GROWTH STRATEGIES ADOPTED BY COOPERATIVE BANK AS AN

OPERATIONAL ORIENTATION

BY

Susan Wangechi Muchiri

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT OF

THE REQUIREMENTS FOR THE AWARD OF MASTERS DEGREE IN
BUSINESS ADMINISTRATION OF THE UNIVERSITY OF NAIROBI

NOVEMBER, 2012

i
 DECLARATION

This research project is my original work and has not been presented for any degree in any other

University.

Signature………………………… Date………………………………

Susan Wangechi Muchiri

REG. NO. D61/72947/2009

This project has been submitted for examination with my approval as the University Supervisor.

Signature………………………… Date………………………………..

Supervisor: Caren Angima

ii
 DEDICATION

This research project is dedicated to my father who inspired me to attain my academic potential

and also to my mother for her patience and encouragement throughout the period of my research

writing. For this I say thank you all and God bless.

iii
ACKNOWLEDMENT

I thank the almighty God for seeing me through my entire Masters Degree Course. It is indeed

God‟s providence and unfailing mercy that has made this possible.

I wish to acknowledge the University of Nairobi for the support accorded to me during the entire

course. I am indeed grateful to my supervisor Caren Angima for her support, guidance and

constructive criticism which shaped this work.

iv
 ABSTRACT

Modern businesses operate in a turbulent environment faced with a variety of new challenges
brought about by globalization and trade liberalization. Its impact typically remains hidden
within the normal fluctuations in performance. Businesses therefore engage in growth and
expansion strategies that will enable them to respond to the environmental challenges in order to
gain competitive advantage over their competitors, increase market share and indeed for
continued survival in the market. Firms adopt various strategies based on the goals and
objectives. The different strategies have different costs and related benefits that influence
adoption.

This study adopted a descriptive design with main focus on qualitative and quantitative data. The
study population focused on senior employees of Cooperative Bank (Coop Bank) that are
involved in strategy formulation. The study utilized both primary and secondary data. The
researcher used face to face interviews to collect information. Qualitative data was analyzed
using content analysis.

The study found that Coop Bank uses both local market and international market strategies as a
growth and operational orientation. Coop Bank‟s local markets strategies include Branch
Banking, Agent Banking and M- banking among others while the international strategies include
the Diaspora account, Money transfer services and foreign investment. However, the local
market forms the major share of the bank‟s income.

The study recommends that the bank comes up with product differentiation strategies by
segmenting the customers based on their needs, size and type of business and designing products.
The study further recommends that agency banking be marketed more as it‟s an area with great
growth potential as it uses the already established private enterprises and saves the bank huge
capital outlays of opening a branch.

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 TABLE OF CONTENTS
DECLARATION........................................................................................................................... ii
DEDICATION.............................................................................................................................. iii
ACKNOWLEDMENT ................................................................................................................ iv
ABSTRACT ................................................................................................................................... v
ACRONYMS AND ABBREVIATIONS .................................................................................... ix
CHAPTER ONE : INTRODUCTION ........................................................................................ 1
1.1: Background of the Study ......................................................................................................... 1
1.1.1: Growth Strategy as an Operational Orientation ................................................................ 3
.1.1.2: The Banking Industry in Kenya ....................................................................................... 5
1.1.3: The Cooperative Bank of Kenya ....................................................................................... 6
1.2: Research problem .................................................................................................................... 7
1.3: Research Objectives ................................................................................................................. 9
1.4: Value of the study .................................................................................................................... 9
CHAPTER TWO : LITERATURE REVIEW ......................................................................... 10
2.0: Introduction ............................................................................................................................ 10
2.1: Growth Orientation ................................................................................................................ 10
2.1.1: Factors that drive Business Enterprises toward Growth ..................................................... 10
2.1.2: Types of Growth Strategy adopted by Firms .................................................................. 12
2.2: Internal Growth Strategy ....................................................................................................... 13
2.2.1: Expansion Strategy.......................................................................................................... 13
2.2.3: Technological Innovation Strategy ................................................................................. 16
2.3: External Growth Strategy ...................................................................................................... 17
2.3.1: Merger and Acquisition Strategy .................................................................................... 17
2.3.2: Joint Venture Operational Strategy. ................................................................................ 18
2.3.3: International Markets Venturing Strategies .................................................................... 19
2.4: Challenges facing growth of firms......................................................................................... 20

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CHAPTER THREE : RESEARCH METHODOLOGY ........................................................ 22
3.1: Introduction ............................................................................................................................ 22
3.2: Research Design .................................................................................................................... 22
3.3: Data Collection ...................................................................................................................... 22
3.4: Data Analysis ......................................................................................................................... 23
CHAPTER FOUR : DATA ANALYSIS, RESULTS AND DISCUSSION ........................... 24
4.1 Introduction ............................................................................................................................. 24
4.1.1 Response Rate ...................................................................................................................... 24
4.1.2 Demographic Information ................................................................................................ 24
4.2 Growth Strategies adopted by Co op Bank ............................................................................. 25
4.2.1 International Market Strategies ........................................................................................ 25
4.2.2 Local Market Strategies ....................................................................................................... 26
4.2.3 Factors that guide the choice of Strategy in Coop Bank .................................................. 26
4.2.4 Opportunities for future growth ....................................................................................... 28
4.3 Contribution of Growth Strategy to the performance of Coop Bank ...................................... 29
4.3.1 Branch Network Expansion ............................................................................................. 29

4.3.2 Technological Innovations ............................................................................................... 30

4.3.3 Joint Ventures Strategy .................................................................................................... 32
4.3.4 Agency Banking ............................................................................................................... 33
4.3.5 International Market Strategies ........................................................................................ 34
4.4 Future development opportunities .......................................................................................... 35
CHAPTER FIVE : SUMMARY, CONCLUSION AND RECOMENDATION ................... 37
5.1 Introduction ......................................................................................................................... 37
5.2 Summary of Findings .......................................................................................................... 37
5.2.1 Growth Strategies adopted by Coop Bank ....................................................................... 37
5.2.2 The Contribution of the Growth Strategies to the Performance of Coop Bank ............... 38
5.3 Conclusions ............................................................................................................................. 39
5.4 Recommendations ............................................................................................................... 40
5.5 Recommendations for further Research ............................................................................ 41
REFERENCE .............................................................................................................................. 42
vii
APPENDICES ............................................................................................................................. 46
Appendix I: Introduction Letter .................................................................................................... 46
Appendix 2: Interview Guide........................................................................................................ 47

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 ACRONYMS AND ABBREVIATIONS

ATM -Automated Teller Machine

CBK -Central Bank of Kenya

CCK -Communication Commission of Kenya

CEO -Chief Executive Officer

CIC - Corporate Insurance Company

CO-OP Bank - Co-operative Bank of Kenya

FOSA` - Front Office Services Activities

GOK -Government of Kenya

IT -Information Technology

ICT -Information and Communication Technology

M-Banking -Mobile Banking

MD -Managing Director

NCBD -Nairobi Central Business District

SACCO -Saving and Credit Co operative Societies

YEA -Young Innovators Account

ix
 CHAPTER ONE :

INTRODUCTION

1.1: Background of the Study

Strategy is depicted as a set of beliefs on how a firm can achieve success (Woods and Joyce,

2003). Arguably strategy is the main route to attain corporate goals and objectives, leading to

enhanced long-term performance. That is to say, strategy is much more than beliefs and

encompasses a deliberate search for a plan of action that will develop a business's competitive

advantage and compound it (Henderson, 1999). Strategies are the set of decisions and actions

that result in the formalization and implementation of plans designed to achieve a firm‟s

objectives (Pearce and Robinson, 2005). Therefore it is a reaction to what is happening in the

economic environment of organizations. Porter, views operational responses as part of a planning

process that coordinates operational goals with those of the larger organization. Hence

operational issues are mostly concerned with certain broad policies and policies for utilizing the

resources of a firm to the best support of its long term competitive strategy.

According to (Ross, 1996) the firm has to learn, adopt and reorient themselves to the changing

environment. Most importantly, when discontinuity begins to affect a firm in a turbulent

environment, faced with variety of pressures of new challenges brought about by globalization

and trade liberalization, its impact, typically remains hidden within the normal fluctuations in

performance. Firms therefore, should proactively engage themselves in strategies that will enable

them to respond to the environmental challenges in order to gain competitive advantage over

1
their competitors besides the firm‟s success, and, indeed, even for its continued survival in the

market. Ansoff and McDonnell (1990) noted that strategies involve changes in the firm‟s

strategic behaviors to assure success in transforming future environment.

Strategic management on the other hand is a field that deals with the major initiatives taken by

organization‟s top leadership acting on behalf of the shareholders, involving utilization of

resources, to enhance the performance of firms in their external environments. It entails

specifying the organization's mission, vision and objectives, developing policies and plans, often

in terms of projects and programs, which are designed to achieve these objectives, and then

allocating resources to implement the policies and plans, projects and programs. Recent studies

and leading management theorists have advocated that strategy needs to start with stakeholders

expectations (Nag et al., 2007).

Most organizations including banks are involved in strategic planning to achieve a sustainable

competitive advantage in the ever changing business environment. Sustainable competitive

advantage is possible only through performing different activities from rivals or performing

similar activities in different ways. Companies need to develop unique, internally consistent, and

difficult to imitate activity systems that can provide sustained competitive advantage and is

possible through forward planning (Dess, 2005).

A company can use a number of business strategies, depending on its situation. For example,

new companies may face different challenges than companies that are more established.

Therefore, the business strategies they implement may be different from those of key

2
competitors. There are different types of business strategies that a firm can employ in planning

which include the growth strategy, product differentiation strategy, price skimming strategy,

entry strategy, exit strategy, marketing strategy and acquisition strategy among others (Rhonda,

2010).

Commercial banks also apply different strategies depending on the stage of objectives and stage

of development; these strategies play important roles in positioning the bank as well as

achievement of their mission and goals. This may include capital formation, investment in new

enterprises, promotion of trade and industry, development of agriculture sector among others

(Dess, 2005).

1.1.1: Growth Strategy as an Operational Orientation

To achieve the growth objectives the banks use different strategies amongst which are growth

strategies to expand to different regions and to diversify their investments. A growth strategy

entails introducing new products or adding new features to existing products. The firms may

adopt include merger or amalgamation which may take different forms such as merger through

absorption or merger through consolidation. Company merger may be in the form of one or more

companies being merged into an existing company or a new company may be formed to merge

two or more existing companies. Acquisition is also an expansion strategy common used by

firms. An acquisition, also known as a takeover or a buyout, is the buying of one company by

another. It is an act of acquiring control over management of other companies (Ansoff and

McDonnell, 1990).

3
Companies will often use a product differentiation strategy when they have a competitive

advantage, such as superior quality or service. Obviously, companies use a product

differentiation strategy to set themselves apart from key competitors. However, a product

differentiation strategy can also help a company build brand loyalty. In addition, a company may

use branch network to spread its goods and services to a wide network (Naidu, 2003).

According to Birch and Young (1997) the rapid advancement in Information and

Communication Technology (ICT) has had a profound impact on the banking industry and the

wider financial sector over the last two decades and it has now become a tool that facilitates

banks‟ organizational structures, business strategies, customer services and other related

functions. The recent “IT revolution” has exerted far-reaching impacts on economies, in general,

and the financial services industry, in particular. Within the financial services industry, the

banking sector was one of the first to embrace rapid globalization and benefit significantly from

IT development (Birch & Young, 1997).

The technological revolution in banking started in the 1950s, with the installation of the first

automated bookkeeping machines at banks. This was well before the other industries became IT

savvy. Automation in banking became widespread over the next few decades as bankers quickly

realized that much of their labor-intensive information-handling processes could be automated

with the use of computers. The advent of ATMs helped both to improve customer convenience

and reduce costs, as before ATMs, withdrawing funds, accounts inquiries and transferring funds

between accounts required face-to-face interaction between bank staff and customers (Llewellyn,

2001).

4
1.1.2: The Banking Industry in Kenya

Kenya‟s banking sector has for many years been credited for its size and diversification. Kenya

has a variety of financial institutions and markets – banks, insurance companies, stock and bond

markets - that provide an array of financial products. Notwithstanding this relative advantage,

Kenya‟s financial system has previously failed to provide adequate access to banking services to

the bulk of the population. While the larger proportion of savings comes from small depositors,

lending is skewed in favor of large private and public enterprises in urban areas. Financial

services are expensive, as evidenced by high interest rates and account fees(Beck, 2009).

Kenya‟s financial system, however, continues to face challenges. The banking system is still

fragmented, with many small banks serving specific niches, but also contributing to competition

in the sector. The outreach of the banking system is still limited with a wide population being

either under banked or unbanked. In 2007, GOK published “Kenya‟s Vision 2030” as a long

term development plan for the country which puts provision of financial services at the centre of

the planned economic growth trajectory through the year 2030. The main objectives that were

articulated in Vision 2030 for the financial sector were; to improve stability, enhance efficiency

in the delivery of credit and other financial services, and improve access to financial services and

products for a much larger number of Kenyan households. Delivery of these objectives requires

implementation of policies that would contribute to stable macro and fiscal positions aimed at

lower inflation and financial sector stability (Vision 2030).

5
1.1.3: The Cooperative Bank of Kenya

The Co-operative Bank (Coop Bank) opened doors for business on 10th January 1968 as the

government‟s initiative to bring about a more efficient and effective co-ordination of both

internal and external assistance in addition to providing relevant financial services to the co-

operative movement in Kenya. The bank started with a modest capital base of Kes 469,000

against the required minimum capital of Kes 2 million stipulated by the banking act. The

Government granted an exemption and offered a grace period within which the required capital

was to be raised (Co-op bank, 2010).

In 1994 the Bank converted to become a fully-fledged commercial bank offering the complete

range of financial services beyond the captive Co-operative sector to include personal, corporate

and institutional customers. The bank listing followed later in 2008 by a public offer of 701.3

million shares at Kshs 9.50 which achieved an 81% subscription to raise Kshs 5.4 billion in

additional capital on top of the existing Kshs 7.4 billion (Muriuki, 2010).

6
1.2: Research problem

The banking sector has experienced increased competition over the last few years resulting from

increased innovations among the players and new entrants into the market. The sector has

witnessed entrance of many banks, micro finance and other non banks in the provision of

financial services to the unbanked and under banked population mainly in the rural areas. Mobile

phone companies in various countries have started new mobile phone‐based payment and money

transfer services such as M-pesa, Airtel money and Yu cash, an area which used to be a

traditional role of the bank. These services have spread quickly, and have become the most

successful mobile phone‐based financial services in the developing world. For instance M-pesa

in Kenya had registered about 7.7 million M‐PESA accounts, which was higher than all banks

accounts in the country in just two years since inception(Mas and Morawczynski, 2009; CCK,

2010).

The situation points out that most of the banks are pursuing similar expansion strategies to reach

the unbanked and underbanked. They have embarked on aggressive branch network expansion

throughout the country to increase their market. According to Kenya bankers association (2011),

there are 1,072 retail bank branches in countries, up from 534 in 2005. Internet banking has been

adopted by most of the banks. Specifically cooperative bank has gone into branch expansion

strategy with the bank intending to open 100 retail branches by the year 2012. Cooperative bank

has over 3000 agent banking providers with its brand name „coop kwa jirani‟. The bank has M

banking which enable its customers to transact at the comfort of their homes. This has lead to

some of the branches reporting low profitability while other have recorded very low daily

7
transactions thus affecting the institution overall performance (Jayawardhena and Foley, 2000;

Co op 2010).

Several scholars have carried out extensive studies in the area of banking in Kenya and

especially on competitive strategy. For instance, Warucu (2001) in his research, found out that

focus and product differentiation are some of the major strategies that the banks have employed

in their quest to outdo each other. Similarly Kiptugen (2003) looked at the strategic responses to

a changing competitive environment in the case study of Kenya Commercial Bank, he

established that proactive rather than reactive strategies such as research on changing customer

needs and preferences forms the basis of its strategic planning. Mbwayo (2005) focused on the

strategies applied by commercial banks in Kenya in anti money laundering compliance

programs. He concluded that strict adherence procedures and standards have been implemented

to ensure that money laundering is contained in Kenya. None of these studies though has touched

on the contribution of the growth strategies.

There is limited literature though on whether these strategies are effective and whether they will

be sustainable in the long run. This study therefore critically examined the growth strategies

specifically employed by Co op Bank with a view of evaluating their contribution. It sought to

answer the following questions:

i. What are the growth strategies adopted by co-op bank?

ii. What is the contribution of the growth strategies adopted by co-op bank?

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1.3: Research Objectives

The objectives of this study were the following:

i. To Examine the growth strategies adopted by cooperative bank of Kenya

ii. To establish the contribution of the strategies to the growth of Co op Bank

1.4: Value of the study

The findings of this study will be of significance to the following groups:

Coop bank and more so, the business growth department It may use the study findings to

evaluate the contribution of the growth strategies and it has adopted with an aim of strategically

positioning itself in the market leadership.

The entire banking industry is directly affected by the dynamic business environment and

competition locally and internationally. Other banks therefore may use the study findings to

compare their growth strategies with others in the banking industry.

Scholars may use the findings to identify the information gap that need further research. The

research provides a view of the current state of growth strategies and their limitations in the ever

changing business environment in Kenya.

9
 CHAPTER TWO:

LITERATURE REVIEW

2.0: Introduction

This chapter brings out the literature review related to the objectives of the study. It identifies the

factors that drive businesses towards growth, the types of growth strategies adopted by firms as

well as the challenges facing expansion of firms. It explores the growth orientation in businesses

with special emphasis on the banking sector.

2.1: Growth Orientation

Business growth refers to an increase in the size or scale of operations of a firm usually

accompanied by increase in its resources and output. As a matter of fact, growth is precondition

for the survival of a business firm. An enterprise that does not grow may in course of time have

to be closed down because of its obsolete products. The market is full of examples of very

popular products disappearing from the scene for lack of growth plans. For example, pagers

vanished from the market because better technology product i.e. cell phones were introduced

Dollinger (2006).

2.1.1: Factors that drive Business Enterprises toward Growth

Businesses adopt growth as a survival strategy. In a competitive market businesses work hard to

outperform others through direct or indirect competition. Direct competition comes from other

10
firms manufacturing the same product while indirect competition may come from availability of

cheaper substitutes. To survive the competition the business has to continuously bring new

versions of basic product to maintain an edge over its competitors. Severe competition forces a

firm to grow and gain competitive strength. A growing concern will be an innovator and can

easily face the risk of competition. Thus growth is means of survival in a competitive and

challenging environment (Saxena, 2005).

Growth enables the economies of Scale. Growth of a firm may provide several economies in

production, purchasing, marketing, finance, management etc. A growing firm enjoys the

advantages of bulk purchase of materials, increased bargaining power, spreading of overheads,

expert management etc. This leads to low cost of production and higher margin of profit. The

owners of a company get the ultimate benefit of growth in the form of higher profits. Capable

management may on its own like to take carefully calculated risk and expand the size of the

company (Saxena, 2005).

Expansion of the market can also provide growth in that Increase in demand for goods and

services leads business firms to increase the supply also. Population explosion and transportation

led to increase in the size of markets which in turn resulted in mass production. Business firms

grow to meet the increasing demand. The more the size of the business firm increase the more is

the prestige and power of the firm. Businessmen satisfy their urge for power by increasing the

size of their business firm (Rhonda, 2010).

11
Government policy in a planned economy like Kenya, business firms operate under a large

number of rules and restrictions. The banking sector in Kenya is regulated by the Central Bank

of Kenya Act, Banking Act, the Companies Act among other guidelines issued by the Central

Bank of Kenya (CBK).Banking industry in Kenya was liberalized back in 1995 when exchange

controls were revoked since then the banking sector has witnessed tremendous growth both in

number of customers and deposit. The banking sector in Kenya has over the past few year

enjoyed exponential growth in deposits, assets, profitability and products offering, mainly

attributed to automation of services and branch network expansion both locally and

regionally(CBK, 2010).

Technological innovations are key divers of growth in the modern society. Some business firms

invest in research and development activities to create new products and new techniques, while

others try to acquire latest technology from the market. Rationalization and automation results in

more efficient use of resources and a firm may grow to obtain them. Through technology firms

can grow to become self sufficient in terms of marketing of raw material or marketing of

products and services.

2.1.2: Types of Growth Strategy adopted by Firms

Growth Strategy‟ refers to a strategic plan formulated and implemented for expanding firm‟s

business. For smaller businesses, growth plans are especially important because these businesses

get easily affected even by smallest changes in the marketplace. Changes in customers, new

moves by competitors, or fluctuations in the overall business environment can negatively impact

their cash flow in a very short time frame. Negative impact on cash flow, if not projected and

12
adjusted for, can force them to shut down. That is why they need to plan for their future

(Rhonda, 2010).

In many developing countries, consistent economic growth over the past decade has brought new

wealth and demand for financial services while liberalization has led to increased competition in

retail financial services in many places. As a result, the reach and coverage of the formal

financial sector has grown (World Bank, 2008). According to Saxena (2005), there are different

type of growth strategies are available each having advantage and disadvantage of its own. A

firm can adopt different strategies at different points of time. Every firm has to develop its own

growth strategy according to its own characteristics and environment.

2.2: Internal Growth Strategy

Internal growth is growth from within. It is planned and slow increase in the size and resources

of the firm. A firm can grow internally by ploughing back of its profits into the business every

year. This leads to the growth of production and sales turnover of the business. Internal growth

may take place either through increase in the sales of existing products or by adding new

products. Internal growth is slow and involves comparatively little change in the existing

organization structure. It can be planned and managed easily as it is slow (Ghosh, 2000).

2.2.1: Expansion Strategy

Expansion also called intensive growth strategy involves raising the market share, sales revenue

and profit of the present product or services. The firm slowly increases its production and so it is

13
called internal growth strategy. It is a good strategy for firms with a smaller share of the market

because the growth is slow and natural and therefore, it can be handled easily. Capital required

for expansion can be taken from the firm's own funds and existing resources better utilized. The

growing firm is in a better position to face competition in the market with only a few changes

being required in the organization and management systems of business. Firm‟s expansion

therefore provides economics of large-scale operations (Rhonda, 2010).

Three alternative strategies are available in this regard. These are: Market Penetration – This

strategy aims at increasing the sale of present product and services in the presented market

through aggressive promotion. The firm penetrates deeper into the market to capture a larger

share of the market. Market Development – It implies increasing sales by selling present

products in the new markets. Market development leads to increase in sale of existing products in

unexplained markets. Product Development: In this, the firm tries to grow by developing

improved products for the present market (Rhonda, 2010).

2.2.2: Diversification Strategy

Beyond a certain point, it is no longer possible for a firm to expand in the basic product market.

So the firm seeks increased sales by developing new products for new markets. This strategy

towards growth is called diversification. The diversification does not simply involve adding

variety in a product but adding entirely different types of products. Products added may be

complementary. Diversification is a much talked about and widely used strategy for growth.

Many companies have opted for this. For example, State Bank of India diversified into

14
merchant banking and mutual funds. A firm may choose diversification strategy when it

promises greater profitability than expansion or when the firm cannot attain its growth target by

the strategy of expansion alone (Ghosh, 2000).

Concentric diversification means that there is a technological similarity between the industries,

which means that the firm is able to leverage its technical know-how to gain some advantage. It

also seems to increase its market share to launch a new product that helps the particular company

to earn profit. The company could seek new products that have technological or marketing

synergies with existing product lines appealing to a new group of customers. This also helps the

company to tap that part of the market which remains untapped, and which presents an

opportunity to earn profits (Lambin, 1996).

In horizontal diversification the company adds new products or services that are often

technologically or commercially unrelated to current products but that may appeal to current

customers. In a competitive environment, this form of diversification is desirable if the present

customers are loyal to the current products and if the new products have a good quality and are

well promoted and priced. Moreover, the new products are marketed to the same economic

environment as the existing products, which may lead to rigidity and instability. In other words,

this strategy tends to increase the firm's dependence on certain market segments. For example, a

company that was making notebooks earlier may also enter the pen market with its new product

(Lambin, 1996). According to Lehman and Winer (2005) many financial institutions has focused

on differentiation while maintaining low-cost products and services. Clients are also beginning to

demand a greater variety of products and services, especially as markets mature.

15
2.2.3: Technological Innovation Strategy

A firm may use the strategy of modernization to achieve growth. Modernization basically

involves upgradation of technology to increase production, to improve quality and to reduce

wastages and cost of production. The worn-out and obsolete machines and equipment are

replaced by the modern machines and equipment. Modernization improves the productivity and

efficiency of the firm resulting in a better quality products and services to the customers. The

profitability of the firm goes up because of increased efficiency and reduced wastages, as the

firm becomes more competitive in the long-run because of modernization. The workers acquire

modern skills because of which their wages go up (Gupta, 2001).

Most industries have been influenced in different ways by ecommerce (Foxall et al. 2003) and

that the banking industry has been subject to this technological change (Bradley and Stewart

2003). It is evident that banks and other financial institutions in developed and emerging markets

are embracing e-banking. For example, in Kenya, a recent survey indicates that there is steady

increase in use of e-banking technologies such as automated teller machine (ATM), mobile and

Internet (online) banking, electronic funds transfer, direct bill payments and credit card (CBK

2008).

ATM banking is one of the earliest and widely adopted retail e-banking services in Kenya

(Nyangosi et al. 2009). However, according to an annual report by Central Bank of Kenya

(CBK), its adoption and usage has been surpassed by mobile banking (M-banking) in the last few

years (CBK 2008). Currently, there are about 8 million users of M-banking services compared to

4 million people who hold accounts in conventional financial institutions in Kenya (CBK 2008).
16
The tremendous increase in number of people adopting M-banking has been attributed to ease of

use and high number of mobile phone users. This is consistent with the theory of consumer

choice and demand as conceptualized in Au and Kauffman (2008) in relation to mobile

payments. Based on their observation, customers can choose to adopt a particular banking

technology such as M-banking, perceived to offer such advantages as ease of use.

2.3: External Growth Strategy

External growth involves growth through external means such a merger and joint venture. A

firm may acquire another firm or firms may combine together resources to improve their market

competitive strength.

2.3.1: Merger and Acquisition Strategy

Merger is an external growth strategy derived when different companies combine together into

new corporate organizations. Merger can occur in two ways namely: Acquisition of takeover and

amalgamation. Takeover or acquisition takes place when a company offers cash or securities in

exchange for the majority shares of another company. It involves one company taking over

control of another. Amalgamation takes place when two or more companies of equal size or

strength formally submerge their corporate identities into a single one in a friendly atmosphere.

The mergers take place with a number of motivations such as provision of economies of large-

scale operations, better utilization of funds, more efficient use of resources. Through mergers

sick firms can be rehabilitated by merging them with strong and efficient concerns since it often

cheaper to acquire an existing unit than to set up a new one. Mergers therefore allow quick entry

17
into new lines of business (McLaughlin, 1996).

In recent years, a number of mergers and acquisitions have taken place in the banking sector.

Some of the mergers have been triggered by the need to meet the increasing minimum core

capital requirements, and also to enhance institutions‟ market share in the highly competitive

local banking environment through the resulting synergies. For instance Eco bank acquired east

African building society in the years 2007(CBK, 2010).

2.3.2: Joint Venture Operational Strategy.

When two or more firms mutually decide to establish a new enterprise by participating in equity

capital and in business operations, it is known as joint venture. A joint venture is a business

partnership between two or more companies for a specific business operation. Joint venture can

be with a firm in the same country or a foreign country (McLaughlin, 1996).

A strategic alliance which is also a growth mechanism is an organizational partnership where

each party's core business model remains separate and intact. It is an agreement between two or

more separate companies in which there is shared risk, returns, and control, as well as some

operational integration and mutual dependence. A bank can seek to achieve market leadership

through a strategy of differentiation by building upon its core competencies. Examples of such

competencies include customer insight, brand reputation, decentralized (McLaughlin, 1996).

18
Alliances give organizations the ability to differentiate without reinventing the wheel;

institutions can move forward relatively quickly and can be more flexible and easier to

implement in comparison to mergers and acquisitions. Shared control mitigates risk: A partner

can exit a strategic alliance and fewer resources are needed including less cash. Institutions have

the opportunity to learn more about key processes/new industries/new geographies.Ability to

leverage brand name: Organizations can focus on their strengths (McLaughlin, 1996).

2.3.3: International Markets Venturing Strategies

Companies can enhance market penetration by venturing into other markets, and this can be done

through franchising. This is a continuing relationship, in which the franchisor provides a license

to the franchisee to do business. It also offers assistance in organizing, training, merchandising,

marketing, and managing in return for a franchising fee. The organization is "cloned" by

licensing the brand name and providing ongoing business support to the franchisee, which owns

and operates the business outlet. An organization typically engages in franchising in order to

grow quickly and leverage its brand and business model. Franchising offers a means to expand

without much upfront financing and tends to occur in industries with standardized products

(McLaughlin, 1996).

However, while franchising frequently occurs in the private sector, there is little franchising in

banking sector. Franchising as it occurs in the private sector, with the same brand, strict checks

on quality control and standardization, does not currently occur in bank. Even in the financial

services industry within the private sector, franchising is less common because it seems to work

19
better with a standardized product than it does with a service. Additionally, franchising is rare in

this industry because of the high skill and capital needed. For instance, there is an inherent risk

for someone with little financial experience to open up a bank franchise branch, no matter how

straightforward or standardized the franchise package is(McLaughlin, 1996)..

Notably though a form of franchising does exist in microfinance, through replication of business

processes and a credit franchise package. Examples of replication include the establishment of

Bandhan, which was based on the ASA model. The Grameen methodology has also been

replicated by numerous banks. These forms of franchising tend to be more of a mentor-mentee

relationship, in which advice is offered but not imposed. Brand equity is not emphasized, as

replicated organizations have different names and are different legal entities (McLaughlin,

1996).

2.4: Challenges facing growth of firms

Finance is major hinderance to growth strategies. Growth, especially external growth, requires

additional capital investment which is sometimes difficult for a firm to arrange. Many financial

institutions acquire fund through initial public offers. This allows members of the public to

invest in the dynamic and fast growing sector in anticipation of good returns (Rhonda, 2010).

Human Relations Problems are also major challenges which arise when firm, management lose

personal touch with employees and customers. Motivation and morale tend to be low resulting in

inefficiency. Growth increases the functions and complexities of operations. As the number of

functions and departments increase, coordination and control become very difficult. If the

organization and management structure is not capable of accommodating them, growth may be

20
harmful (Rhonda, 2010).

Under conglomerate growth, a firm enters new industries and new markets about which the

managers know little. Managers find it difficult to find and develop people who can quickly

handle new units and improve their earning potential against heavy odds. From social point of

view also big firms may be undesirable as they may lead to concentration of economic power

and creation of monopolies which may exploit consumers. In their desire for growth firms

indulge in combative advertising. The quickening growth creates a cultural gap when society

finds it difficult to cope with technological change (Rhonda, 2010).

21
 CHAPTER THREE:

RESEARCH METHODOLOGY

3.1: Introduction

This chapter outlines the research methodology that was followed in completing the study.

Specifically the following subsections are included; research design, data collection and data

analysis.

3.2: Research Design

This research adopted a case study approach. A case study enables the researcher to have an in-

depth understanding of the expansion behavior pattern of cooperative bank. According to

Kothari (1990) a case study design is most appropriate where a detailed analysis of a single unit

of study is desired as it provides focused and detailed insight to phenomenon that may otherwise

be unclear. He refers a case study as a powerful form of qualitative analysis that involves a

careful and complete observation of a social unit. It‟s a method that drills down, rather than cast

wide.

3.3: Data Collection

Both primary and secondary data were used, primary data was collected using self-administered

interview guide while secondary data was collected by reading through the bank‟s published

reports, brochures, journals and periodicals. The target sample of this study was 15 senior staff

(Chief and Senior Managers) involved in strategy formulation in the Cooperative Bank of Kenya

22
representing various departments and subsidiary companies and were based in the bank‟s head

office. The interview guide consisted of open-ended questions. This enabled a better

understanding and an insightful interpretation of the results from the study.

3.4: Data Analysis

After field work, all the data from the interview schedules were sorted, coded and analysed.

Quantitative data was analysed through the use of a combination of descriptive statistics

particularly frequency distributions and percentages. The qualitative data was analyzed using

content analysis which is the best suited method of analyzing secondary data. According to

Mugenda and Mugenda (2003) the main purpose of content analysis is to study existing

information in order to determine factors that explain a specific phenomenon.

23
 CHAPTER FOUR :

DATA ANALYSIS, RESULTS AND DISCUSSION

4.1 Introduction

This chapter presents data analysis and findings of the study as set out in the research

methodology. The study findings aimed at establishing the contribution of growth strategies

adapted by Coop Bank to the general performance of the bank. The data was gathered

exclusively from the senior staff involved in the strategies formulation in various department of

the bank. A self administered interview guide was used as the research instrument. The guide

was designed in line with the objectives of the study.

4.1.1 Response Rate

The study targeted the 15 senior staff, who included chief and senior managers across all

departments working in Co-op Bank. However, a total of 12 managers were actually interviewed

and this made an 80% response rate.

4.1.2 Demographic Information

The findings show that Majority (60%) of the respondents were female while 40% of the

respondents were male. The findings also show that majority (80%) of the respondents have been

in the bank for more than ten years and have a working experience of more than five years in the

current department. This shows that most of the respondents were experienced in their area of

operations.

24
The findings also show that various departments are charged with specific roles in growth

orientation of the bank. The departments therefore formulate strategies that go with their

formation purpose. The senior staff further conducts strategy evaluation to monitor on their

appropriateness and contribution of the strategy towards the bank performance. Majority (70%)

of the departments review their strategies every three years thus allowing for enough time for the

implementation and evaluation. New strategies are formulated to replace the outdated strategies

while modification is done to the old but viable strategies with an aim of keeping up with

growing competition in the banking sector.

4.2 Growth Strategies adopted by Co op Bank

The findings revealed that the bank has adopted several growth strategies to gain a wide market

share and cope with the ever increasing competition in the banking industry. The bank targets

both local and international markets.

4.2.1 International Market Strategies

The findings indicated that coop bank has spread its banking operations outside their home

market through strategic alliance strategy. The recent alliance between Coop Bank and the

government of Southern Sudan is one of such strategy. The bank intends to offer SACCO‟s

financing services to the emerging SACCO‟s in that country. It therefore intends to open five

branches in entire southern Sudan to be located in the major towns.

The findings further indicated that in line with spreading its wings to the foreign market Coop

Bank introduced a Diaspora account which can be in terms of dollar or Kenya shillings.

According to the head of international relations, the account targets Kenyans leaving outside the
25
country and provides them with an opportunity to save and remit their earnings back to their

country while they continue working and staying in the foreign land. In addition introduction of

internet banking enables customers in the Diaspora to access their accounts and perform business

transactions such as money transfer, payment of bills etc without physical presence. The internet

banking is done on a trunkard platform which is reliable banking software.

4.2.2 Local Market Strategies

The findings indicate that local market is the Co op Bank major sources revenue. According to

the bank‟s managing director the local market contribute more than 70% of the bank‟s revenue.

The bank has therefore, made heavy investments to strengthen the market share and

consolidating on the gains made this far.

The local market growth strategies adopted by the bank include branch network, agency banking,

internet banking, merger and acquisition, joint venture operation, mobile banking and FOSA‟s.

The strategies have enabled Coop Bank to gain a favourable market share in Kenya and be

ranked the fourth best performing bank in profits announced in the year 2011.

4.2.3 Factors that guide the choice of Strategy in Coop Bank

The findings show that the choice of local and international strategies is usually guided by

factors such as availability of viable business opportunity, cost benefit analysis and annual

returns on investment. The findings further show that the strategies and expansion programs are

guided by the Banking Act in the constitution. They must comply with the rules and regulations

as stipulated by the Central Bank of Kenya which is the regulating body and also foreign policies

that guides foreign investment.

26
4.2.3.1 Viability of a Business Opportunity

The findings indicate that Co op Bank usually conducts a feasibility study of the available

business ideas before selecting the most viable business opportunity. Business viability not only

reflects the likelihood of the business venture succeeding but also its ability to deliver on the

Bank objectives such as creation of wealth and proper utilization of resources. The research

manager further indicated that the steps in bank‟s business viability analysis are not rigid and are

constantly modified to best fit the business situation being assessed.

4.2.3.2 Cost Benefit Analysis

The findings indicate that the bank conducts Cost-Benefit Analysis to estimates and totals up the

equivalent money value of the benefits and costs of strategies to establish whether they are

worthwhile. In order to reach a conclusion as to the desirability of a strategy all aspects, positive

and negative, must be expressed in terms of a common unit. The most convenient common unit

is money. This means that all benefits and costs are measured in terms of their equivalent money

value. The bank usually adopts the strategy that maximizes income while minimizing costs.

4.2.3.3 Return on Investment

Findings show that Co op Bank estimates the rate of returns on every opportunity before

adopting a strategy. This enables the bank to estimate the ratio of money gained or lost on an

investment relative to the amount of money invested whether realized or unrealized. The amount

of money gained or lost is referred to as interest, profit/loss, gain/loss, or net income/loss while

27
money invested is referred to as the asset, capital, principal, or the cost basis of the investment.

According to the findings Co op Bank adopt the strategy with the highest rate of returns.

4.2.4 Opportunities for future growth

According to the Marketing and Research Manager, coop bank undertakes regular and

comprehensive market research to ascertain the magnitude of the opportunities and threats in the

target market as well as the entire banking environment. According to the Manager, the bank

undertakes ventures with the highest pay offs. The bank has identified mobile money transfer as

a major opportunity that needs to be tapped due to its convenience and wide spread of the

supporting mobile phone services. Agency banking has also been identified as a very potential

strategy for the mass market.

The findings show that profitability of the ventures determines the banks priorities as well as the

amount of investment. According to the head of business planning department, both viability and

potential cash flows are carefully analyzed before committing the shareholders fund into a

project. According to business development manager, branch banking contributes the highest

returns on investments through loan book performance and the transactional charges. The branch

network strategy accounted for 70% of the profits in the previous financial year.

The marketing manager reported a spirited campaign aimed at promoting bank‟s products and

services. The bank has mostly used media such as the television and radios that have a wide

coverage, newspapers and billboards to create awareness of its services. The Sacco‟s

shareholding has provided a good advocacy to the various regions and well as core capital

contribution. The bank‟s marketing slogan” We are you‟‟ seeks to strategically position the bank

28
as the people‟s bank. The bank according to the head of public relations has enjoyed a good

public relations that has facilitated the bank growth.

4.3 Contribution of Growth Strategy to the performance of Coop Bank

4.3.1 Branch Network Expansion

The findings show that coop banks biggest share of revenue comes from local branch network.

According to the head retail banking the bank has increased its branch network to 100 branches

by the year 2012. The wide branch network is aimed at taking services closer to the people and

increasing customer base.

Majority (95%) of the respondents remarked that branches are costly to establish and maintain in

Kenya. A branch requires a substantive customer base to be profitable and to maintain its

working force which is apportioned to the specific branch. On average most branch networks in

coop bank require one to two years to break even. The respondents noted that poor location of a

branch can be an expensive mistake and therefore care is taken when opening a branch network.

Specifically branch opening is guided by availability of un tapped customers, diversification of

markets for example up market and down market. Sometimes coop bank is motivated by the

need to take services closer to the people. This explains why the bank opens more branches to an

area with existing branches like Nairobi central business district (NCBD).

The findings show that the major parameters used to measure branch performance in coop bank

includes: branch profitability, customer service standards, loan book port folio as well as staff

productivity. The bank issues targets and bench marks to increase the branch efforts and

performance. According to head Human Resource the bank hires highly qualified staff, offers
29
competitive remuneration and conducts on job training to improve staff productivity and

retention.

To increase customer base, Coop bank through the managing director initiated an account

opening campaign in the year 2010, dubbed “MD liability campaign‟‟. This has been an

aggressive campaign that aims at using existing staff to create bank awareness and referring

customers to the bank. The campaign was automated to keep track of each and every staff

referrals irrespective of the branch in which the account is based. A reward and punishment

system is used to reward those who excel and punish those who underperform. The staffs

therefore make concerted efforts to market the bank in their free time and in social gatherings to

avoid punishment and get a reward. This campaign has helped in increasing the number of

accounts opened from 3 million in 2010 to over 4.5 million customers in 2012.

4.3.2 Technological Innovations

Mobile banking and internet services provide convenience to the account holders as they can

access their bank without physical attendance to the branch. According to the head of ICT, the

use of mobile hand set has broken distance barrier because one can perform many transactions

while still at work or resting at home. This has improved real time payments of electricity bill,

house rents and loans repayments as well as fund transfer to M Pesa services. Technological

innovations such as mobile money transfers have spread very fast in the country and coupled

with increased products it poses a major challenge to the banking sectors and especially the

branch network.

30
The bank has embarked on expansive Automated Teller Machines (ATM) network, where the

bank has installed over 150 automated machines in the country. The machines are aimed at

offering cash dispensing services to the customers. In addition some ATMs are enabled to accept

deposits and this provides secure method of delivering cash when branches are closed. The

ATMs are also used in the payment of bills as well as enquires. These machines therefore help in

decongesting the banking halls and provide revenue to the banks in form of transactional

charges.

The use of technological innovation has been motivated by the ever changing needs of the

customers. Emergence of informed and high value customers who don‟t have time to visit

branches has necessitated the use of ATM as an alternative banking outlet. Lack of branches in

some remote areas has called for offsite ATMs which are managed and serviced by the nearest

branch. This strategy therefore has contributed to more customer retention because they have

access to their cash in every corner of the country. This increases the place utility of money

The findings record both positive and negative effects of technological innovations to the branch

network expansion. Majority (83%) of the respondents view technology as a way of life in the

modern world. They noted that any organization that does not embrace technology risks closure.

In Coop Bank technological innovation like integrated banking system help the bank to offer one

stop services to its customers. The customers receive many services, faster and under one roof.

The bank employees have better working environment hence more productivity. However, the

findings note that improved technology enables the customer to acquire banking services without

visiting the branches, this in essence negate the purposes of big banking halls.

31
The findings also noted that customer‟s resistance to adopt new technology and more often

prefer playing safe and sticking with the old methods of banking. The respondents also noted

lack of products knowledge on the side of the staff and this contributes to poor dissemination of

the information to the customers. This hinders the full utilization of these strategies which target

mass usage to any significant return on investment. The implication is that efforts should be

taken to train staff on the use of technological innovation before rolling over because staff are in

contact with the customers and are the source of advice. Findings noted that customers have less

resistance when a technology is well illustrated to them for instance M- Pesa has recorded high

penetration even in the remote areas which has high illiteracy levels.

Generally the findings indicate a tremendous contribution of ICT to the growth of Co op Bank

in terms of market share and revenue generating. The bank has benefited from increased

transactions as customers can assess their account anytime. The ICT has broken the geographic

barriers in reaching the under banked and the unbanked population. The findings further show

future potentials in the use of ICT innovations in the banking industry.

4.3.3 Joint Ventures Strategy

The findings indicate that through Coop Bank and SACCO‟s alliances many Front Office

Services Activities (FOSAs) have been established in the country. These are deposit taking

Sacco‟s that have been allowed to offer limited saving services to the general public. The FOSAs

offer financial services which includes deposit, withdrawal and loan services to both their

members and other general public both in the rural and urban areas. The FOSAs customers are

therefore integrated into the bank platform through the use of an integrated ATM card known as

32
SACCO link. This strategy has brought new customers to the bank customer base who would

otherwise have no account with bank.

The findings also show that the bank has diversified its investment, products and services in the

recent past. In 2008 the bank acquired Bob Mathews Company to form a subsidiary investment

company called Kingdom Securities. This has enabled the bank to offer brokerage services hence

diversifying into the investment sector. In 2011, the bank bought shares in the Cooperative

Insurance Company (CIC) hence becoming the major share holder in the company. In addition

the Coop Bank offers banking services to these subsidiary companies and this according to the

head of corporate affairs has increased the bank deposit levels which are used to lend to its

customers and to other financial institution at an interest. This translates to high profitability for

the bank.

4.3.4 Agency Banking

Agency banking as introduced in the year 2010 aimed at supplementing the branch network and

reaching the unbanked and under banked at a lower cost. The agency banking manager hails the

immense potential in the agency banking with utilizes the existing resources in the private sector

to spread the banks services to the nation. The strategy has seen recruitment of over 3000 agents

in two years since inceptions. The services are based on a franchising program and income

sharing between the agent and the bank. The appointment of agents is dependent on the business

location and registration requirements as stipulated by the bank. The bank provides the

supporting system to allow agents direct access to the bank‟s database and perform authorised

services.

33
However, according to the Quality Assurance Manager there exists variation in the provision of

services among the agents with no clear standards maintained. The customers are sceptical about

the security of their money and therefore perform few and small valued transactions while many

still prefer actual banks which have security measures in place. The findings therefore indicate

that the full potential has not been achieved.

The implication is that there should be more awareness campaigns done on agency banking

especially through mass media and cross selling within the bank. The services should be

enhanced to cater for all customers needs with services as such account opening, loan application

and loan repayment being franchised and fully performed by the agents . The respondents further

felt that agents required more training on the bank products and banking practices as such as

customer service and office etiquette. This can enable the agents offer seamless services similar

to the actual branch network. Agents should be sensitized on security measures to reduce the

risks of handling cash.

The head of the ICT department further indicated that ICT capability should be enhanced to

handle more agency services and with immediate accounts updates. The ICT is an important

component in handling and executing business transactions as well keeping records. The banking

systems have varied capacity and require regular upgrading or complete changeovers to handle

the increased customer base.

4.3.5 International Market Strategies

The findings show that coop bank has adopted many methods of remitting money to and from

abroad for both customers and non customers. These methods include Western Union, Swift

34
Money, Express Money and Money Gram. Majority (79%) of the respondents report Money

Gram as the most successful method of sending money in Co op Bank. The respondents rated the

method as ten times faster than other methods. According to the head international business, the

bank initially had a sole right of the product when it was introduced in the country. This enabled

the bank to market money gram as one of its product and this accounts to its contribution in

revenue generation despite being offered by other competitors.

Diaspora accounts which are opened either in the foreign country or here at home and franchised

through selected banks abroad have played key roles in the deposit mobilization. According to

the head of international relations, the account targets Kenyans in the Diaspora and gives them

an opportunity of safely remitting money to their loved ones at home. The account holder can

further apply for loans through the accounts while still away. In addition introduction of internet

banking enabled customers in the Diaspora to access their accounts and perform business

transactions such as money transfer, payment of bills, repayment of loans etc without physical

presence.

The international market strategies have enabled the bank to increase its market share and well as

acquiring foreign exchange to be used in the local money market. In return the bank profitability

has been positively affected.

4.4 Future development opportunities

The findings further indicated that coop bank intends to open branches in the entire East African

region so as to widen its market share. This is aimed at strategically placing the bank as a

regional financial institution.

35
The bank further aims at targeting special markets like group accounts for „chammas‟ which

have been hailed for their saving and members guaranteeing abilities. This can enable the bank to

increase the customer base and reaching the unbanked in the remote areas.

The bank has started strategies targeting the youth population. For example the Young and

Ennovative Account (YEH) were reported to have grown over the years. The bank aims at

targeting more youths who are becoming more and more creative, career progressive and heavy

spenders. The bank intends to mobilize the youth to open more accounts and this would

contribute to a bigger customer base.

36
 CHAPTER FIVE :

SUMMARY, CONCLUSION AND RECOMENDATION

5.1 Introduction

This chapter presents the summary of key data findings, conclusion drawn from the findings

highlighted and recommendation made there-to. The conclusions and recommendations drawn

are in quest of addressing the research objective which was to establish the contribution of

growth strategies in Cooperative Bank of Kenya.

5.2 Summary of Findings

5.2.1 Growth Strategies adopted by Coop Bank

The study revealed that Coop Bank has employed various methods to maintain the market share

and to increase its earnings in the highly saturated banking sector. The bank targets both the local

and international market for growth. It strives to reach the unbanked and under banked

population in the country and venture in the international markets.

The local growth strategies adopted include: mobile banking, agency banking, internet banking,

wide branch network and FOSAs. The bank is also planning offer SACCO services as well to

open five branches in southern Sudan by December 2012.

37
5.2.2 The Contribution of the Growth Strategies to the Performance of Coop Bank

The wide branch network has helped the bank to reach many people and increase the customer

base to over four million accounts by 2011. The bank has branches in many rural areas where

most unbanked population lives.

The bank in conjunction with private enterprises has adopted agency banking which is a

franchising and revenue sharing program. The bank has established over 3000 agencies since

inception. This move has helped the bank to increase on transactional revenue as well as the

mass deposit- simply referred to as cheap deposit. Using the grameen model banking, coop bank

in return lends the money to those who need loans at an interest. The bank recorded an interest of

5 billion in the year ending 2011 and targets 10 billion by the end of 2012. .

Co op Bank has adopted money transfer services which enable customers and non customers to

send and receive money from abroad. The services include: Moneygram services, Western union

and also the safaricom money transfer service M-Pesa. While all these services contribute to the

bank growth in revenue, Money gram contributes the biggest share because of its popularity and

number of daily transactions.

Coop Bank has diversified its products and services to reduce the risk. By acquiring Bob

Mathew‟s stock brokers in 2008, coop bank started trading in securities through its subsidiary

company called kingdom security. This has enabled the bank to offer investment services to the

38
customers. In conjunction with cooperative insurance company the bank has started offering

bankassurance to its customers.

5.3 Conclusions

The study concludes that coop bank has adopted several growth strategies to achieve both

internal growth and external growth. These include: branch network, Joint Ventures, mobile and

internet banking, franchising in terms of agency banking used by Coop bank to increase its

market share in the local market and also survive in the competitive banking sector.

The study concludes that emergence of many competitors and changing customer profiles are

threatening the future growth of the bank. The bank is therefore faced with the challenges of

abandoning the tradition methods of banking and embracing the modern technology and

innovations.

The study concludes that coop bank has plans to enter in another markets to exploit the

international markets The decision was made at the high management level by the senior

managers who reached an agreement to open 5 branches in southern Sudan by the end of 2012.

The strategy implementation is at advance stage with physical branch near completion and hiring

of branch personnel conducted so far.

39
5.4 Recommendations

From the discussions and conclusions in this chapter, the researcher recommends the bank to

employ modern growth strategies that would make it a bank of choice to bank customers. The

bank needs more public awareness on its products and services that can enable it to be the market

leader.

The study recommends the bank to come up with product differentiation strategies by

segmenting the customers based on their needs, size and type of business and designing products

that meet the unique needs of these customer segments and also creating a pricing strategy for

each segment. The study recommends that the bank to consider more products and services

which can appeal to the youth. The youth comprises of 42% of the population in Kenya and have

different tastes from the rest of the population. There is an upcoming niche of young generation

who are economically powerful and require a financial institution that can best meet their needs.

Targeting this niche therefore will enable the bank to broaden its customer base.

The study further recommends that agency banking should be given advertised more as its an

area with great growth potential. Agency banking uses the already established private enterprises

and saves the bank huge capital outlays of opening a branch.

The study further recommends that CBK needs to assist Kenyan banks with favourable operating

environment. Prohibitive policies regarding international markets entry should be changed to

encourage banks depending on the capital base to decide whether to enter international market or

not.

40
5.5 Recommendations for further Research

The researcher recommends that a study be done in the banking industry so as to find out the

different strategies adopted by commercial banks while responding to competition in the

industry.

The study recommends that other studies be done to evaluate the sustainability of wide branch

network in this branchless and agency banking phenomena

A study should also be conducted to evaluate the contribution of international markets in the

future growth of banking sector in Kenya

41
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 APPENDICES

Appendix I: Introduction Letter

To whom it may concern

Dear Sir/Madam,

Request for participation in a research study on the Growth Strategies adopted by Co

operative Bank as operational Orientation

I am Susan Muchiri an MBA student at the University of Nairobi. My area of specialization is

strategic management. I am currently undertaking a research on “the Growth Strategies adopted

by Co operative Bank as operational Orientation”.

I would be grateful if you could spare some time from your busy schedule and participate in

providing the required information. All the information provided will be used purely for

academic purposes only and will be treated with utmost confidentiality. Kindly contact me in

case of any queries or clarification on any of the questions.

Thank you for your cooperation.

Yours faithfully

Susan Muchiri

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Appendix 2: Interview Guide

PART A: Demographic and Operational Characteristics

1. Name of the interviewee (Optional)?

2. What is your gender?

3. Name of the branch/department/section?

4. How long have you worked in co operative bank?

5. Position held in the organization?

6. How many years have you served in the department?

7. How often is Strategy formulation process in your department?

PART B: Identification of the growth strategies and factor that influence these

Strategies

1. What specific strategies does your organization use to move into international markets:

2. What specific strategies does your organization use to expand into the local market

3. What factors guide your choice of growth strategies used in the local market?

4. What are developmental opportunities available for your organization in the future?

5 Agency banking is a form of franchising growth strategy aimed at reaching the under banked

and unbanked. Has agency banking achieved this objective this far?

6. If No what measure are taken to boost its popularity?

7. What is the average break even period for a new branch in your organization?

8. What are the guiding principles when locating a new branch in your organization?

9. How does technological innovation affect branch network expansion in your organization?
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10. What are the challenges faced by the bank while offering internet banking?

11. What is the key measurement tool used to evaluate the branches performance?

12. Cooperative bank has adopted several methods of remitting fund to and from abroad. Explain

which one has recorded the highest volume in the last five years?

13. What is the contribution of mobile banking to the number of banking transactions?

14. How has the Diaspora account contributed to the deposit mobilization?

15. How has the MD liability campaign contributed to bank customer base?

16. How has acquisition contributed to the company products diversification?

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