).

Strategy evaluation: - Managers wants to know when particular strategies are not working
well; strategy evaluation is the primary means for obtaining this information. Therefore, strategy
evaluation deals with reviewing external and internal factors that are the bases for current
strategies since strategy is not formulated without any environmental investigation, measuring
performance/ what is obtained, and taking corrective actions if things are going wrong (David, et
al, 2017).

Performance- Organizational performance refers to how well an organization is doing to reach

its vision, mission, and goals (Strategic management, n. d.). According to Phillips, Davies and
Moutinho (2000) performance measurement methods can be divided into two types: objective
and subjective measurement. Objective measurements include profit, sales volume, return on
investment, breakeven point, and inventory turnover whose data are analyzed from financial
statements Whereas, subjective measurement includes sales volume, market share, customer
satisfaction, west reduction, employee turnover and new product development.

6
CHAPTER TWO
2. REVIEW OF RELATED LITERATURE

The intent of this literature review is to present a framework for this study on strategic
management. It is not to reach consensus on definitional aspects, rather to enlighten the reader as
to the research and literature that currently exists regarding strategic management. The review
begins with an overview of strategic management process and then goes on and deals with
Components of the strategic management process. The review then narrows the focus to BSC
which is being used as a strategic management and performance management tool by private
banks.

2.1. Theoretical review

Under this section, theoretical literatures on the subject of strategic management are explored.

2.1.1. Strategic Management

The most critical challenge facing most organizations today is coping up with today‟s game of
business, dynamism. For a past few decades, organizations have been facing fierce competition
in their external environment in which they operate (Alkhafaji, 2003 & Ayub, Razzaq, Aslam &
Iftekhar, 2013). Strategic approach to management has become modus operandi in most major
organizations in the past several decades (Asghar, 2011). Strategic management as a concept is
concerned with making decisions and taking corrective actions to achieve long term targets and
goals of an organization. Strategic Management is one of the efforts of management to confront
situations that arise in an organization‟s daily routine while trying to achieve organizational
goals and objectives (Alkhafaji, 2003). It is the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its objectives
(Abu-Bakr, Tufail & Yusof, 2011 and Kaplan & Norton, 1996). Strategic Management refers to
the series of decisions taken by management to determine the long-term objectives of the
organization and the means to achieve these objectives. Basically, it is concerned with the
complexity arising out of ambiguous and non-routine situations with organization wide rather
than operation-specific implications (Johnson, Scohles & Whittington, and 2008: 11). It includes
understanding the strategic position of an organization, making strategic choices for the future
and managing strategy in action (Johnson, et.al. 2008: 12 & 2007:16). Strategic management

7
entails specifying the organization's mission, vision and objectives, developing policies and plans
in terms of projects and programs and then allocating resources to implement the policies and
plans, projects and programs. In the Corporate sector, the emergence of strategic management
started after the culmination of Second World War (Zafar, Babar & Abbas, 2013).
Roney (2010) asserts that the purpose of strategic management is to discover the nature and
sources of competitive advantage. For Teecei, Pisan & Shuen (1997) and Njagi & Kombo (2014)
also, the fundamental question in the field of strategic management is how firms achieve and
sustain competitive advantage. The assertion by it provides overall direction to the enterprise
(Kayale. 2012). It is a tool that has been successfully used by the ailing corporate organizations
to prepare for the challenges of the future and improve their long term performance (Zafar, et.al.
2013).
The crucial element in strategic management is strategy. According to Higgins (2005), strategies
are formulated to achieve an organization‟s purpose. Strategy is a comprehensive, long-term plan
indicating how the corporation will achieve its missions and objectives (Alkhafaji, 2003:8 &
Kayale, 2012). It is the direction and scope of an organization over the long-term which achieves
advantage for the organization through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfill stakeholder expectations (Johnson et al.
2008). Strategy sets direction, focuses effort, promotes coordination of activity and affects
overall welfare of the organization (Ahlstrand and Lampel, 1998).
In order to facilitate the strategic management process, strategies are formulated and
implemented at three levels; corporate, business and functional. This is helpful in achieving both
the annual as well as long term objectives. Corporate strategy, the highest level of strategy, is
concerned about the overall purpose and scope of the organization and provides direction for a
firm on what type of business it should invest in (Johnson, et.al. 2007). It addresses questions of
where the organization is today, where it wants to be and how it wants to get there. Business
level strategies and operational strategies are concerned on how to compete successfully in
particular markets and on how the component parts of an organization deliver effectively the
corporate and business-level strategies respectively (Johnson, et.al. 2007). Functional level
strategies are the means or steps taken to effectively implement the higher level of strategies and
deals with relatively restricted plan providing objectives for specific function. (Zafar, et.al,
2013).Michael porter proposes cost leadership and differentiation as two generic strategies

8
(Wheelen & Hunger, 2012). When these strategies are focused on the market niche, they are
known as cost focus and differentiation focus. Cost leadership is a lower cost competitive
strategy that aims at the broad mass market and requires aggressive construction of efficient
scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead
control, avoidance of marginal customer accounts, and cost minimization in areas like R&D,
service, sales force, advertising, and so on (Wheelen & Hunger, 2012:186). The logic is, because
of its lower costs, the cost leader is able to charge a lower price for its products than its
competitors and still make a satisfactory profit. For the same authors, differentiation strategy
involves the creation of a product or service that is perceived throughout its industry as unique
justifying the imposition of a premium price for the product. The specialty can be associated with
design or brand image, technology, features, a dealer network, or customer service. For them
differentiation is a viable strategy for earning above average returns in a specific business.
Wheelen & Hunger (2012) define cost focus as a low cost competitive strategy that focuses on a
particular buyer group or geographic market and attempts to serve only this niche, to the
exclusion of others. Differentiation focus, like cost focus, concentrates on a particular buyer
group, product line segment, or geographic market. They further state that this strategy is valued
by those who believe that a company or a unit that focuses its efforts is better able to serve the
special needs of a narrow strategic target more effectively than can its competition. Porter argues
that to be successful, a company or business unit must achieve one of the previously mentioned
generic competitive strategies.
2.1.2. Components of the Strategic Management Process
Strategic management is the domain of top level management and involves four basic
components; Environmental scanning, Strategy formulation, Strategy implementation and
Monitoring and control (Alkhafaji, 2003& Wheelen and Hunger 2008:14).Ahlstrand and Lampel
(1998) and Zafar, et.al. (2013) also noted that strategy passes through four stages: environmental
scanning, strategy formulation, strategy implementation and evaluation or monitoring. All of
these four components are crucial to successful business (Baroto, Arvand & Ahmad, 2014). The
figure below shows the basic elements of the strategic management process and their
interrelationship.

9
Source: Wheelen and Hunger (2008:15)
Figure 1: Basic Elements of the strategic management process

2.2. Environmental scanning

Effective strategic management requires an understanding of organizational resources and
competencies as well as how each contributes to the formation of organizational strengths and
ultimately to the development of a competitive advantage (Duncan, Gintei & Swayne, 1998). For
Alkhafaji (2003) success of a strategy depends on its alignment with the company‟s
environment. This is done using environmental scanning. Environment scanning or situational
analysis is the starting point of the whole strategic process (Azhar, et.al. 2013). It is also known
as environmental assessment and includes analysis and forecasting of the firm's relevant
economy, markets and industry structure (Roney, 2010). Environmental scanning is the
acquisition and use of information about events, trends and relationships in an organization‟s
environment, the knowledge of which would assist management in planning future courses of
action. It is crucial in identifying the main issues affecting organizations by helping to detect
SWOT.
The corporate appraisal should be one of the first steps in the process of preparing strategic
plans, and should provide both the platform based on which the corporate objectives are
established and the baseline of the strategic plan (Hussey, 1998). Environmental scanning, also
referred to as environmental analysis, is the first step in the strategic planning process and is the
10
way by which organizations identify the main issues affecting them (Johnson, et.al., 2007: 19).
Ruocco and Proctor (1994) suggest that an environmental analysis is a critical step in the
planning process that must be performed to gather all the information necessary to develop
appropriate strategies. Simply stated, it is the process of analyzing internal and external factors
affecting the organization and its ability to pursue a given course of action.

External environmental analysis involves examining the conditions and forces affecting the
organization‟s strategic options that are typically beyond the firm‟s control. It is done by way of
evaluating the environmental factors at macro and micro level in order to identify the
organizational threats and opportunities (Zafar, et.al. 2013). The macro environment refers to the
general layer of the environment and consists of broad environmental factors that impact almost
all organizations (Johnson, et.al. 2007). These authors recommend external environmental
analysis tools such as SLEPT Analysis (Analysis of Social, Legal, Economic, Political and
Technological analysis) and PESTEL Analysis (Analysis of Political, Economic, Social,
Technological, Environmental and Legal factors). Within the broad general environment the next
layer is called an industry or a sector which consists of a group of competitors (Johnson, et.al.,
2007). The five forces competitive model developed by Michael Porter can be used as an
analytical tool for assessing competitiveness of the environment. The external environmental
analysis is crucial in identifying opportunities and threats. Internal environmental analysis is
crucial to understanding own capabilities and weaknesses. The resultant findings are classified as
organizational Strengths and Weaknesses and Opportunities and Threats.
SWOT analysis summarizes the key issues from the business environment and the strategic
capability of an organization that are most likely to impact on strategy development (Johnson,
et.al., 2007: 102). SWOT helps in identifying an organization‟s core competencies i.e. potential
strengths and utilizing those in exploiting opportunities and counteracting threats and identifying
weaknesses in order to diminish them (Ayub, et.al., 2013: 92). Asghar (2011) explains the
essence of SWOT Analysis by stating that it is crucial in coming up with a good strategy that
matches with the organization‟s external and internal environment. Under SWOT approach the
attempt is to establish what has to be done to maintain the satisfactory things and correct the
faults by ensuring that opportunities are exploited and threats are avoided (Hussey, 1998: 167).
Identifying strengths and weaknesses is difficult because characteristics that appear as one or the

11
other may, on closer examination, possess little or no significance for competitive advantage or
disadvantage (Duncan, et.al., 1998:7). It requires introspection, self-examination and a more
systematic analysis (Duncan, et.al., 1998). In order for a SWOT to be useful it should be
undertaken in comparison with that of competitors.

One of the most important tasks during strategy making is management of the interface between
the many, often competing, demands of an organization‟s different stakeholders in relation to its
strategic goals (Ackermann & Eden 2011: 180). Bryson (2007) also argues that attention to
stakeholders is important throughout the whole strategic management process. Ackermann and
Eden (2011) contend that top management while crafting an organization‟s strategy needs also to
attend to the strategic management of stakeholders if it wants to ensure the strategy‟s robustness.
This could be done by way of stakeholder analysis. A stakeholder analysis involves identifying
the major internal and external stakeholders, their interests and concerns, and how these groups
can be satisfied. Bryson (2007) argues that wise use of stakeholder analysis can help frame issues
that are solvable in technically feasible and politically acceptable ways. A basic stakeholder
analysis involves identification of criteria and decision on how each stakeholder influences the
organization and what they need in return (Bryson, 2007). The result is ranking of each
stakeholder according the level of importance to the organization. Steyn (2002) mentions the
definition given by Harrison and St John (1998) that stakeholder analysis involves identifying
and prioritizing key stakeholders, assessing their needs, collecting ideas from them, and
integrating this knowledge into strategic management processes. Stakeholders can be classified
based on their stake in the organization; ownership, economic or social stake or their influence;
formal, economic or political power (Steyn, 2002). Stakeholders are those individuals or groups
who; depend on an organization to fulfill their own goals and on whom, in turn, the organization
depends (Johnson & et.al, 2007), have direct interests in the organization and without whose
direct involvement the company would have difficulty surviving (Alkhafaji, 2003) and Freeman
& Reed (1983) as cited by Ackermann and Eden (2011). Asghar (2011) uphold Dewhurst and
Fitzpatrick‟s (2005) definition of stakeholder as any individual or group that has the resources
you need to deliver an initiative successfully or that has a stake in the initiative and stand to win
or lose something from the plan. Simply stated, they are groups or individuals affected by the
Organization as well as can affect it and could be stockholders, employees, management, major

12
creditors, major consumers, major suppliers, etc. Stakeholder analysis should involve people
with information that can‟t be gained otherwise. Information may be garnered through the use of
interviews, questionnaires, focus groups or other techniques. Ashgar (2011) noted that
stakeholder analysis is necessary to craft strategies that help to meet their interest.
The job of a strategist is basically to understand and cope up with competition. In order to create
a strategy it is very important to have enough knowledge about the competitors. Porter (2008)
identified five key forces that shape an industry. His basic contention is that, a thorough analysis
of the five competitive forces could enable a firm in gaining a complete picture of what is
influencing profitability. One of these five forces is rivalry among existing competitors. He
argues that rivalry between existing competitors influences profitability of an industry.
Bargaining power of buyers, one of such forces, according to Porter can create more value by
forcing down prices, demanding better quality or more service and generally playing industry
participants off against each other. Buyers being large, few in number and being able to switch
easily to another supplier are identified by Porter (2008) as factors raising their bargaining
power. Substitute products and services also pose a threat as they could limit the potential profit
by defining a cap for the prices of existing products or services. Threat of new entrants is one
component of the five forces which could bring new capacity and a desire to gain market share
that puts pressure on prices, costs and the rate of investment necessary to compete. The power of
customers is one of the factors affecting competition. Customers can force firms to down prices.
An analysis of the five competitive forces is critical to contemplate retaliation actions by
showing ways to redesign the forces in the firm‟s favor. A careful five forces analysis could
reveal important competitive threats. It indicates ways that can be used by the company to attain
competitive advantage over rivals. It is also important to rate overall attractiveness of the
industry.
Industry analysis also falls under environmental scanning. It is a sort of half-way house between
SWOT analysis and strategy formulation (Hussey, 2006). Hussey (2006) further contends that it
is another way of measuring the internal elements of the organization against what is going on in
the wider world and is a way of looking at the relative power of all the players. The
environmental research has direct impact on the formulation of strategies (Zafar, et.al. 2013).
Effective environmental scanning must be undertaken to successfully manage the external forces
since environment influences organizational decision making. Roney (2010) upholds Drucker‟s

13
(1969) assertion that continuous assessments of present and potential business environments and
re-planning are required for long term success in an age of discontinuity.

2.3. Strategy Formulation

Strategy formulation is the process of developing long term plans to deal effectively with
environmental opportunities and threats. It starts when a leader tries to change the thinking of
people (Azhar, et.al. 2013). It incorporates decision as to which business to pursue and how to
allocate resources. It comprises the articulation of a mission, vision and a set of long term
objectives to be achieved within the stated mission and selection of strategies (Kibicho, 2014 and
Baroto, et.al. 2014: 51). Strategic planning is a systematic, formalized approach to strategy
formulation (Grant 2003: 492). Scarf (1991) as cited by Alkhafaji (2003) defines strategic
planning as a management tool to look at the future and see tomorrow‟s opportunities or
challenges to gain competitive position. Haycock, Cheadle & Bluestone (2012) define strategic
planning as the systematic and logical identification of strategies. For Liedtka (2006), strategic
planning is an analytical process aimed at programming already identified strategies and leads to
a strategic plan. Salih & Doll (2013) argue that employee engagement encourages a sense of
ownership of the strategy and further develops organizational capabilities. Mission and vision
statements have been overwhelmingly accepted as an indispensable part of the strategic
management process for organizations of all sectors (Phanuel and Darbi, 2012). The mission,
vision and core values help describe why the organization exists and what values it holds as it
progresses to its desired future state. An organization also identifies goals to fulfill the mission,
uphold the core values, and achieve the vision.

A mission is a general expression of the overall purpose of the organization, which, ideally, is in
line with the values and expectations of major stakeholders and concerned with the scope and
boundaries of the organization (Johnson, et.al. 2007). Mission can be described as an
organization‟s raison d‟être, or reason for being (Niven, 2006: 73). Alkhafaji (2003) defines
mission as a clear definition of the organization‟s business stating the overall strategy and the
Strengths the company has. Mission tells the world that the organization is, what it does and why
it is herewith (Neluheni, Pretoriu & Ukpere, 2014). It describes the organization‟s identity,
product, market, and the particular methodology or technology of emphasis, size of the

14
organization, what it hopes to achieve, the scope of endeavor and number and diversity of the
organization‟s businesses, markets, and customers (Alkhafaji, 2003).

Mission must include who the company is, what it wants to accomplish, the type of
commitments it provides to customers and employees (Alkhafaji, 2003: 12). It must be, written
in a positive tone, relevant, reliable and able to set the company apart from its competitors and
energize all employees toward fulfilling the mission. Some of the important elements of the
mission are the corporation‟s goals and objectives, philosophy, and its basic values, ambitions,
and beliefs. Mission must be carefully worded with the participation of all members of the
organization to provide proper direction. It should also embody the values of the organization to
which members should always comply with, describe the business domain and explain why it is
attractive, include a clear, concise expression of the company‟s purpose, philosophy and
commitment, be easy to read and understand (Niven, 2006), identify key stakeholders and states
the organizations commitment to meet these stakeholders needs (Mullane, 2002), illustrate
overriding purpose or reason for being established (Mullane, 2002), reflect the basic beliefs,
philosophies, tenets, principles, values and aspirations of the organization, define organizational
customers (Raynor, 1998), show the organizations scope and boundaries in terms of products,
markets and geography, long term (Niven, 2006), depict the organizations commitment to
financial and economic objectives (pearce, 1982) & Kaplan &Norton (1996), show the
organizations commitment to long term survival and growth, reflect the organization identity to
distinctive capabilities and basis for competitive advantage and show how the organization aims
to create value for stakeholders including shareholders, employees and customers.
Values are the timeless principles that represent the deeply held beliefs within the organization
and are demonstrated through the day-to-day behaviors of all employees (Niven, 2006). BSC can
be used as a tool to communicate your values, review them over time from top to bottom in the
organization (Niven, 206). Core values define the guiding principles or tenets by which a
company would like to operate and are intended to help shape attitudes, beliefs, and ultimately,
the culture of the organization (Adams, 2005: 26). Vision is a statement that defines where an
organization wants to go in the future and is crafted based on the mission and values (Niven,
2006).Azhar, et.al. (2013:34) define vision as the hub of the organization and the heart of
strategic management process. It is an expression of the longer term objectives and values of the

15
organization, in a way that shows what the firm is trying to achieve (Hussey, 2006: 278). Vision
is the bold and noble direction the organization is about to pursue (Neluheni, et.al. 2014). It
includes a clear, compelling description of the organization as it carries out its mission at some
point in the future (Adams, 2005: 26). Vision describes a picture of a relatively remote future.
For Nutt (2006) vision can provide direction, create focus, create the enthusiasm, produce clarity
about what is wanted, and direct human action. It helps to clarify the direction of the
organization.
Vision should; be simple so that everyone can easily understand (Nutt, 2006), be challenging but
yet workable enough to evoke employees (Phanuel and Darbi, 2012), be inspirational so that it
stirs people‟s blood to an extent that they would not like to fall asleep when thinking about it
(Neluheni, et.al., 2014), include core values and core ideologies that distinguish one organization
from another (Hussey, 1998) & (Mintzberg and Quinn, 1996), create possibilities that are
creative, unique, vibrant and offer a new order (Nutt, 2006), be value centered incorporating the
interests of key stakeholders, contain a concrete picture of the desired state, provide the basis for
formulating strategies and objectives, appeal to all stakeholders, show the desired scope of
business activities, be concise, be verifiable, be feasible, be future casting and be purpose driven
in a way employees will have sense of belongingness towards the organization.
Alkhafaji,(2003) states that a company‟s mission must be turned into objectives and goals.
Johnson, et.al (2007) defines goal as the general statement of aim or purpose and objectives as
precise statements derived from the goals. Goals and objectives both point to a desired result
(Nutt, 2006). Goals are the foundation for an effective plan that moves beyond paper to action.
Goals are driven by mission statement (Alkhafaji, 2003: 41). An effective goal should; guide
how the firm operates, indicate which opportunities to pursue, inform business exit decisions, tie
measures to drivers of success, provide a verified path to the achievement of a firms strategy,
track the past, the present and the future, take stakeholders into account, be simplified, be
Changed when the organization‟s strategy changes, support the mission, deal with just one issue,
represent a desired result that can be achieved and encompass a relatively longer period.
Objectives are the ends or the desired results depicting smaller targets necessary to achieve the
long-term objectives and providing direction and motivation. Objectives must; relate directly to
the goal (Mullane, 2002), be clear, concise, and understandable (Phanuel and Darbi, 2012), be
measurable and stated in terms of results (Phanuel and Darbi, 2012) & (Kaplan & Norton, 1996),

16
begin with an action verb, specify a date for accomplishment (Mullane, 2002), be cascaded from
goals, fulfill the SMART criteria (Specific, Measurable, Attainable, Realistic and Timely),
reflect the specific desired accomplishments, be aggressive and challenging (Kaplan & Norton,
1996), but yet realistic and achievable, specify a result rather than an activity and have a time
frame.

2.4. Strategy Implementation

Strategic implementation or strategy in action has to do with making strategy happen or making
sure that created and planned strategies actually work in practice (Johnson, et.al. 2008).
Implementation involves transforming the chosen strategies into action and includes the methods
and techniques used to execute strategy. Krassnig, James & Ribière (2011) define strategy
implementation as all measures, activities and processes dedicated to integrate a newly
developed strategy into an existing business organization. For them strategy implementation is a
crucial process that aims to bring the strategy to life. Implementation includes the arrangement of
tasks and responsibilities to the individuals or groups in the organization (Alkhafaji (2003). It
involves transforming the chosen strategies into action and methods and techniques the
organization adopts to execute management‟s selected strategy. Zafar, et.al. 2013 define strategy
implementation as the process of making the strategy work as intended or putting the chosen
strategy into action. It includes designing the organization‟s structure, distributing resources,
developing decision making process, and managing human resources. As a process of putting the
strategy into action, it involves getting individuals and organizational subunits to go all out in
executing their part of the strategic plan successfully (Nedelea & Paun, 2009). For Azhar, et.al.
(2013) the process in which planned strategies are converted into real actions constitutes
implementation. Strategy implementation is the dynamic activity within strategic management
Process in which strategies and policies are put into action (Sorooshian, Norzima, Yusof &
Rosnah, 2010). Strategy implementation includes the sum total of activities for putting the
strategic plans into action and is a critical cornerstone and an ally in building a capable
organization (Smith, 2011). Without effective implementation, no business strategy can succeed
(Andersen & Lie, 2013). With the same notion Sterling (2003) states that effective
implementation of an average strategy beats mediocre implementation of a great strategy every
time. Njagi & Kombo (2014) argue that execution is critical to success; without a carefully and

17
well planned approach to execution, strategic goals cannot be attained. Formulated strategies are
nothing if they could not be implemented efficiently (Azhar, et.al. 2013). Waweru (2011) in
explaining the essence of implementation upholds Argyris‟s (1989) stance that success or failure
of strategies is linked, to a great measure to how they are implemented. He further states that
poor implementation can make even sound strategic decisions ineffective, while successful
implementation can make a doubtful strategic choice successful. Ability to implement strategy is
the deciding factor between success and failure of a strategy in any company (Kibicho, 2014).
Without proper implementation, even the most superior and fine strategy would not make the
grade as established (Kibicho, 2014). Well formulated strategies only produce superior
performance for the firm when they are successfully implemented (Mbaka & Mugambi, 2014:
61). A strategy can only add value to the organization if it is successfully implemented (Smith,
2011: 23).
Strategy implementation or the action stage of strategic management, as per Kaplan and Norton
(1996) requires a firm to establish annual objectives, develop a strategy supportive culture, create
an effective organizational structure, prepare budgets that are strategy supportive, develop and
utilize information system, devise policies to guide decision making, motivate employees and
allocate resources so that formulated strategies can be executed. Organizational structure refers
to communication processes, work flow, and authority and responsibility relationships
(Alkhafaji, 2003). Kayale (2012) defines structure as all the people, positions, procedures,
processes, culture, technology and related elements that comprise the organization and how all
these work together. Kayale (2012) asserts that structure must be totally integrated with strategy
for the organization to achieve its mission and goals. Alkhafaji (2003) defines organizational
culture as the collection of beliefs, expectations and values shared by organizational members
and transmitted from one generation to the next. The corporate culture must support the strategic
plan. Effective strategy execution needs translating the vision, communicating and linking,
business planning, feedback and learning and leadership.
The success of strategy depends on components human capital that embrace competencies and
capabilities, budget and accountability and rewards (Neluheni, et.al. 2014). Lower-level
managers as active players in the implementation process must determine what is required to
achieve successful strategy implementation and guide the implementation process in their
individual areas of responsibility. Execution cannot succeed unless the strategy itself is designed

18
to be executable (Kibicho, 2014: 8). This can be done by breaking long-term corporate objectives
to operational short-term objectives and developing specific functional, unit or departmental
strategies and drawing action plans to achieve the objectives. Successful strategy implementation
depends on working through others, organizing, motivating, culture-building and creating strong
fits between strategy and how the organization does things (Musyoka, 2011). Managers must
determine what internal conditions are needed to execute the strategic plan successfully (Njagi &
Kombo, 2014). It involves delicate and sensitive issues such as resource mobilization,
restructuring, cultural changes, technological changes, process changes, policy and leadership
changes (Lihalo, 2013).Support and commitment by the majority of employees and middle
management is identified by Mbaka, et.al.(2014) and Niven, (2006) as a necessary component of
successful strategy implementation. Everyone should understand the need for change and should
contribute their effort to efficiently implement the strategies (Azhar, et.al. 2013). Strategy
implementation fully depends upon efficient decision making (Azhar, et.al. 2013). Cooperation
of all stakeholders, collaboration of different departments and coordination of implementation
activities independently and in conjunction with each other are instrumental in making the goals
of strategic plan happen (Asghar, 2011: 1127). Effective communication that explains the new
responsibilities, duties and tasks plays a vital role in implementation (Mbaka & Mugambi, 2014:
61). Management should ensure that every staff member understands the strategic vision, the
strategic themes and what their role will be in delivering the strategic vision.

2.5. Monitoring and evaluation of strategies

Alkhafaji (2003) defines evaluation and control as the step succeeding implementation and
entails monitoring the organization‟s performance to ensure that the chosen strategy achieves the
desired objectives. This final step of the strategic management process includes analysis of the
effect of internal and external factors on present strategies, measuring performance, and taking
remedial or corrective steps. It is a tool to ensure effective implementation of the process (Zafar,
et.al. 2013). Strategic control involves monitoring the extent to which the strategy is achieving
the objectives and suggesting corrective action or a reconsideration of the objectives (Johnson,
et.al. 2007: 15) Johnson, et.al. Further assert that control is the monitoring of action steps to
assess effectiveness of strategies and actions. It is an essential function for validating the success
or failure of a strategy. It is undertaken with the aim of ensuring the achievement of

19
organizational objectives. Evaluation is undertaken by evaluating performance in light of
strategic plan. The aim is to determine if the selected strategies are implemented successfully, the
resources are used and widely set objectives are achieved. Monitoring is the internal
management process, by which systematic information about plan implementation is gathered
and analyzed, with a view to identifying strengths and weaknesses and formulating practical
proposals for taking the necessary action (correction of problems or reinforcement of successes)
in order to reach the planned results (IIEP, 2010: 17).
Kaplan & Norton (1996) in trying to show how crucial measurement is argue that if something
can‟t be measured it can‟t be managed. Strategy evaluation is the primary means for obtaining
information on whether or not strategies are working well (Kaplan & Norton, 1996). Control can
enhance the chances of success. A strategy control system is also necessary to measure and track
the execution of the strategy and take corrective actions.
To ensure effective control system, management should identify the areas that need monitoring.
The processes must be designed for all areas in a way that can be measured periodically and in a
consistent manner (Alkhafaji, 2003).
There are several methods of control such as strategic, financial, management, operational and
performance. Budget is one of the most commonly used means of controlling strategy
implementation. It refers to the process of identifying, gathering, summarizing, and
communicating financial and nonfinancial information about the organization‟s future activities.
It provides managers with the opportunity to carefully match the goals of the organization with
the resources necessary to accomplish those goals. In such cases actual performance will be
compared to the standards. It can also be performed by comparing the amount of money actually
spent to the amount that is budgeted for it (Alkhafaji, 2003). Balanced Scorecard developed by
Kaplan and Norton in 1997 (Krassnig, et.al. 2011), is also one of the most frequently applied
performance measurement systems. Management should put in place proper tools for monitoring
the implementation of strategies and the standards in light of which performance is evaluated are
also clear.

20
2.6. Challenges in Strategic Management

Hussey (1998) and Abdul Wahid, Muhammad& Sehar (2013) identified problems in strategic
management as lack of acceptance by the management, confusion about corporate planning and
its meaning, failure to use the plan, over sophistication of the plans, conflicting goals and
priorities, non-convergence, lack of competent people, lack of team management, ineffective
operational arrangement, lack of support from the top level, unclear target of success, non-
acceptor organizational culture, divergent organizational structure, lack of commitment of
decision makers and ambiguous strategy. These factors hinder successful implementation of
strategies. Inaccurate and poorly stated information about change is also one of the challenges
(Salih & Doll, 2013). Strategies fail due to unanticipated market changes, lack of senior
management (CEO) support, lack of effective monitoring and application of insufficient
resources, insufficient buy in to or understanding of the strategy among those who need to
implement it (Sterling, 2003). Strategic drift which refers to the situation where strategies
progressively fail to address the strategic position of the organization is one of the challenges in
strategic management and leads to deterioration of performance (Johnson, et.al. 2007). Adams
(2005) identified out of date organizational strategies and the probability that organizational
strategies mayn‟t be detailed as problems. Failure to frequently update the strategic plan
irrespective of changes in the internal and external environment has the power of making the
plan irrelevant (Adams, 2005). The same goes to failure to adequately consider external events
affecting the organization‟s strategy.
Lihalo (2013) undertook a study to examine the three categories of barriers to strategy
implementation faced by mid-sized companies in Kenya. He identified internal challenges in
strategy implementation as behavior resistance to change, inappropriate systems (structure,
culture, leadership), inadequate human physical and financial resources, poor communication of
the organization strategy and lack of proper training and instruction to employees. The external
barriers were found to be business macro factors in the operating environment including factors
such as stiff competition and un-anticipated new substitute or competing products.
The problems that cause strategic plans to fail are categorized by literature into the strategy
planning process, a quality strategy, implementation of the strategy as well as the
organizationstructure and climate (Neluheni, et.al. 2014). Sihab, Ridwan & Marti (2012) uphold

21
Rudd, Greenley & Beatson (2008) contention that strategic management often fails due to
problems or barriers encountered at the implementation stage.
Strategy implementation failures may be as a result of unfeasibility of the strategy, weak
management, unworthiness or a misunderstanding of strategy, unaligned organization systems
and resources, poor coordination, uncontrolled environment factors, linking performance and pay
to strategies and resistance to change within the organization (Kibicho, 2014).

2.7. Business Performance

Although the concept of organizational performance is very common in literature, its definition
is difficult because of its many meanings. For this reason, there isn‟t a universally accepted
definition of this concept. Strategic management (n. d.) defined that Organizational performance
refers to how well an organization is doing to reach its vision, mission, and goals. Assessing
organizational performance is a vital aspect of strategic management. Executives must know
how well their organizations are performing to figure out what strategic changes, if any, to make.
Performance is a very complex concept, however, and a lot of attention needs to be paid to how
it is assessed.
Two important considerations are (1) performance measures and (2) performance referents. A
performance measure is a metric along which organizations can be gauged. Most executives
examine measures such as profits, stock price, and sales in an attempt to better understand how
well their organizations are competing in the market. But these measures provide just a sight of
organizational performance. Performance referents are also needed to assess whether an
organization is doing well. A performance referent is a benchmark used to make sense of an
organization‟s standing along a performance measure (Strategic management, n. d.).
The methods of business performance measurement still remain the subject of debate for both
business practitioners and academic communities (Punn & White, 2005). According to Phillips,
Davies and Moutinho (2000) performance measurement methods can be divided into two types:
objective and subjective measurement. Objective measurements include profit, sales volume,
return on investment, breakeven point, and inventory turnover whose data are analyzed from
financial statements, such as balance sheet and income statement. While the subjective
measurement rely on the perception of firm managers or owners in regards to the business

22
performance achieved. The criticism on the objective measurement business performance is that
its performance reports are difficult to access, confidential, incomplete, and often inaccurate
Chong (2008). In addition, in the objective approach, the amount of profit is often manipulated,
and is difficult to compare among different business sectors. Furthermore, Chow and Van Der
Stede (2006) suggest that objective measurements are unreliable because they are too general
and tend to look backward rather than forward. Objective measurements are also more
emphasizing on short- term benefits rather than on long-term benefits. Consequently, managers
or owners are difficult to understand the root causes of performance problems to make cross-
functional decisions in order to survive in uncertain business environments. A study by Tang &
Zhang (2005) reveals that objective performance data is influenced by certain industry factors
and therefore inappropriate to make cross-industry comparisons. As a consequence of these
inaccuracies, Tang & Zhang (2005) argue that previous researchers relied more on subjective
company performance tracking due to difficulties in obtaining objective performance data,
particularly bank sectors.
With regard to subjective performance measurement, performance information is provided in
non- monetary terms, such as sales volume, market share, customer satisfaction, west reduction,
employee turnover and new product development, relevant to survive in a competitive
environment (Verbeen & Boons, 2009). Lema et.al (2012) argue that by subjective measurement,
firm managers or owners are willing to give their perceptions about business performance,
including their perception in regards to the sensitive or confidential information needed by the
firms to survive in a competitive and rapidly changing environment. Parnnel (2012) presents
argument that the power of non- financial actions lies on their ability to provide insight into
business processes, which in the long run is a better predictor of the future business
performances. By understanding the empirical evidence the researcher used subjective
performance measurement for this study since it is difficult to get an objective performance
measurement through financial statements. Accordingly, the subjective measure of performance
are; profit in a subjective manner, market share, sales volume in terms output, customer
satisfaction and reduction of waste.
More specifically the following terms are used as a business performance indicator.

23
 1. Profit
According to Amadeo (2019) Profit is the revenue remaining after all costs are paid. These costs
include labor, materials, interest on debt, and taxes. Profit is usually used when describing
business activity. But everyone with an income has profit. It's what's left over after paying the
bills/costs. Profit is the reward to business owners for investing. In bank industry, it's paid
directly as income. In corporations, it's often paid in the form of dividends to shareholders.
When expenses are higher than revenue it leads to a loss. If a company suffers losses for too
long, it goes bankrupt.
2. Customer satisfaction
Customer satisfaction is defined as a measurement that determines how happy customers are
with a company‟s products, services, and capabilities. Customer satisfaction information,
including surveys and ratings, can help a company determine how to best improve or changes its
products and services. An organization‟s main focus must be to satisfy its customers. This
applies to industrial firms, retail and wholesale businesses, government bodies, service
companies, nonprofit organizations, and every subgroup within an organization.
There are two important questions to ask when establishing customer satisfaction: 1. Who are the
customers 2. What does it take to satisfy them?
3. Product Output
Market business news (n. d) defined output is the total quantity of goods and services that an
individual, company, industry, city, region or country, or even the whole world produces in a
given period.
4. Waste reduction/ minimization
Waste minimization is a set of processes and practices intended to reduce the amount of waste
produced. By reducing or eliminating the generation of harmful and persistent wastes, waste
minimization supports efforts to promote a more sustainable society. Waste minimization
involves redesigning products and processes and/or changing societal patterns of consumption
and production (Wikipedia, n. d)
5. Market share
Market share is the percentage of the total market that is being serviced by your company
measured either in the revenue terms or unit volume terms. The higher your market share, the
higher proportion of the market you control.

24
 2.8. Empirical Review

A thesis entitled „A study of strategic planning and environmental is scanning in the multiunit
Portuguese hotel sector‟ by Costa (1997) addresses the strategic planning and environmental
scanning activities of the hotel chains operating in Portugal. The researcher employed
exploratory and descriptive design based on a qualitative and inductive approach. The findings
reveal lack of formal continuous environmental scanning by both formal and informal planning
chains and a significant number of similarities in terms of the scanning methods and sources
used by the case study organizations.
Mosiah (2008) explored the strategic management practices of small firms operating in the
emerging economies with emphasis on the health biochemistry industry. He compares these
practices with the context of the practices documented in history. The research used qualitative
data from a non-probability sample of two firms in the industry. Case study methodology using
in-depth interviews was employed to collect data from the senior executives of these two firms.
The research recommended that the emerging industries should engage in formal strategic
management practices.
Local studies on strategic management include an assessment of strategic management practices
of Action for Development by Addisie (2015). The purpose of the research was assessing the
strategic plan formulation and implementation in the case of Action for Development. Both
primary and secondary sources of data were used for the research. Out of the total 91 employees,
the researcher used 46 employees as a sample using simple random sampling. Data was collected
using structured close ended and also open ended questions. The quantitative data analysis was
done using descriptive statistics while the qualitative data was analyzed using narrative form.
The results indicated that action for development has major drawbacks in the areas of effectively
communicating the strategic plan to concerned stakeholders. The researcher recommended that
Action for development should effectively communicate the strategic plan to concerned
stakeholders to ensure the same level of understanding, find sustainable sources of finance to
support the implementation of strategies and should work on capacity development of its
employees. The research by Addisie (2015), unlike its topic, focuses on some aspects of the
strategic management process namely the level of stakeholder participation, the level of
communication and the contribution of performance evaluation to the implementation of

25
strategies at Action for Development. The topic however encompasses all aspects of the strategic
management process.
Most of the literatures including senior theses and journal articles usually focus on one of the
phases of strategic management process. This research will contribute a lot to the literature as it
is an assessment of the overall strategic management process.

2.9. Conceptual or theoretical framework of the Study

A conceptual model shows how the researcher theorizes the relationships among several factors
identified as being important to the research questions. With this in purview, a conceptual model
has been developed based on the reviews of previous knowledge to discuss the interrelationships
among the variables deemed integral parts of the strategic management process.
The overall strategic management process and variables falling under each component are
depicted as follow.

Environmental scanning

Strategy formulation

Strategy implementation Firm performance

Strategy evaluation

In Dependent variableDependent variable

Figure 2:- conceptual framework.

26
 2.10. Model Estimation

The objective of the study was to determine the effect of strategy formulation,
implementation and evaluation on performance of private commercial banks in Ethiopia.
The dependent variable, performance is influenced by four explanatory variables presented
on the theoretical framework. To show the relationship and effect of variables a multiple
regression model is applied which is estimated by OLS (ordinal least square) where the
dependent variable is the mean score of performance indicators, and the independent
variables are the mean score of indicators under environmental scanning, formulation,
implementation and evaluation.

Based on the similarities of findings by different researchers that strategic management is

positively correlated with performance, the sign in the regression model/coefficient of all
independent variables are expected to be positive.

Performance (P) = β0+ β1SF+ β2SI + β3SE+ β4SC+ e

Where: P= Performance
β0 = Intercept
ES= environmental scanning
SF= Strategy Formulation
SI= Strategy Implementation
SE= Strategy Evaluation
SE =Strategy control
e = error (Residual) and β1- β3 = Coefficients/Slope of the independent variables

27
CHAPTER THREE
3. RESEARCH METHODOLOGY
This study assessed the effect of strategic management practices: the case of some selected
private banks in Ethiopia. Under this chapter: the research design, target population and
sampling technique, the data collection instruments, the procedure followed during data
collection and method of data analysis are discussed as follows;

3.1. Research Design

A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy to procedure. A
good research design is characterized by flexibility, appropriateness, efficiency and economy
(Kothari, 1985). The research design according to Cooper and Schindler (2003) provides
answers to issues such as techniques to be used to gather data, the kind of sampling strategies
and tools to be used and how to deal with time and cost constraints. A research design is a plan,
structure and strategy of investigation conceived so as to obtain answers to research questions
(Kerlinger 1973). The plan is the outline of the research, and includes all activities pertaining to
the research from beginning to end. The various research designs are descriptive, exploratory,
and experimental (Kothari, 1985) For the purpose of this study the researcher used descriptive
research design.

3.2.Target Population and Sampling Technique

3.2.1. Target Population

The target population of this study was employees of selected private banks in Ethiopia.
According to NBE (2019/20) annual report there are sixteen registered private banks in Ethiopia.
For the purpose of this study among the total of sixteen private banks in Ethiopia four are
selected by systematic random sampling method according to their year of establishment the
banks are sorted and the second bank is randomly selected, after that every 4thbank from the list
is selected. Accordingly the 4th bank wegagan Bank is randomly selected from the first four,
then the 8th bank lion International Bank, 12th bunna international Bank and finally the 16th Bank
Enat Bank is selected with a systematic random sampling method.

28
Table 1 List of selected Private Banks with staff strength and year of establishment

Year of Target
S.N List of Private Banks No. of staff
Establishment. Population

1 Awash Bank 9,046 1994 Wegagen bank

2 Dashen Bank 9733 1995
3 Bank of Abysiniya 6534 1996 4561
4 Wegagen Bank 4561 1997
Lion
5 United Bank 4064 1998 International
Bank
6 Nib International Bank 4972 1999
Cooperative Bank of
7 4369 2004 4599
Oromiya
8 Lion International Bank 4599 2006
Bunna
Oromiya International
9 3647 2008 International
Bank
Bank
10 Zemen Bank 885 2008
11 Berhan International Bank 3853 2009 3520
12 Bunna International Bank 3520 2009
13 Abay Bank 1720 2010 Enat Bank
14 Addis International Bank 575 2011

15 Debub Global Bank 730 2012 540

16 Enat Bank 540 2012

Total
63,348 13,220

Source; Own Survey (2021)

29
 3.2.2. Sampling Technique and Sample Size
In order to determine the sample size, this research has used the formula developed by Taro
Yemane(1967)
n =N/1+N.e2
Where: n = Sample Size
N = Total Population
e = Level of Confidence
Among sixteen private Banks four representative sample banks are selected through systematic
random sampling method. First the banks are sorted according to their year of establishment,
thenthe second bank is randomly selected, third every 4th bank appearing after the second bank
is selected for survey and range of strategic period they have practices to the year end of June
2020. Lastly by using the above formula, a total population size of 13,220, with 95% confidence
level, 5% error, 50% expected prevalence and 5% precession the sample size of his research was
calculated to be 388 selected private bank employees.A proportionate sampling technique is used
to select sample respondents from different sub groups that have tangible size
difference.Accordingly the number of participant from each sub group is determined their
number relative to the entire population. The reason for the researcher to use this sampling
technique is to reduce the potential for human bias in the selection of cases to be included in the
sample.

Table 2 Sample size Determination

Total Number
Percentage
S.N Sample Private Banks List of Sample
proportion
Staff
1 Wegagen bank 4561 34.5% 133
Lion
2 4599 34.78% 135
International Bank
3 Bunna International Bank 3520 26.6% 104
4 Enat Bank 540 4% 16
Total 13,220 100% 383
Source: - own survey (2021)

30
 3.3. Sources of Data
In order to understand the studied case more deeply, several sources of data collection was used.
Data sources comprised both primary and secondary sources.
3.3.1. Primary Data
Primary data is original data collected by the researcher for the research problem at hand. The
study used Primary data collected through the use of the questionnaires.
3.3.2. Secondary Data
For this study, secondary data used were from company documents and other relevant
publications. Secondary data refers to information collected by others for purposes which can be
different from the researcher‟s purpose. Secondary data raises the validity and reliability of the
study.
3.4. Method of Data Analysis
The respondent‟s data was statistically analyzed using Statistical Package for Social Science
SPSS Version 20. As stated in the aforementioned section the first hand data entered into Ms.
Excel and exported to SPSS package. Representations like table and charts were used to ensure
easy and quick interpretation of data. Descriptive statistics was used to analyze all data gathered
in the form of frequencies, percentage, mean, and standard deviations. Finally, the analysis and
interpretation of the data have leads to conclusions and recommendations.

3.5. Ethical Consideration

The ethical issues is considered in the study: informed consent (by informing the respondents
regarding that background of the study, including the importance of the data is going to be
gathered from them) and issues of confidentiality (by ensuring that respondents that all of the
information in this study will solely be used for the academic purpose only).

31
CHAPTER FOUR

4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION

In this chapter of the study, among the sixteen private banks operating in Ethiopia a data was
collected from a systematically selected four selected private banks through 388 questionnaires,
company documents such as previous years strategic plan document and annual books is also
referred. The data collected from the sample respondents was first loaded to SPSS version 20
software and required descriptive output of central tendency and variability on the major four sub
sections, namely demographic characteristics of the respondents, environmental scanning,
strategy formulation, implementation and strategy evaluation are generated and interpreted.

4.1. Demographic Information of the Respondents

The questionnaire was distributed to all staff members of randomly selected employees from the
four sample banks namely Wegagen, Lion, Buna and Enat Banks, which are selected through a
systematic random sampling method, the rationale for engaging all employees of the selected
banks for the survey questionnaire is because Kaplan & Norton, (2005) found a persistent gap
between strategic ambition and performance arise from a disconnect in most companies between
strategy formulation and strategy execution. If the employees who are closest to customers and
who operate processes that create value are unaware of the strategy, they surely cannot help the
organization implement it effectively. Therefore the researcher broaden the survey feedback
from all the employees, who do involve at any part of the strategic management process, to make
the findings comprehensive and Table 3 presents the demographic profile of the respondents,
including Gender, Age, Year of service and education back ground.

32
Table 3 Respondent’s demographic information

Source: questionnaire May 2021

From the respondents 29.7 % (104) of them are females who are randomly appeared and the
remaining 70.3 % (246) are male respondents, who took the biggest share of the total population
considered under the study.

33
The data extracted from SPSS software showed that, the largest proportion of the respondents
fall between the age brackets of 25 to 35 which is 41.4% (145) followed by 18 to 25 appearing
34% (119) and the age‟s bracket of 35 to 55 covers 18.2% (64) and lastly remaining are the ages
above 55 that cover 6.3% (22). Researcher can say that the very young work force dominates the
response rate of the survey questionnaire.

Most of the respondents fall below five year of service, 42.8 % (150) of the respondents serve
their bank between 0 to 5 years and 30.2 % (106) of the respondents are employees having
service year between 5 to 10 years. 17% (59) of the respondents served from 10 to 15 years and
8% (28) of the respondents served from 15 to 25 and the remaining respondents are those who
served above 25 years are having a contribution of 2% (7).

Education wise, most of the respondents are degree holder which is 70.6 % (247) and the second
highest participant groups are master‟s holder which is 29.1% (102) and the third or the list
number of respondent which cover 0.3 % (1) is PHD holder based on this Researcher can
conclude that most of employees of the bank sectors are degree holders.

4.2. Reliability Test

Reliability refers to the consistency and dependability of a measuring instrument. One of the
internal consistency methods of assessing reliability, cronbach alpha coefficient, was applied to
check if it is proper to rely on the outcome of the questionnaires. This coefficient measures the
extent to which an instrument yields consistent results. It measures how well items in a set are
related to one another. Coefficient of 0.6 or above is nearly always acceptable. In this case the
result of the reliability test is for the questionnaires to respondents are 0.789.

Table 4:- Reliability Test Statistics

34
 4.3. Validity

Validity is the most critical criterion that indicates the degree to which an instrument measures
what it is supposed to measure (Kothari, 2004). Among the various forms of measuring validity,
the content validity one is established in this case. Content validity is the extent to which a
measuring instrument provides adequate coverage of the topic under study (Kothari, 2004). It
can also be taken as the extent to which a measuring instrument provides adequate coverage of
the topic under study. As per the same author, content validity is good if an instrument contains a
representative sample. To ensure content validity, sample represented were those of the
organizational employees who know better about the issue to be represented.

4.4. Results or findings of the Study

The basic findings of the study based on the data from the questionnaires, interview and
document review are presented for the four phases of the strategic management process.

4.5. Environmental Scanning

The study sought to determine the importance of environment scanning and it‟s feedback of
performance in selected private banks in Ethiopia. Table 5 summarizes respondents' level of
agreement on environment scanning affects firm performance

Table 5 :- Environmental Scanning

Source: own survey, 2021

35
The respondents agreed that selected private banks in Ethiopia comprehensively analyzed
internal and external factors, obtaining a mean of 3.56. The respondents also agreed that selected
private banks undertook proper stakeholder analysis before the corporate strategy is formulated,
obtaining a mean of 3.84.The respondents also agreed that a comprehensive competitor analysis
is done during strategy formulation process; obtaining a mean of 3.79. Based on this information
the researcher can conclude that some selected private banks in Ethiopia well analyzed or
scanned internal and external environment as well as competitors so as to formulate their
strategy.

4.4. Strategy formulation

The study sought to determine the importance of strategy formulation and it‟s feedback of
performance in private commercial banks in Ethiopia. Table 6.Summarizes respondents' level of
agreement on strategy formulation affects firm performance.
Table 6:- Strategy formulation

Source, own survey, 2021

36
The research wanted to identify the formal strategy formulation and it is effect on firm
performance in some selected private banks in Ethiopia. Table 6 summarizes respondents' level
of agreement on strategy formulation a. The respondents agreed that the organizations have a
written mission and vision statement as shown by mean of 3.64. The respondents also agreed that
all employees and other stakeholders are working towards making the organization achieve this
mission and vision as reported by a mean of 3.85. The respondents also agreed that Firm does
internal and external environmental scanning as shown by mean 3.82. The respondents also
agreed the organization have written longer-term (3-5 years) and short term (1-year) goals as
shown by mean 3.57. The respondents also agreed firms identifies competitors and determines
the reasons for success of competitors and consider this in strategy formulation. As reported by a
mean of 3.81. This shows that private banks in Ethiopia agree that they done strategy
formulation.

4.5. Strategy implementation

The study sought to determine the importance of strategy implementation and it‟s feedback of
performance in private commercial banks in Ethiopian. Table 7 summarizes respondents' level of
agreement on strategy implementation affects firm performance.
Table 7:- strategy implementation

Source; Own Survey (2021)

37
The respondents strongly agreed that the organizations make strategic decisions (implementation
action plans) based upon the strategic plan. As reported by a mean of 3.64. The respondents also
strongly agreed that the organization clearly assign lead responsibility for action plan
Implementation to a person or, alternately, to a team. As shown by mean of 3.82. The
respondents also agreed that sufficient resources allocated for implementation. As reported by a
mean of 3.82. The respondents also agreed that Managers support affects implementation of
strategic plan, as shown mean of 3.84. The respondents also agreed in my organization the
strategies are implemented completely. As reported by a mean of 3.86. Based on this
information the researcher can conclude that private banks in Ethiopia make strategic decisions
based on the strategic plan and private banks clearly assigned lead responsibilityfor action plan
implementation to a person or a team and also they allocate sufficient resources for strategy
implementation and also firm‟s strategy are implemented completely.

4.6. Strategy evaluation

The study sought to determine the importance of strategy monitoring and evaluation and it‟s
feedback of performance in private commercial banks in Ethiopia. Table 8 summarizes
respondents' level of agreement on strategy evaluation affects firm performance.
Table 8:- Strategy evaluation

Source; Own Survey (2021)

38
The respondents agreed that firm ensures that strategy implementation is on course to achieving
the mission and vision, obtaining a mean of 3.81. The respondents also agreed that the success of
strategy evaluation is done on regular basis and corrective action is taken on timely basis on the
strategy for highest performance, obtaining a mean of 3.81. The respondents also agreed the
company review strategic management decisions, obtaining a mean of 3.24. The respondents
also agreed that there is evaluation of the implementation of strategy at your Firm, as shown
mean of 3.81. The respondents also agreed that strategy implementation time line is evaluated,
obtaining a mean of 3.3. Based on the information stated here above the researchers can
conclude that private banks in Ethiopian can evaluate their strategy implementation and make
corrective action if there is deviation.

4.7. Firm Performance

A number of questions were asked to assess how effects strategic management practices on firm
performance in selected private banks in Ethiopia. Table 9 respondents agreed that It boosts
efficiency (reduces costs and increases productivity), as shown mean of 4.1. The respondents
also agreed that it enhances timely delivery of products and services, as shown mean of 3.7. The
respondents also agreed that it aids the utilization of human and material resources, as shown
mean of 3.77. The respondents also agreed that it brings about the innovation of services, as
shown mean of 3.58. The respondents also agreed that Service quality of the company is
improved, as shown mean of 3.92. Firm performance is defined as outcome of the combination
of the strategies and capabilities and their deployment to achieve specific goals. Deployment and
implement of the firms‟ strategy and capability and measuring their outcome depends on the
industry where a firm operates. Typically, firms gauge organizational performance using
financial and non- financial outcomes related to certain aspects of the quality and operations they
employ (Azim, Abdullah, & Gorondutse, 2017).

39
Table 9 Firm Performances

Source; Own Survey (2021)

4.8. Test results for the classical linear regression model assumptions

In this study as mentioned in chapter three diagnostic tests were carried out to ensure that the
data fits the basic assumptions of classical linear regression model. Consequently, the results
for model misspecification tests are presented as follows:

4.8.1. Test for average value of the error term is zero (E (ut) = 0)
Test for average value of the error term is zero (E (ut) = 0) assumption, the first assumption
required is that the average value of the errors is zero. In fact, if a constant term is included in the
regression equation, this assumption will never be violated. Therefore, since the constant term
(i.e. α) was included in the regression equation, the average value of the error term in this study
is expected to be zero.

4.8.2. Test for homoscedasticity assumption (Var (ut) = σ2)

In this study as shown in figure 4.1, the scatterplot of the residuals will appear right below
the normal P-P plot in the output. The data equally distributed above and below zero on the
X axis, and to the left and right of zero on the Y axis. The data residuals are normally
distributed and homoscedastic. Therefore, it is linear.

40
Figure 3:- Test of homoscedasticity

4.8.3. Multi-Co-Linearity Test.

The researcher checks absence of Multi-Co-Linearity using VIF values. Scroll up to your
Coefficients table. All the way at the right end of the table, you will find your VIF values. Each
value is below 10, indicating that the assumption is met. Therefore, there is no Multi-Co-
Linearity in this research variables test

41
Table 10:- Multi-Co-Linearity test using VIF value

4.8.4. Normality Test

The researcher got normal regression output, but you will see a few new tables and columns, as
well as two new figures. In the normal P-P plot, there is a bunch of little circles. My data is
normal; the little circles follow the normality line.

42
Figure 4:- Normality Test

4.9. Correlation Analysis between Strategic management practice and

Organizational performance
To find out the relationship between Strategic Management practices of selected private
banks in Ethiopia and organizational performance, Pearson‟s correlation coefficient (r) which
measures the strength and direction of a linear relationship between two variables is used.
Values of Pearson‟s correlation coefficient are always between -1 and +1. A correlation
coefficient of +1 indicates that two variables are perfectly related in a positive sense; a
correlation coefficient of -1 indicates that two variables are perfectly related in a negative
sense, and a correlation coefficient of 0 indicates that there is no linear relationship between
the two Variables. A low correlation coefficient; 0.1 - 0.29 suggests that the relationship
between two items is weak or non-existent. If r is between 0.3 and 0.49 the relationship is
moderate. A high correlation coefficient i.e. >0.5 indicates a strong relationship between
variables. The direction of the dependent variable's change depends on the sign of the
coefficient. If the coefficient is a positive number, then the dependent variable will move in
the same direction as the independent variable; if the coefficient is negative, then the
dependent variable will move in the opposite direction of the independent variable. Hence in
this study both the direction and the level of relationship between the dimensions of strategic

43
management practice and organizational performance are conducted using the Pearson‟s
correlation coefficient. The table below presents the result of the correlation analysis made
using bivariate correlation.

Table 11:- The relationship between Strategic Management practices and organizational
performance

The result correlation analysis implied that, all of the in dependent variables positively correlated
with organizational performance, when the study compares the relative correlation between
strategic management practices and organizational performance. Strategic formulation highly
correlated with organizational performance (r =.832**) followed by strategy implementation (r
=.719**), strategic evaluation (r =.517**), and environmental scanning (r =514*). When the
researcher look at the inter correlation between the strategic management practice. The
researcher can see that there is a positive and significant relationship between all independent
variables with the dependent one, which implies that a change made in one of strategic
management practice will positively motivate the other strategic management dimension in turn
increase organizational performance.

44
 4.10. Multiple Regression Analysis

Multiple regression analysis was employed to examine strategic management practice rendered
in some selected private banks on strategic management practice on organizational performance.
The result also helps us to understand which variables among the four independent variables are
more determine strategic management practice on level of organizational performance. The
findings further indicate model summary result, ANOVA and coefficient of multiple
regressions.

Table 12:- Model Summary

As it can be depicted from the table there is a positive and statistically significant relationship
between independent and dependent variables. In overall, the results revealed that all
independent variables accounted for 78.9 of the variance in Organizational performance (R2 =
0.789). Thus, 78.9 % of the variation of organizational performance can be explained by the four
strategic management practice dimensions questions and other unexplored variables may explain
the variation in organizational performance is accounted 21.1%.

45
The result in the ANOVA table confirmed the significance of the overall model by p- value of
0.000 which is below the alpha level, i.e. 0.05, which means, the independent variables taken
together have statistically significant relationship with the dependent variable under study.

Table 13:-ANOVA Coefficients

In the table-4.9, unstandardized coefficients indicated how much the dependent variable varies
with an independent variable, when all other independent variables are held constant. The beta
coefficients indicated that how and to what extent the independent variables influence the
dependent variable. Accordingly the result coefficient value of multiple regression analysis
indicated that, strategy implementation (beta = .320, t =20.236, p = < .000) strategic evaluation
(beta = .867, t = 9.034, p = < .000), and strategy formulation (beta =0.029, t=7.439, p<.000) has
the highest influence or significant impact on organizational performance, followed by
environmental scanning (beta=.0.121, t=3.624, p<.000) have a relatively lower effect on firm
performance compared to other three strategy management practices

In general, the findings result of multiple regression analysis, indicate that the four strategic
management dimensions (environmental scanning, Strategic formulation, Strategic
Implementation and Strategic evaluation) have positive and significant effects on organizational
performance.
Mathematical Valuation
Yi = β1 + β2X2 + β3 X3 + β 4X4 + β 5X5 + β6X6

46
Where Y is the dependent variable- organizational performance X2, X3, X4, and X5are the
explanatory variables (or the repressors) β1is the intercept term- it gives the mean or average
effect on Y of all the variables excluded from the equation, although its mechanical
interpretation is the average value of Y when the stated independent variables are set equal to
zero. β2, β3, β4, β5, and β6refer to the coefficient of their respective independent variable which
measures the change in the mean value of Y, per unit change in their respective independent
variables. =-.630+.121X1+.029X2+.320X3 +.867X4+ e
X1 represents Environmental Scanning
X2 represents Strategic Formulation
X3 represents Implementation
X4 represents Strategic Evaluation

47
CHAPTER FIVE

5. SUMMARY OF FINDINGS, CONCLUSIONS

&RECOMMENDATIONS
This chapter consists of summary of major findings of the tests conducted in the study,
conclusion of the result discussion and findings, possible recommendations being valuable for
the selected case company.

5.1. Summary of findings

Majority of the respondents believe with the assertion that the corporation has adequately
analyzed factors within the internal and the external environment besides a comprehensive
analysis of stakeholders and competitors. PrivateBanks in Ethiopia undertook proper
stakeholder analysis before the corporate strategy is formulated. The competitor analysis is
substantiated by the rating of overall attractiveness of the market
Majority of the respondents agreed thatprivate banks in Ethiopia have a written mission and
vision statement, all employees and other stakeholders are working towards making the
organization achieve this mission and vision, the organization have written longer-term (3-5
years) and short term (1-year) goals, private banks in Ethiopia identifies competitors and
determines the reasons for success of competitors and consider this in strategy formulation.
Majority of the respondents agreed that private banks in Ethiopia make strategic decisions
(implementation action plans) based upon the strategic plan, the organization clearly assign
lead responsibility for action plan Implementation to a person or, alternately, to a team,
sufficient resources are allocated for implementation of strategy, Managers support affects
implementation of strategic plan, the organization strategies are implemented completely.
Majority of the respondents agreed that private banks in Ethiopia firm ensures that strategy
implementation is on course to achieving the mission and vision, the success of strategy
evaluation is done on regular basis and corrective action is taken on timely basis on the
strategy for highest performance, the company review strategic management decisions, there
is evaluation of the implementation of strategy at private banks, strategy implementation time
line is evaluated.

48
 Majority of the respondents agreed that private banks in Ethiopia strategic management
practices boosts efficiency (reduces costs and increases productivity); strategic management
practice enhances timely delivery of products and services, strategic management practice
aids the utilization of human and material resources, strategic management practice brings
about the innovation of services, strategic management practice improve Service quality of
the company.
All strategy management practices are positively correlated with organizational performance,
78.9 % of the variation of organizational performance can be explained by the four strategic
management practice dimensions questions.

5.2. Conclusions
Based on the findings of this study, the following conclusions were drawn. Based on the result of
mean and standard deviation result of the strategic management practices and firm performance
the researcher can conclude that private banks in Ethiopia effectively exercised strategy
formulation, strategy implementation, strategy evaluation and scanning environment.
Based on the result of correlation analysis the researcher can conclude thatthere is a positive and
significant relationship between all independent variables (environmental scanning, Strategic
formulation, and Strategic Implementation and Strategic evaluation) with the dependent one (firm
performance), which implies that a change made in one of strategic management practice will
positively motivate the other strategic management dimension in turn increase organizational
performance. Based on the resultof multiple regression analysis the researcher can conclude that the
four strategic management dimensions (environmental scanning, Strategic formulation, and Strategic
Implementation and Strategic evaluation) have positive and statistically significant effects on
organizational performance. To sum up, strategic management practice affects organization performance
in constructive way.

5.3. Recommendations
All the strategic management practice affect positively the organizational performance by
different criterion as a result the researcher recommend that the organization to maintain the
current status quo. But, in today‟s competitive world the financial industries specially banking
sectors should update their strategy time to time to contest the market, to strengthen their power
resist future uncertainty, based on this private banks should:-

49
Continually adapt to changes in external trends and events and internal capabilities,
competencies, and resources; and by effectively formulating, implementing, evaluating
and controlling strategies that capitalize upon those factors. Environmental Strategy
formulation, implementation, and evaluation activities should occur at three hierarchical
levels in banking industry: corporate, divisional or strategic business unit, and functional
unit. By fostering communication and interaction among managers and employees across
hierarchical levels, so strategic management will helps the banking industry function as a
competitive team.
Banking industry top managers should recognize that intuition is essential to making
good strategic decisions. Institution is particularly useful for making decisions in
situations of great uncertainty or little precedent. It is also helpful when highly
interrelated variables exist or when it is necessary to choose from several plausible
alternatives. Strategic management is all about gaining and maintaining competitive
advantage. So banking industry continuously compare and monitor to rival firms and
build Strategists whose help the organization gather, analyze, and organize information
and also track industry and competitive trends, develop a forecasting models and
scenario analyses, evaluate corporate and divisional performance, spot emerging market
opportunities, identify business threats, and develop creative action plans.
Lastly, According to the result coefficient value of multiple regression analysis the beta
value indicated that, strategy implementation (beta = .320, strategic evaluation (beta =
.867, environmental scanning (beta =0.121 and strategy formulation (beta=.0.029).
notwithstanding the value of the four strategic management practice beta value result is
positive the value of each independent variable is different i.e. the beta value of strategy
implementation, strategy evaluation, environmental scanning and strategy formulation
has highest to lowest beta value respectively. So the organization should focus more on
environmental scanning and strategy formulation so as to reach to strategy
implementation.

50
 REFERENCES

Ackermann, F. and Eden, C. (2011). Strategic Management of Stakeholders: Theory and

Practice, Long Range Planning. 44, 179-196.

Alkhafaji, A.F. (2003). Strategic Management Formulation, Implementation, and Control in a

Dynamic Environment. USA: The Hawthorne Press.

Asghar, Z. (2011). New Approach to Strategic Planning: the Impact of Leadership and Culture
on Plan Implantation via the three Cs: Cooperation, Collaboration and Coordination. Proceedings
of ASBBS Annual Conference, 18(1): 1121-1132. Las Vegas.

Ayub, A., Razzaq, A., Aslam, M. S. And Iftekhar, H. (2013). A conceptual framework on
Evaluating SWOT Analysis as the mediator in Strategic Marketing Planning through Marketing
Intelligence, European Journal of Business and Social Sciences,2(1), 91‐98.

Azhar, A., Ikram, S., Rashid, S. and Saqib, S. (2013). The Role of Leadership in Strategy
Formulation and Implementation, Intern``ational Journal of Management & Organizational
Studies, 1(2), 33-39.

Baroto, M.B., Arvand, N. and Ahmad, F.S. (2014). Effective Strategy Implementation, Journal
of Advanced Management Science, 2(1), 50-54.

Bryson, J.M. (2004). What to do When Stakeholders matter? A Stakeholder Identification and
Analysis technique, Public Management Review. 6(1), 21-53.

Costa, J. (1997). A study of strategic planning and environmental scanning in the multiunit
Portuguese hotel sector. A thesis submitted in fulfillment of the requirements for the award of the
phd

David, R et al (2017). Strategic Management: a competitive advantage approach: concepts and

cases, 16th edition, published by Pearson Education.
Duncan, J.W., Gintei, Peter M. and Swayne, L.E. (1998). Competitive advantage and internal
organizational Assessment, Academy al Management Executive, 12(3), 6-16.

51
Grant, R.M. (2003). Strategic Planning in a Turbulent Environment: Evidence from the Oil
Majors, Strategic Management Journal, 24(6), 491-517.

Johnson, G., Scholes, K. and Whittington, R. (2008). Exploring Corporate Strategy. 8th ed.
London: Prentice Hall.

Kaplan, R.S. and Norton, D.P. (2007). Using the Balanced Score Card as a Strategic
Management System, Harvard Business Review.

Kibicho, P.M. (2014). The Influence of Managerial Competence and Resource Mobilization on
Strategy Implementation in the Insurance Companies in Konya, International Journal of Social
Sciences and Entrepreneurship, 1(10), 1-15.

Kohtari, C.R. (2004). Research Methodology; Methods and Techniques. 2nd Ed. New Age
International publishers.

Krassnig, T. Pirker, J, Paul T.J. and Ribière, V. (2011). Applying Six Sigma to Business Strategy
Implementation, BU Academic Review,10(1): 346-356.

Langat, JacklineChepngeno; Auka, Daniel Onwonga. (2015). Effects of strategic planning on

performance of medium sized enterprises in Nakuru town. Journal of Business Administration
and Management Sciences Research Vol. 4(2), pp. 049-059.
Lihalo, M. A. (2013). Barriers to Strategy Implementation by Mid-Sized Companies in Kenya,
Global Journal of Management and Business Research Administration and Management, 13(12).

Maroa, J. G., & W. M. (2015). Influence of strategic management practices on performance of

floriculture firms in Kenya. International Journal of Economics, Commerce and Management
Vol. III, Issue 7, pp. 497-513.
Mbaka, R.M. And Mugambi, F. (2014). Factors affecting successful strategy implementation in
the Water Sector in Kenya, IOSR Journal of Business and Management, 16(7): 61-68.

Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998). Strategy Safari; A guided tour through the
wilds of Strategic Management. New York: The Free press.

52
Mosiah, L. (2008).The strategic management of small firms in emerging economies; a study of
health biochemistry. A thesis submitted in partial fulfillment of the requirements for the degree
of Master of Business Administration. University of Pretoria.

Nedelea, S. and Paun, L.A. (2009). „The Importance of the Strategic Management Process in the
Knowledge Based Economy‟, Review of International Comparative Management, 10(1), 95-105.

Neluheni, G.N., Pretoriu, W. and Ukpere, W.I. (2014). The role of Quality Strategic Planning on
Organizational Success, Mediterranean Journal of Social Sciences. 5(1), 697-709.

Njagi, L. and Kombos, H. (2014). Effect of Strategy Implementation on Performance of

Commercial Banks in Kenya, European Journal of Business and Management. 6(13), 62-69.

Norton, D.P. and Kaplan, R.S. (1996). Translating Strategy into Action; the Balanced Scorecard.
USA: Harvard Business School Press.

On Doro, C. (2017). Strategy Control and Organization Social Performance: A Conceptual

Review. International Journal of Economics, Commerce and Management
Phanuel, W. and Darbi, K. (2012). Of mission and vision statements and their potential impact
on employee behavior and attitudes; the case of a public but profit oriented tertiary institution,
International Journal of Business and Social Science, 3(14), 95-109.

Roney, C.W. (2010). Intersections of Strategic Planning and Futures Studies: Methodological
Complementarities, Journal of Futures Studies. 15(2), 71-100.

Salih, A. and Doll, Y. (2013). Middle Management Perspective on Strategy Implementation,

International Journal of Business and Management, 8(22), 32-39.

Sihab, M., Ridwan and Marti, J. (2012). The Study on Strategic Planning and Organizational
Performance in the Regional Government Owned Banks in Indonesia, International Journal of
Humanities and Applied Sciences,1(3), 98-102.

Smith, E.E. (2011). Perceptions Regarding Strategy Implementation Tasks in Selected Industries:
A South African Perspective, International Journal of Business and Commerce, 1(4), 22-45.

53
Smith, k. (2013). Management control systems and strategy: A critical review. Accounting,
Organizations and Society, Vol. 22, No. 2, pp. 207-232.
Sorooshian, S., Norzima Z., Yusof,A I. and Rosnah Y. 2010. Effect Analysis on Strategy
Implementation Drivers, World Applied Sciences Journal, 11 (10), 1255-1261.

Sterling, J. (2003). Translating strategy into effective implementation: dispelling the myths and
highlighting what works, Strategy and Leadership, 31(3), 27-34.

Teecei, D.J., Pisan, G. and Shuen, A. (1997). Dynamic Capabilities and Strategic Management,
Strategic Management Journal, 18(7), 509-533.

Waweru, M.A. (2011). Comparative Analysis of Competitive Strategy Implementation, Journal

of Management and Strategy, 2(3), 49-61.

Wheelen, T. L. and Hunger, J. D. (2012). Strategic Management and Business Policy towards
global sustainability. 13th ed. Prentice Hall.

White, C. (2004). Strategic Management. 1st ed. China: Palgrave Macmillan.

Zafar, F., Babar, S. and Abba, H. (2013). The art of Strategic Management; A key to success in
corporate sector, European Journal of Research and Reflection in Management Sciences, 1(1).

54
APPENDEX

Questionnaire
Dear Respondent,
I am a final year MBA student at Debre Birhan University, School of Graduate Studies. As part
of the requirements in completion of the MBA program, I am undertaking a research on Strategic
Management practices of Ethiopian private banks. To this end, I am collecting data from people
working in the corporation. You have been selected as a valuable participant for this research.
In order for the research to yield valid results, it is important that you answer all questions as
honestly and truthfully as possible. It is solely for an MBA Thesis and responses will remain
anonymous and confidential.For more information, you can contact at any time needed through
my address; Tel + +251910118828, E-mail abebetimketie@gmail.com.
Thank you for your willingness to participate in this study. It is highly appreciated.
I. Demographic Information
Part I: Background Information

1. Sex: 1. Male 2. Female

2. Age: 1. 18-25 2. 25-35 3.35-45 4.45-55 5. Above 55
3. Education level
1. Diploma 2. Degree 3.Masters 4.Phd
4. Work experience:
1. Below 5 years 2. 5-10 years 3.10-15 years 4.15-25 years 5. Above 25 years
Indicate the extent of your agreement with respect to each of the following statements by
marking ‘X’ in the box of your choice.
1=strongly agree, 2=agree, 3=moderately agree, 4=Disagree, and 5=strongly disagree

55
Statement 1 2 3 4 5
1. Environmental scanning
Your bank comprehensively analyzed internal and external factors
Your bank undertook proper stakeholder analysis before the
corporate strategy is formulated
Your bank undertook proper stakeholder analysis before the
corporate strategy is formulated
2. Strategy formulation
The organization has a written mission and vision statement
All employees and other stakeholders are working towards making
the organization achieve this mission and vision
Firm does internal and external environmental scanning
The organization has written longer-term (3-5 years) and short term
(1year) goals.
My firm identifies competitors and determines the reasons for success
of competitors and consider this in strategy formulation
3. Strategy implementation
The organization make strategic decisions (implementation action
plans) based upon the strategic plan.
the organization clearly assign lead responsibility for action plan
Implementation to a person or, alternately, to a team
Sufficient resources allocated for implementation.
Manager‟s support affects implementation of strategic plan.
In my organization the strategies are implemented completely.
4. Strategy evaluation
My firm ensures that strategy implementation is on course to
achieving the mission and vision
The success of strategy evaluation is done on regular basis and
corrective action is taken on timely basis on the strategy for highest
performance

56
The company review strategic management decisions
There is evaluation of the implementation of strategy at your Firm
Strategy implementation time line is evaluated
5. Firm performance
Effective strategic management practice boosts efficiency (reduces
costs and increases productivity
Effective strategic management practice enhances timely delivery of
products and services
Effective strategic management practice aids the utilization of human
and material resources
Effective strategic management practice brings about the innovation
of services
Effective strategic management practice improved Service quality of
the company

57