INFLUENCE OF ORGANIZATIONAL STRUCTURE ON PERFORMANCE OF LARGE MANUFACTURING FIRMS IN KENYA
1School of Business, Jomo Kenyatta University of Agriculture and Technology
P. O. Box 62000, 00200 Nairobi, Kenya.
2*Dr. Partrick Karanja
School of Business, Jomo Kenyatta University of Agriculture and Technology
3*Dr. Ogollah Kennedy
School of Business, University of Nairobi, Kenya.
CITATION:Kihara, A., Karanja, P., Kennedy, Ogolla. (2016). Influence of Organizational Structure on Performance of Large Manufacturing Firms in Kenya. European Journal of Business Management. Vol 2 (11). 15-29.
Even though Kenya has been praised for its robust economy and that is set to become one of the top five fastest-growing in sub-Saharan Africa, manufacturing output remains low compared to other sectors. Kenyan manufacturers have registered stagnation and declining profits of over $330 million annually and government loses of $67 million in potential tax revenue for the last five years due to contingencies. It is estimated that manufacturing companies have lost 70 per cent of their market share in East Africa and this has resulted in some firms announcing plans to shut down their plants and shift operations to Egypt. The general objective of the study was to establish the influence of strategic contingent organizational factors on performance of large manufacturing firms in Kenya by reviewing organizational structure as the study variable. The study adopted a mixed research design of cross-sectional research design and descriptive survey design and the research philosophy was positivism. The study population study was 499 large scale manufacturing companies with a sample size of 217 managers from each of the 217 companies. Data was collected through the administration of questionnaires to the relevant managers. The study findings revealed that organization structure has a significant effect on performance of large manufacturing firms in Kenya. The findings of the study revealed that majority of the companies had a specialized organization structure. Further results indicated that the nature of the span of control in majority of companies is high. On the relationship between Organizational structure and Return on Equity, the study findings revealed that departmentalization, degree of centralization and degree of specialization were positively and significantly related to ROE. Departmentalization was further found to be positively and significantly related to Profit before tax while degree of centralization and degree of specialization were found to be positively and significantly related to ROA. Based on the study findings, the study concluded that organizational structure influences performance. Organization structure has significant effect on performance of large manufacturing firms in Kenya. The sub-constructs of organizational structure that is; specialized organization structure, nature of the span of control, centralization and departmentalization influences performance positively. The study recommended that large manufacturing firms in Kenya should put in place better organizational structure strategies as it leads to better performance. The companies should ensure they have a specialized organization structure, high nature of the span of control, centralized structure and have departmentalization in the company.
Key words: Strategic contingent, organizational structure, organizational factors, Large manufacturing firms, performance,Kenya.