THE ROLE OF STRATEGIC MANAGEMENT PRACTICES ON COMPETITIVENESS OF FLORICULTURE INDUSTRY IN KENYA: A CASE OF KIAMBU COUNTY

THE ROLE OF STRATEGIC MANAGEMENT PRACTICES ON COMPETITIVENESS OF FLORICULTURE INDUSTRY IN KENYA: A CASE OF KIAMBU COUNTY BY SCHOLASTICAH MBULA MUSAU UNITED STATES INTERNATIONAL UNIVERSITY- AFRICA SPRING 2017

THE ROLE OF STRATEGIC MANAGEMENT PRACTICES ON COMPETITIVENESS OF FLORICULTURE INDUSTRY IN KENYA: A CASE OF KIAMBU COUNTY BY SCHOLASTICAH MBULA MUSAU A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfilment of the Requirement for the Degree of Masters in Business Administration (MBA) UNITED STATES INTERNATIONAL UNIVERSITY- AFRICA SPRING 2017

STUDENT S DECLARATION I, the undersigned, declare that this is my original work and has not been submitted to any other college, institution, or university other than the United States International University in Nairobi for academic credit. Signed: Date: Scholasticah Mbula Musau (644601) This project has been presented for examination with my approval as the appointed supervisor. Signed: Date: Dr. Juliana, M. Namada Signed: Date: Dean, Chandaria School of Business ii

COPYRIGHT All the rights reserved. No part of this report may be photocopied, recorded or otherwise reproduced, stored in a retrieval system or transmitted in any electronic or mechanical means without prior permission of the copyright owner. Scholasticah Mbula Musau Copyright 2017 iii

ACKNOWLEDGEMENT I would like to begin by giving thanks to the Lord Almighty for the strength, courage, and guidance he has offered to me during the process of preparing my final project for my graduate studies. I also give appreciate and acknowledge my great family for the unconditional support they offered me, and to Dr. Juliana Namada for her patience, direction and motivation that she accorded me in writing up this research May God bless her abundantly. iv

DEDICATION I would like to dedicate this proposal to my loving husband Patrick and son Gianni for the sacrifice, motivation, and support in this MBA program, without them this research would not have been probable. v

ABSTRACT The purpose of this study was to establish the role of strategic management on competitiveness in the floriculture industry in Kenya. The research was guided by the following research questions: How does strategy formulation affect competitiveness of the floriculture industry? How does strategy implementation affect competitiveness in the floriculture industry? How does strategy evaluation affect competitiveness of the floriculture industry? A descriptive research was used. The target population of this study were managers in the 21-floriculture industries in Kiambu County. The data obtained was analyzed via statistical Package for Social Sciences (SPSS) and excel. The quantitative data obtained was examined, and the findings presented in percentages, means, standard deviations, and frequencies. A regression analysis was utilized to investigate the relationship between the dependent and independent variables. The researcher distributed 63 questionnaires, 60 of them were filled and returned, making 95 percent of the response rate. The findings from the first objective established that corporate social responsibility offered by the firms help the community around. The study also revealed that most of the firms do not operate in areas affected by conflicts. Majority of the firms also revealed to have a vision statement, which defines the desired future. In addition, the findings from the study revealed that tastes, attitudes, and perceptions played a factor in leading floricultural firms to adopt new products. The findings from the second objective established that floricultural firm s implements formulated strategies and they have been able to realize their short-term strategies as well as new programs to create new activities. It was also established that resources are allocated after preparation of budgets and the firms restructuring is done if there is need to. The findings from the third objective established that most company evaluates their strategies and utilize audits help to analyses if objectives have been met. With regard to how strategy formulation affect competitiveness, it was concluded that corporate social responsibility is a good strategy when utilized to help the community around. Most firms need a vision statement, which defines the desired future. Floricultural firms to adoption of new products is determined by factors such as tastes, attitudes, and perceptions. It was also concluded that most of the firms in the floriculture industry have been able to implement formulated strategies as well as realize their short-term strategies. vi

These firms have also initiated programs to create new activities and to do so they have managed to allocate their resources effectively through preparation of budgets. With regard to strategy evaluation in the floriculture industry it was concluded that most of the companies have been able to evaluate their strategies. While that is the case, most of the firms have also been able to utilize audits to establish if the objectives have been met. Such audits have also been utilized to provide information on performance. The study recommended that there is a need for the employees in the industry to be educated on the importance of factors of strategy formulation in enabling competitiveness. Regarding strategy implementation and competitiveness it was concluded that firms in the sector need to ensure that procedures are put in place and this should be made clear to all employees. There is also a need to involve the top management steering in the implementation process and this would ensure continuous monitoring of the process. Information disseminated should also be encouraged for effective cooperation to all stakeholders. Due to the uncertainty regarding factors necessary for strategy evaluation it is necessary for the industry to ensure that the teams are well informed about use of the balanced score card and dash board in the business. For further studies the study recommended that there was a need to do a similar research in other firms in the agricultural sector so as to be able to compare the results and make conclusion. On the other hand, there is a need to undertake a study to determine the challenges facing strategy formulation, strategy implementation and strategy evaluation in the floriculture and this enabled the firms in the industry to be better prepared for any of the challenges that they may encounter during the processes. vii

TABLE OF CONTENTS STUDENT S DECLARATION... ii COPYRIGHT... iii ACKNOWLEDGEMENT... iv DEDICATION... v ABSTRACT... vi LIST OF TABLES... x ABBREVIATIONS AND ACRONYMS... xi CHAPTER ONE... 1 1.0 INTRODUCTION... 1 1.1 Background of the Study... 1 1.2 Statement of the Problem... 6 1.3 Purpose of the Study... 7 1.4 Research Questions... 7 1.5 Significance of the Study... 7 1.6 Scope of the Study... 8 1.7 Definitions of Terms... 8 1.8 Chapter Summary... 9 CHAPTER TWO... 10 2.0 LITERATURE REVIEW... 10 2.1 Introduction... 10 2.2 Strategy Formulation and Competitiveness... 10 2.3 Strategy Implementation and Competitiveness... 15 2.4 Strategy Evaluation and Competitiveness... 20 2.5 Chapter Summary... 28 CHAPTER THREE... 29 3.0 RESEARCH METHODOLOGY... 29 3.1 Introduction... 29 3.2 Research Design... 29 3.3 Population and Sampling Design... 29 3.4 Data Collection Methods... 31 viii

3.5 Research Procedures... 32 3.6 Data Analysis Methods... 32 3.7 Chapter Summary... 33 CHAPTER FOUR... 34 4.0 DATA ANALYSIS AND INTERPRETATION... 34 4.1 Introduction... 34 4.2 Demographic Information... 34 4.3 Effects of Strategy Formulation on Competitiveness... 37 4.4 Effects of Strategy Implementation on Competitiveness... 41 4.5 Effects of Strategy Evaluation on Competitiveness... 45 4.6 Chapter Summary... 48 CHAPTER FIVE... 49 5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS... 49 5.1 Introduction... 49 5.2 Summary... 49 5.3 Discussion... 51 5.4 Conclusion... 56 5.5 Recommendation... 57 REFERENCES... 58 APPENDIX I: COVER LETTER... 65 APPENDIX II: RESEARCH QUESTIONNAIRE... 66 APPENDIX III: SAMPLE FRAME... 71 ix

LIST OF TABLES Table 4.1: Response Rate... 34 Table 4.2: Gender... 35 Table 4.3: Years Worked... 35 Table 4.4: Age... 36 Table 4.5: Education... 36 Table 4.6: Years of Employment... 37 Table 4.7: Number of Employees... 37 Table 4. 8: Effect of Strategy Formulation on Competitiveness... 38 Table 4.9: Model Summary on Strategy Formulations on Competitiveness... 39 Table 4.10: ANOVA on Strategy Formulations on Competitiveness... 39 Table 4.11: Coefficient of Strategy Formulations on Competitiveness... 40 Table 4.12: Descriptive on Strategy Implementation... 41 Table 4.13: Regression of Strategy Implementation on Competitiveness... 42 Table 4.14: ANOVA of Strategy Implementation on Competitiveness... 43 Table 4.15: Coefficient of Strategy Implementation on Competitiveness... 44 Table 4.16: Descriptive on Strategy Evaluation on Competitiveness... 46 Table 4.17: Model Summary on Strategy Evaluation on Competitiveness... 46 Table 4.18: ANOVA of Strategy Evaluation on Competitiveness... 47 Table 4.19: Coefficient of Strategy Evaluation on Competitiveness... 48 x

ABBREVIATIONS AND ACRONYMS ANOVA KSHS KFC KHC SD SPSS USD -Analysis of Variances - Kenya Shillings -Kenya Flower Council -Kenya Horticulture Council - Standard Deviation - Statistical Package for Social Sciences -United States Dollars xi

1.0 INTRODUCTION CHAPTER ONE 1.1 Background of the Study Strategic Management is a concept that concerns making decisions and taking corrective actions to achieve long-term targets and goals of an organization (Bakar et al, 2011). It is a set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company s objectives (Pearce & Robinson, 2008). The business environment in which firms operate is dynamic and turbulent with constant and fast paced changes that often render yester-years strategies irrelevant (Ofunya, 2013). Strategies should therefore be put in place to cushion the businesses from the uncertainty that comes along with an unpredictable environment. Strategic management addresses the reason why some organizations succeed while others fail (Melchorita 2013; Porter 2001). Strategic management involves identifying the organization s current mission, objectives, and strategies, analyzing the environment, identifying the opportunities and threats, analyzing the organization s resources, identifying the strengths and weaknesses, formulating and implementing strategies and evaluating the results (Robbins & Coulter, 1996). Strategic management practice consists of three basic elements, strategy formulation, implementation, evaluation and control (Wheelen & Hunger, 2008). It is within these three elements that strategic management practices are manifested and is also described as the strategic management process. Strategic competitiveness is achieved when a firm successfully formulates and implements a value creating strategy (Hitt, Ireland & Hoskisson, 2013). A farm gains competitive advantage when it implements a strategy that creates a superior value for its customers and its competitors are unable to duplicate or find too costly to imitate. Organizations must also understand that no competitive advantage is permanent and therefore must keep reinventing themselves. Ireland et al (2013) states that the environment in which a company operates in determine their competitiveness. External environment which includes the industry in which the farm competes as well as those against whom it competes affects the competition actions and the strategic responses the firm take to outperform competitors and earn above average results. The general condition of the farm, the industry and the competitors influence the farm s competitive actions and responses. 1

Competitive advantage denotes a firm s ability to achieve market superiority (Evans & Lindsay, 2011). This concept is the core of strategic management, as every organization searches for a vantage point that could deliver the competitive edge against its rivals. While one way of gaining competitive advantage over rivals has been identified as achieving a better cost advantage, another way to competitive advantage is product differentiation (Porter, 1985). Product differentiation by itself was of little value unless the difference so achieved attracts and captures the imagination of customers. The needs and wants of the customer must be entrenched in the business process if the customer is to be truly satisfied. These needs and wants were through customer surveys, and then become entrenched in design to production to delivery and use (Evans & Lindsay, 2011). Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats, considering corporate strengths and weaknesses (Wheelen & Hunger, 2008). It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines. The process of strategy formulation is mainly carried out at three levels, which include the corporate level, business level and the functional level. The lower level managers drive the functional strategies, which have short-term horizons and relate to a functional area (Macmillan & Tampoe, 2000). Pursuing ways to capture valuable business strategic fits and turn them into competitive advantages especially transferring and sharing related technology, operating facilities, distribution channels, and/or customers. It is useful to organize the corporate level strategy considerations and initiatives into a framework with the following three main strategy components: growth, portfolio, and parenting. Strategy implementation is the process through which strategies are put into action throughout the organization by deriving short-term objectives from the long-term objectives and further deriving the functional tactics from the business strategy. This process assists management in identifying the specific immediate actions that must be taken in the key functional areas to implement the business strategy (Pearce & Robinson, 2008). And lastly strategic evaluation and control is concerned with tracking the strategy as it is being implemented, detecting problems or changes when deemed necessary and making the necessary adjustments (Pearce & Robinson, 2008). The review of monthly, quarterly and annual reports is one of the means management exercise their evaluation and control of a strategy. The reviews require a look at for instance the profit margins, sales; earnings 2

per share and return on investment to assist management determine the effectiveness of the strategy being implemented. Pappas et al (2007) examined the joint influence of control strategies and market turbulence on strategic performance in sales-driven organizations. Results from the survey of sales-driven organizations indicated that self, professional, activity, and output control systems had varying effects on participation in strategic activity. With increasing awareness on environmental issues and the magnitude of costs associated, it has become imperative for companies to integrate environmental efforts into their business strategy (Sindhi & Kumar, 2012). Many African countries face enormous challenges while striving to achieve sustainable development (Moosbrugger, 2007). Unlike in the developed world where corporate governance system plays a vital role, corporate social responsibility (CSR) is still in its early stages in most of the developing countries (Bedada & Eshetu, 2011). Maintaining a sustainable natural environment is crucial to the long-term future of the flower industry but producing and consuming ethically represents potentially complex and difficult choices for the flower industry (Holt & Watson, 2007). Even though the floriculture industry is facing quite a few challenges especially concerning employment conditions and environmental sustainability, today many of the companies in this industry are working towards attaining corporate social and environmental responsibility. Several initiatives undertaken by the Kenya Flower Council companies to incorporate social, economic and environmental practices into their business strategy indicate their desire to be involved in socially and environmentally responsible production. Some of these initiatives include: changing employment practices, increased adoption of codes/standards, emergence of a multi-stakeholder process, participatory auditing among others (Opondo, 2005). The horticulture industry consists of the production of fruits, vegetables, and flowers. In 2013 global vegetable production was estimated at 879.2 million tonnes in 2013 while the global export was USD 97.02 billion and the consumption of consumption of flowers was estimated in the range of USD 40-60 billion in 2011. Horticulture in Kenya is the largest foreign exchange earner generating approximately 95 billion shillings per annum (Research and Markets, 2014). Horticulture farmers in Kenya earned Kshs 3 billion more from exports in the first half of 2013. The Horticultural sub sector is the fastest growing industry within 3

the agricultural sector, recording an average growth of 15% to 20% per annum. It contributes positively to wealth creation, poverty alleviation, and gender equity especially in the rural areas. The industry continues to contribute to the Kenyan economy through generation of income, creation of employment opportunities for rural people and foreign exchange earnings, in addition to providing raw materials to the agro processing industry. The sub sector employs approximately 4.5 million people countrywide directly in production, processing, and marketing, while another 3.5 million people benefit indirectly through trade and other activities (KHC, 2015). In the developed countries, flowers are luxurious products with high social value, and in the recent years the demands for these products have increased in the global market (Getu, 2009). Most developing nations which have geographic advantage for example high altitude and natural sunlight, are adopting floriculture as a solution to achieving rapid economic growth (Frank & Cruz, 2001). Today Kenya is ranked as one of the worlds largest and most successful exporters of cut flowers and ornamentals (Hale and Opondo, 2005). This is mainly attributed to favorable climate, a solid infrastructure, liberalized economy, global positioning of the country, availability of airfreight, a productive workforce, maintenance of high standards through compliance to codes of practice, traceability, due diligence and ethical trading, massive investment on technical skills, among others (KFC, 2013). Netherlands supplies an impressive 67% of total EU imports. Other leading cut flower suppliers are Kenya (11% of EU imports), Ecuador (4%), Colombia (3%) and Ethiopia (3%). Certification is used as a form of strategy to stay competitive by the European Growers. Growers obtain certification to profile their company as professional and sustainable. Certificates open up market segments they otherwise would not be able to supply (Rikken, 2010). Social and environmental standards are important governance tools through which they seek to ensure themselves of the quality of their suppliers products and services. According to Rikken (2010), producers and traders try to sell the added value that the flowers come from guaranteed social and environmental friendly production. The driving force for the success of the industry is related to the crucial role of the auctions, the well-developed infrastructure, a drive for innovation and a strong sense of cooperation (Kargbo 2010; World Bank 2009). To offset the high costs, Dutch growers need high yields and thus an area smaller than that of Colombia, the Dutch produce more flowers (Rikken 4

2011). Growers are supported by well-developed services in terms of research and development, and an efficient distribution system that is well connected by air and by ground transportations with the most important producing and consuming countries. Colombian growers are open to innovations and have developed for instance strong expertise in biological soil decontamination. They have experience in sea transportation and good infrastructure (Rikken, 2011). The floriculture industry in Egypt is modest. In summer, it is too hot so year-round production is not possible. Advantages of Egypt are cheap labour and electricity, and there is enough water along the Nile delta (Middelburg, 2009). In Uganda, the rose consists of 80% of exported flowers. Floriculture is now one of Ethiopia s main export sectors. Wages are low, considerably lower than in Kenya and the support of the government is quite insignificant for the development of the industry (Tilman & Altenburg, 2010). Major bottlenecks however include strict regulations concerning repatriation of foreign exchange earned on exports, lack of adequate pesticide regulation, weak phytosanitary inspection and no protection of breeders rights (Gebreeyesus, 2009). In Africa, Kenya is the largest producer, followed at a distance by Ethiopia. The estimated value of flower exports in 2014 was 54.6 billion shillings with export volumes of around 136,601 tons (KFC, 2014). The Kenyan flower industry is estimated to employ over 90,000 people directly, and approximately 1.2 million people indirectly (Hale & Opondo, 2005). The main area where flower farming is done is around Lake Naivasha, Mt. Kenya region, Nairobi, central province, Athi River, rift valley and Eastern Kenya. The main export markets for the flower industry in Kenya are in Europe, including Holland, United Kingdom, Germany, France, and Switzerland; with new growing destinations for flower demands including Japan, Russia and USA. Challenges facing the Kenyan flower industry include; inadequate infrastructure which limits accessibility between farms and collecting centers, inadequate refrigeration facilities may result in reduction of quality since most products are highly perishable, the marketing system also lacks proper organization. Freight charges are high leading to less marginal profit, production cost is high due to hiked input prices, stiff competition on the international market and pests and diseases can lead to interceptions negatively impacting competitiveness of the Kenyan floriculture industry. Rikken (2011) noted that without appropriate certification, social and environmental friendly production several sales channels are not accessible. 5

1.2 Statement of the Problem Hypercompetitive business environment has pushed organizations to limits dictating the need to adopt strategic management practices that support plans, choices and decisions that lead to competitive advantage and to archive sustainability, profitability, success and wealth creation (Kourdi, 2009). There is need to operate with set goals and objectives and therefore having strategies in place is paramount to the industry to ensure sustainability and efficiency in order to remain relevant in the market. According to Porter (2011) strategic management addresses the question of why some organizations succeed, others fail and it covers the causes for company s success or failure. Hrebiniak (2006) noted that although formulating a consistent strategy is a difficult task for any management team, making that strategy work by implementing it throughout the organization is even more difficult. Several studies have been carried globally and locally on how strategic management affects competitiveness. Melchorita (2013) conducted a study on strategic management practices, competitive advantage and organizational performance. The findings were competitive advantage as part of strategic management showed a remarkable positive influence on organizational performance. Lamberg et al (2009) investigated competitive dynamics, strategic consistency and organizational survival and according to the results, strategic consistency led to both organizational survival and the most efficient change over time. Awino (2013) looked into how strategic planning affected the competitive advantage of ICT small and medium enterprises in Kenya and found that entrepreneurs cannot ignore strategic planning as significant changes in competitive advantage results from change or effective application of strategic planning. Raudan (2013) reviewed the strategic management theory and its linkage with the resource-based view of the firm s competitive advantage and the study revealed that strategy is a critical factor for attaining competitive advantage. Muogbo (2013) investigated the impact of strategic management on organizational growth and development. The outcome from the analysis indicated that strategic management was not common among the manufacturing firms but its adoption had significant effect on competitiveness and influences on manufacturing firms. However, despite the lucrtative nature and the great value contributed by the floriculture industry to the economy, there is minimal or no research on how strategic management impacts the competitiveness of this industry. Therefore this study seeks to establish the 6

relationship between strategic mangement practises and competitiveness in the floriculture industry in Kenya. 1.3 Purpose of the Study The purpose of this study is to examine how strategic management affects the competitiveness of the floriculture industry in Kenya. 1.4 Research Questions The research was guided by the following research questions: 1.4.1 How does strategy formulation affect competitiveness of the floriculture industry? 1.4.2 How does strategy implementation affect competitiveness in the floriculture industry? 1.4.3 How does strategy evaluation affect competitiveness of the floriculture industry? 1.5 Significance of the Study 1.5.1 Academicians and Researchers The research findings makes a great contribution to the world of academia as researchers or academicians who might be reseaching on the same topic may use this research findings as a point of reference considering that this topic has not been widely researched. 1.5.2 Government and Policy Makers The floriculture creates employment opportunities for the people of Kenya. The findings helped in identify gaps and areas that require assistance. The government and other key stake holders in policy making can use this study to be able to come up with ways of working together in this industry. The study also shed light on ways in which to increase the competitive advantage which increases both domestic and foreign income. 1.5.3 The Floriculture Industry The study provided data for floricultural firms in Kenya and mainly in Kiambu County in relation to strategic management practises. It was put forth recommendations that assists the floriculture industry in knowing the importance of strategic management if it is to be competitive in the global marketand how to it positively impacts the business. It provides 7

insights on how to go about putting strategies in place, who is to be involved in implementation and how to sustain these visions to achieve the desired results. 1.6 Scope of the Study This study focused on the responses fromflower farms in Kiambu County in Kenya on strategic management practises in their farms. It also covers the ways in which strategic management practises relate to competitiveness in the flower industry. Demographically, the study was limited to Kiambu County Kenya, with the assumption that the responses represent the views of other farms in the country. 1.7 Definitions of Terms 1.7.1 Floriculture Or Flower Farming This is a discipline of horticulture concerned with the cultivation of flowering and ornamental plants for gardens and for floristry, comprising the floral industry (Kenya Flower Council Data, 2014). 1.7.2 Strategy Strategy be defined as the art and science of formulating, implementing, and evaluating cross functional decisions that enable an organization to achieve its objectives (David, 1997). 1.7.2 Strategy Control This is the act of taking measures that orchestrate outcomes as closely as possible with plans (Pearce & Robinson, 2007). 1.7.3 Strategy Evaluation This is the process of continuously reviewing and comparing the actual performance against the desired performance to determine if the desired results are being accomplished such that corrective measures may be taken if warranted (Pearce & Robinson, 2007). 8

1.7.4 Strategy Formulation Strategy formulation refers to the way of selecting the most appropriate course of action for the comprehension of organizational goals and objectives and thereby achieving the organizational vision (Wheelen & Hunger, 2008). 1.7.5 Strategy Implementation Strategy implementation is the process through which strategies are put into action throughout the organization by deriving short-term objectives from the long-term objectives and further deriving the functional tactics from the business strategy (Pearce & Robinson, 2008). 1.8 Chapter Summary This chapter looked at the background information on strategic management on competitiveness of firms. This chapter also looks at the problem statement and the research questions. Chapter two looks into literature related to strategy management practises. It also presents empirical literature relating to strategy management practises and competitiveness through summary of the information from other researchers who have previously carried out research on strategy management and competiveness. Chapter three analyses the methodology that were applied in this research and the population and target size was also be defined. Chapter four looks at the data analysis methods applied while chapter five discusses the findings in line with the findings from previous studies. 9

CHAPTER TWO 2.0 LITERATURE REVIEW 2.1 Introduction This chapter reviews literature related to strategy management practises. It presents competitiveness through summary of the information from other researchers who have previously carried out research on strategy management and completeness. It lays focus on the theoretical foundation of strategy management practises among the flower farms in Kenya. 2.2 Strategy Formulation and Competitiveness Strategy formulation includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines. It is achieved by reviewing key objectives and strategies of the organization, identifying available alternatives, evaluating the alternatives and deciding on the most appropriate alternative (Wheelen & Hunger, 2008). The process of strategy formulation is mainly carried out at three levels, which include the corporate level, business level and the functional level. The lower level managers drive the functional strategies, which have short-term horizons and relate to a functional area (Macmillan & Tampoe, 2000). Taiwo and Idunnu (2010) examined the impact of strategic planning on organizational performance and survival. The study evaluated the planning-performance relationship in organization and the extent to which strategic planning affected performance of First Bank of Nigeria. The findings indicated that planning enhances better organizational performance, which in the long term impacts its survival. Bakar et al, (2011) studied the practice of strategic management in construction companies in Malaysia. The findings of the research showed that most of the firms practicing strategic management had a clear objective, a winning strategy to achieve the objective and a sound mission statement to guide the organization towards success. Strategy formulation is long range planning and is concerned with developing a corporation s mission, vision and policies. A re-examination of an organization s mission and objectives must be done before alternative strategies can be generated and evaluated (Wheelen & Hunger, 2006). Taiwo and Idunnu (2010) examined the impact of strategic 10

planning on organizational performance and survival. The study evaluated the planningperformance relationship in organization and the extent to which strategic planning affected performance of First Bank of Nigeria. The findings indicated that planning enhances better organizational performance which makes it more competitive, which in the long term impacts its survival. Bakar et al, (2011) studied the practice of strategic management in construction companies in Malaysia. The findings of the research showed that most of the firms practicing strategic management had a clear objective, a winning strategy to achieve the objective and a sound mission statement to guide the organization towards success. 2.2.1 Vision and Mission Statement A company mission is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market and technology terms (Pearce & Robinson, 2013). It embodies the business philosophy of the firm s strategic decision makers, implies the image the firm seeks to project, reflects the firm s concept and indicates the firm s principal product or service that it attempts to satisfy. A mission is a statement and not a measurable target but of attitude, outlook and orientation. According to Pearce & Robinson (2013) formulating a business mission is best understood by thinking about the business at its inception. Typically, it begins with beliefs, desires and aspirations. These fundamentals are based on the product or service being provided, how production is done and if it satisfies the consumer s needs, how the business is managed and grow and the profitability. Components of the mission statement are specifications of the basic products and service, specification of the primary market, and specification of the principal technology for production or delivery (Pearce & Robinson, 2013). There are three economic goals that guide the strategic direction of almost every business organization. These are survival, growth and profitability. A firm is able to survive when it is capable of satisfying the aims of its stake holders. Profitability is the mainstay goal of any organization and it s the clearest indication of a firm s ability to satisfy the principal claims and desires of employees and stakeholders. A firm s growth is tied inextricably to its survival and profitability. Growth means change and proactive change is essential in a dynamic business environment (Pearce & Robinson, 2013) Research according to Pearce & Robinson (2013) shows that there is a new trend when it comes to mission components; these are sensitivity to customer wants, concern for quality 11

and statements of company vision. The customer is our top priority means that the overriding concern for the company is customer satisfaction. Quality is job one indicates that quality should be the norm. A vision statement presents the firms strategic intend that focuses the energies and resources of the company on achieving a desirable future. 2.2.2 Environmental Analysis The existence of political uncertainty is a worldwide phenomenon that affects most national bond and stock markets (Beaulieu, Cosset & Essadam, 2005). Jorian and Goetzmann (1999) as mentioned in (Beaulieu et al, 2005) report that activities of political origin have caused market interruptions in 25 countries including; Chile, France, Germany, Japan and Portugal. A major consideration for most managers when formulating strategy is the direction and stability of a nation (Pearce & Robinson, 2009). Pearce and Robinson maintain that political issues define the legal and regulatory parameters within which firms must operate. Constraints can be placed on firms through tax programs, anti-trust laws, minimum wage legislation, pollution and pricing policies. Ireland et al (2013) argue that regulations formed in response to new laws often influence a firm s actions. According to Pearce and Robinson (2008) laws and regulations are commonly restrictive and they tend to reduce potential profits, despite the fact that some political laws are designed to benefit and protect firms such as patent laws, product research grants and government subsidies. Therefore, in order to deal with the political issues; firms need to develop a political strategy to influence government policies that affect them (Ireland, et al, 2013). Furthermore, studies by Ozer, Alakent and Ahsan (2010) indicate that as a result of a firm s propensity for political engagement, organizations get involved in corporate political strategies. In addition; Holburn and Vanden Bergh (2008) say that the need for firms to have an effective political strategy is heightened by the effects of global governmental policies on a firm s competitive position. In 2008, Kenya was confronted with political unrest which had an effect on the sector for a few weeks. Flowers could only be exported with difficulty and some farms did not get the flowers out for some days (Rikken 2011) In a bid to evade obsolescence and promote innovation, a company must be aware of technological changes that might influence its industry (Pearce & Robinson, 2008; Euchner, 2011; Sinha and Noble, 2008). Ireland et al (2013) says that the importance of 12

awareness efforts is supported by the findings that early adopters of technology often achieve higher market share and earn high returns. It is therefore of paramount importance to firms to continuously scan their external environment, to identify new emerging technologies that could give them a competitive edge. According to Pearce and Robinson (2008) companies operating in turbulent environments must scan their environments for an understanding both of the existing technological advances and probable future advances that can affect their products and services. The importance of technological forecasting cannot be overstated since it can help protect and improve the profitability of firms in growing markets. The internet is a significant technological development with a remarkable capability to provide quick access to information. Many companies continue to study the opportunities availed by the internet to be able to create more value for customers and anticipate future trends (Ireland, et al, 2013). Technological developments have given a competitive advantage. For example, ebay s iphone application is arguably the largest mobile commerce in the world; registering $600 million in volume in 2009 to between $1.5 billion and $2 million in 2010 (Ignatius, 2011). Societal factors that affect firm operations involve beliefs, attitudes, opinions and lifestyles of persons in the firm s external environment (Ireland, et al, 2013; Pearce & Robinson, 2009). The scholars contend that these elements are as a result of cultural, ecological, demographic, religious and ethnic conditioning. As social attitudes change, the demand for various products and services also change. Profound social changes in the recent years that continue to affect firms include: shift in age distribution; accelerating interest of consumers and employees in quality-of-life issues; and entry of a large number of women to the labor market (Pearce & Robinson, 2009). The flower industry boasts of employing more women than men as according to statistics 90% of the employees are women. Pearce and Robinson (2009) agree that forecasting social changes effects on business can be a daunting task; however, informed estimates of alterations such as ethical standards, religious orientations, changing work values- can help a strategizing firm in its attempts to flourish. The floriculture sectors suffer a lot of societal pressure to employ from the same environment it s operating in for the sake of the farms being environmental serving organization. Economic environment refers to the nature and direction of the economy in which a firm (Chua & Tsiaplias, 2011; Pearce & Robinson, 2009). Ireland et al (2013) states that firms generally seek to compete in a relatively stable economy with potential for growth. Because 13

of the changing consumption patterns in the industry, firms must continually consider economic trends that would affect them (Ireland et al, 2013; Pearce & Robinson, 2009). Managers should consider the following factors both at national and international level: the availability of credit, the level of disposable income, the propensity of the people to spend, inflation rates, trends in the growth of the gross national product. 2.2.3 Strategic Objectives In order to know how best to compete, one needs to know the way competitors measure themselves, their strategy to date, their major strengths and weaknesses and likely future strategy (Wheelen & Hunger, 2006). Other ways are to have competitive personnel, take part in trade fairs, purchase the competitor's product and take it apart, or indulge in "espionage". In identifying the competitor's strategy to date, it is not enough to believe what they say but to reconstruct their strategy. Evaluating resources is difficult. It is essential to look at their production, marketing, financial and management resources. On the basis of these first three, it is possible to guess the future. (Porter, 1985) Ireland et al (2013) says that an industry s profit potential is determined by the five forces of competition: the threat posed by new entrants, the bargaining power of suppliers and customers, product substitutes and the industry of rivalry. The collective strength of these forces determines the ultimate profit potential in an industry (Porter, 1979).New entrants to a market pose a threat because they bring new production capacity, the desire to gain market share and resources (Pearce & Robinson, 2009; Ireland et al, 2013). Porter (2008) writes that the threat of entry puts a cap on the profit potential of an industry. He maintains that when the threat is high, the existing companies must hold down their prices or boost investment to deter new competitors. According to Karake (1997) an industry with above average rate of entrance in the market is likely to be associated with higher environmental turbulence. Karake (1997) defines supplier power as the capability of suppliers to bargain on prices. Karake maintains that an input supplier can raise prices, thereby, leading to increase in environmental turbulence. Suppliers can exert bargaining power by increasing prices or reducing quality of goods and services (Porter, 2008; Pearce & Robinson, 2009; Ireland et al, 2013; Dess, Lumpkin & Eisner, 2008). Bhattacharyya & Nain (2011) argue that customers bargain for higher quality, greater levels of service in order to reduce their costs. Pearce & Robinson (2009) argue that consumers can play competitors against each other by demanding low prices, high quality or more 14

services. According to Ireland et al, (2013) customers are powerful when: they purchase a large portion of an industry s output; they could switch to another product at little. Karake (1997) adds that the more bargaining power customers have the more environmental turbulence firms face. Porter (2008) defines a substitute as a product or service that performs the same or similar function as an industry s product by different means; videoconferencing is a substitute for travel. Porter maintains that when the threat of substitutes is high industry profitability suffers and it offers and attractive price-performance trade-off to the industry s product. According to Karake (1997) the level of environmental turbulence and uncertainty is also affected by product substitutes. Karake argues that the arrival of new substitutes into the market presents new technologies whose prices are likely to decline over the years or months due to the learning curve thus threatening the survival of existing products Ireland et al (2013) postulate that actions taken by one firm in an industry invites competitive responses. Sirmon et al, (2010) argue that companies within an industry are rarely homogenous since they differ in capabilities and resources as they seek to differentiate themselves. Porter (2008) in the five competitive forces that shape strategy states that rivalry among existing firms takes forms such as: price discounts, new product introduction, advertising campaigns and service improvements. Designing viable strategies for a firm requires a thorough understanding of the firms industry and competition. Four key areas must be addressed which are boundaries of the industry, structure of the industry, competitors and the major determinants of the competitors. Defining industry borders enables the firm to identify its competitors and producers of substitute products and knowing where the boundaries of the industry begin and end (Pearce & Robinson, 2013). In order to identify a firm current and potential competitors firms look at how other firms define the scope of their market, how similar are the benefits customers derive from their products and services and how committed they are to the industry. Identifying the competitors is milestone in development of strategies that help the firm stay on course and on top of their game (Pearce & Robinson, 2013) 2.3 Strategy Implementation and Competitiveness Short term objective if well-developed provide clarity a powerful motivator and facilitator of effective strategy implementation. Functional tactics translate business strategy into daily activities that people need to execute. Outsourcing nonessential functions normally 15

performed in-house frees up resources and time of key people to concentrate on leveraging the functions and activities critical to the core competitive advantages around which the firm s long-range strategy is built. Policies are powerful tools that simplify decision making by empowering operating managers and their subordinates. Policies can empower the doers in an organization by reducing the time required to decide and act. Rewards that align manager and employee s priorities with organizational objectives and shareholder value provide very effective direction in strategy implementation (Pearce & Robinson, 2013) Short-term objectives are more consistent when they clearly state what is to accomplished, when is accomplished and how its accomplishment is measured (Pearce & Robinson, 2013). This can be used to monitor both the effectiveness of each activity and the collective progress across several intended activities. Measurable objectives make misunderstandings less likely among interdependent mangers who must implement action plans. Although all objectives are important some deserve more priority because of a timing consideration or their particular impact on a strategy s success. If priorities are not established conflicting assumptions about the relative importance of objectives may inhibit progress toward strategic effectiveness. The link between short-term and long term objectives should resemble cascades through the firm from basic long term objectives to specific long term objectives in key operation areas (David, 2009). According to Mintzberg and Quins (2004), 90% of well-formulated strategies fail at implementation stage and only 10% of formulated strategies are successfully implemented. The successful implementation of strategy is fully dependent on involvement of all the stakeholders in an organization. Communicating progress of implementing the strategy to the stakeholders assist them in determining whether corrective action is required (Pearce & Robinson, 2008). Njagi and Kombo (2014) examined the effect of strategy implementation on performance of commercial banks in Kenya. Results revealed that there was a strong relationship between strategy implementation and competitiveness. 2.3.1 Action Planning Strategies are implemented by everyone in the organization. Implementation involves establishing programs to create new activities, budgets to allocate funds and procedures to allocate the day-to-day details (Wheelen & Hunger, 2006). A matrix of change is proposed 16

to help managers decide how quickly change should proceed, in what order changes should take place and whether the proposed systems are stable and coherent. According to Pearce and Robinson (2008), a generic strategy is a core idea about how a firm can best compete in the market place. Lynch (2008) defines generic strategies as the three fundamental strategies of cost leadership, differentiation and focus. Porter (1980) as mentioned in Lynch (2008) claimed that there were only three strategies that a business could undertake. According to Porter (1980) low cost leadership it is a set of actions taken to produce goods or services that are acceptable to customers due to the uniqueness of low price charged relative to competitors. Lynch (2008) says that the low cost leader in an industry has built its structures and operations in a way that deliver the lowest costs in that market. Lynch maintains that having low costs can create competitive advantage. Gehlhar et al, (2009) postulate that appropriate process innovations are necessary for successful use of cost leadership strategy. Ireland et al (2013) argue that firms associated with low cost strategy normally sell standardized goods or services. Low-cost leaders take advantage of the economies of scale; they implement cost-cutting techniques, press for reductions in overhead cost and consequently use volume sales technologies to push them up in the learning curve (Pearce & Robinson, 2008). Customers with a special sensitivity for a particular product attribute are commonly targeted with differentiation dependent strategies (Pearce & Robinson, 2008). Pearce and Robinson maintain that by stressing the product attribute customer loyalty is built which primarily translates in a firm s ability to charge premium prices for its products. Lynch (2008) says that success in this strategy can be achieved through injection of extra cash to cater for advertising. Firms opt for focus strategy to utilize their core competencies to serve the needs of a specific niche market (Ireland et al, 2013). 2.3.2 Coordination of Activities Wheelen and Hunger, (2006) state that before plans can be lead to actual performance, a corporation should be appropriately organized, programs should be adequately staffed and activities should be directed towards achieving the desired objectives. According to Ireland, Hoskisson and Hitt, (2009) a competitive response is a strategic or tactical action that a firm takes to counter effects of competitor s action. Dess et al, (2008) argue that before initiating a response a firm need to evaluate what the competitor s action is likely to be. 17