Analysis of Organic Growth Strategies on Performance of small and medium sized Enterprises: Case of Thika Sub-County, Kenya

Abstract

Small and Medium-sized Enterprises (SMEs) play an important economic role in Kenya. The sub-sector contributes to an estimated 20 percent of the GDP and employs 85 percent of the Kenyan workforce. The purpose of the study was to analyze the influence of organic growth strategies on the performance of SMEs in Thika sub-county, Kenya. The study was guided by the Ansoff’s Matrix and Penrose’s (1959) growth theories and the Balanced Scorecard performance theory by Kaplan & Norton (1992) in the measurement of performance of SMEs. The study was guided by the following null hypothesis: There is no relationship between penetration, market development, product development and diversification strategies on the performance of SMEs in Thika Sub-county. Literature was reviewed on the concept of growth in enterprises, definition of SMEs, organic growth strategies and the concept of performance of enterprises. A conceptual framework was also developed. The organic growth strategies formed the independent variables while the performance of SMEs was the dependent variable. The strategy implementation conditions formed the intervening variable. The central thesis of the study was that organic (internal) growth strategies are core ingredients necessary for spurring growth of SMEs and in turn enhancing their performance. The study was a correlational study. It was located in Thika SubCounty in Kiambu County, Kenya. The study targeted 4805 SMEs within the Sub-County. Proportional stratified random sampling technique was used to sample 36 SMEs. The unit of analysis was the 36 CEOs/ Marketing Managers of the sampled SMEs, who were purposively chosen due to their superior knowledge of the SMEs. Data was collected using Organic Growth Strategies Questionnaire (OGSQ). Quantitative data was coded into a computer sheet that was used to enter data in Statistical Package of Social Science (SPSS) program (version 21.0). Quantitative data will be presented in frequency distribution tables and analyzed using mean, percentage, Pearson-Product correlation coefficient and linear regression. The significance of the results was tested at .05 significance level. Qualitative data was analyzed thematically. The study found out that penetration, market development, product development and diversification strategies positively influenced the performance of SMEs. The four independent variables account for 44.9% of the total variability of performance of SMEs. Penetration and market development strategies added statistically significantly to the prediction of performance of SMEs. The product development and diversification strategies should approached with caution as they are much riskier. The study concluded that SMEs should embrace the organic growth strategies to spur growth of their enterprises. The study recommended that the government should create a Ministry of Micro, Small and Medium Enterprises to fund the implementation of the organic growth strategies developed by SMEs and provide technical support in market research, ideas incubation and capacity building of the CEOs/Owners of the SMEs. Finally, the study recommended that similar studies to be carried in other counties in Kenya. Also, further study should be conducted to analyze the influence of inorganic strategies on performance of SMEs.