Strategic Leadership Direction and Strategy Implementation in Commercial Banks in Kenya

Kenya’s banking sector continues to face significant challenges emanating from the rapidly changing operating environment. Growth within the banking industry has been constrained by factors such as an increased volume of non-performing loans and weaknesses in corporate governance structures. The collapse of the Chase Bank, Dubai Bank, and Imperial Bank is a good example to highlight a critical gap in governance and strategic leadership and, in particular, the implementation of effective risk assessment strategies. This study investigated the impact of strategic leadership direction on strategy implementation in Kenyan commercial banks. McKinsey 7-S and strategic leadership theory were the theoretical models that served as the basis for the literature review. A descriptive study design was used. A total of 126 respondents from a variety of banks were selected for the study, and standardized questionnaires were used to gather primary data. The results indicated that every element of strategic direction had a substantial impact on the implementation of strategy within commercial banks, as evidenced by descriptive values surpassing the midpoint of the Likert scale, which is three. The study revealed that strategic direction positively and significantly influences strategy implementation in Kenyan commercial banks. These findings highlight the importance of strong leadership guidance in improving plan execution and overall organizational performance. 

Introduction

The contemporary business landscape is increasingly volatile, dynamic, and difficult to predict, requiring organizations to continuously design and refine their strategies in an effective and adaptive manner (Ng’ang’a, 2018). The execution of strategies to be successful, managers must be highly alert and capable of identifying obstacles within their institutions, diagnosing implementation challenges, and ensuring that planned activities are executed efficiently. Senior managers have a duty to drive this process by setting the pace for effective execution and ensuring that strategic objectives are met within the shortest possible timeframe (Olakaet al., 2018).

Strategic leadership has emerged as a central factor influencing organizational success, as leaders determine not only the direction of the organization, but also its capacity to adapt to changing business environments. According to Sarfraz (2017), strategic leadership entails the ability to anticipate future trends, interpret information to develop alternative scenarios, and build networks with stakeholders, such as partners, customers, and competitors.

Strategic leadership has emerged as the most significant and widely used leadership approach and is seen as moving leadership away from a concern with the organization’s internal dynamics to involvement with its strategic alignment in the external environment (Abdow, 2015). Schoemakeret al. (2018) further conceptualized strategic leadership as the ability to foresee environmental shifts, evaluate opportunities and threats, and facilitate employee adaptation to organizational changes essential for growth.

Thus, the role of top executives is multifaceted—they provide strategic direction, shape institutional culture, and drive implementation processes. Strategic leadership involves competencies, such as absorptive capacity, adaptive capacity, and managerial wisdom (Priadanaet al., 2021), which enable leaders to align resources and people with organizational goals.

According to Makori (2020), the strategic leadership process comprises four steps: competence, formulation of vision, communicating the vision, and helping others realize it. Examples of leadership approaches that guarantee that all the resources necessary for the successful execution of a strategy are available when needed include resource allocation and top management assistance. Managers play a critical role in ensuring that an institution's structure is optimally suited to the intended strategic plan (Salam, 2017).

Various studies highlight the key dimensions of strategic leadership, including the determination of strategic direction, ethical leadership, human capital development, and the establishment of appropriate organizational controls (Nthini, 2013; Wakhisi, 2021). A key element of the strategic management system is strategy implementation, which involves implementing an authorized plan. Businesses that successfully execute their goals outperform those led by managers who lack the requisite expertise (Hyväri, 2016). Therefore, effective strategic leadership requires successful implementation. Hyväri (2016) asserted that obstacles such as competing priorities, lack of support from upper management, inappropriate organizational structures, interdepartmental disputes, and poor communication might occasionally arise during the implementation of a strategy. Linking planned and achieved goals is essential for successful strategy execution, which aims to accomplish the organization's vision (Rajasekar, 2014).

Organizations tend to slow the strategy implementation process by ensuring the harmonization of various departments and organizational capabilities (Naranjo-Gil & Hartmann, 2016). According to Dabari and Saidin (2015), strategy implementation is highly dependent on managerial competency, organizational structure, and resource capability. Managerial competency is critical to successful strategy implementation, as managers are key in providing leadership, control, and direct, decision-making, and planning skills that are necessary to achieve outlined objectives (Kotter, 2014).

Kenya’s banking industry has undergone substantial transformations driven by technological advancements, increased competition, mergers and acquisitions, and evolving regulatory frameworks (Central Bank of Kenya, 2016). These changes necessitated the adoption of innovative strategies to improve customer retention, streamline operations, and enhance competitiveness. As such, strategic leadership has become essential in ensuring that strategies are not only well designed but also effectively implemented within the sector.

Statement of the Problem

Kenya’s banking industry functions in a dynamic and ever-changing economic landscape that is influenced by both internal and external factors. According to the Kenya Financial Stability Report (2023), strong capital and liquidity buffers accumulated over time through retained earnings have kept the industry relatively resilient to credit and interest rate shocks. To protect the sector from new financial threats, regulatory bodies have also taken several prudential actions (Central Bank of Kenya, 2023).

Despite this resilience, external factors such as rising inflation in the economy driven by global disruptions in energy, food, and fertilizer supply chains linked to the Russia–Ukraine conflict have heightened credit risk exposures for banks and other financial institutions. Global economic instability, supply chain challenges, and energy crises have further compounded uncertainty in the banking industry (Accenture, 2023). Interestingly, while the operating environment has been challenging, the sector continues to post strong performance indicators. For instance, the industry’s profit before tax (PBT) increased by 22% to KSh 240.3 billion in the year 2022, up from KSh 197.0 billion in the year 2021, with large banks accounting for a significant share of these profits (Central Bank of Kenya, 2023).

However, overall growth masks persistent structural weaknesses. The industry continues to grapple with the issues of non-performing loans, weaknesses in governance, and gaps in risk management practices (Gathaiya, 2017). The collapse of three commercial banks, Chase Bank, Dubai Bank, and Imperial Bank, underscored the sector’s vulnerability to weak corporate governance and inadequate strategic leadership in organizations’ risk management. These incidents have raised critical concerns about the ability of bank leadership teams to effectively implement strategies that ensure stability and sustainability.

To respond to these pressures, many commercial banks have turned to strategic management practices to enhance their competitiveness and operational resilience (Kimeu & Maina, 2018). Although prior research has examined various determinants of strategy implementation, the majority of research on the Kenyan banking sector has not really examined the function of strategic leadership direction in this crucial process (Dahriet al., 2019; Lear, 2016; Njiri, 2016). Furthermore, there is a knowledge gap regarding how leadership direction influences strategy implementation in Kenyan commercial banks because previous research has frequently concentrated on various settings, regions, or industries.

Although the above studies were carried out on strategic leadership and its relationship with strategy implementation, the areas and scope of focus were different from those of the banking industry in Kenya. Moreover, some studies do not have specific objectives to establish the association between key aspects of strategic direction and strategy implementation. Therefore, this study seeks to bridge the existing gap by establishing the effect of strategic leadership direction practices on strategy implementation in commercial banks in Kenya.

Research Objective

To establish the effect of strategic leadership direction on strategy implementation in commercial banks in Kenya.

Research Hypothesis

H₀: Strategic leadership direction has no significant effect on the implementation strategy of commercial banks in Kenya.

Theoretical Review

Strategic Leadership Theory

Strategic leadership theory stems from the Upper Echelons Theory proposed by Hambrick and Mason (1984) with the aim of understanding the influence of senior executives on strategic decisions and organizational outcomes. Strategic leadership theory extends this perspective by examining how leaders shape organizational purposes, missions, and strategies (Munyaoet al., 2020). According to this theory, leaders mobilize resources and guide implementation processes that sustain competitive advantage. In addition, the theory indicates senior executives can influence employees to effectively aid in the attainment of set organizational goals and objectives (Muthaa & Muathe, 2018).

In this study, strategic leadership theory was used to show how strategic leadership practices affect organizational performance. As indicated by Kunguet al. (2020), leaders at the strategic level must develop knowledge and awareness and the ability to think creatively and be capable of creating and connecting ideas. Therefore, strategic leaders play a vital role in providing strategic directions and opportunities for competency development to foster growth. Strategic leadership theory helps explain how leadership practices such as vision setting, competence building, and strategic control influence strategy implementation in Kenyan commercial banks.

The McKinsey 7-S Model

The McKinsey 7-S model proposed by Peters and Waterman (1982) and later adopted by McKinsey consulting in organizational analysis examines seven interrelated factors: strategy, structure, systems (hard elements), skills, staff, style, and shared values (soft elements). Hard elements are more tangible and easily documented through organizational policies and structures, whereas soft elements are less formalized but equally fundamental in shaping organizational behavior and performance (Manage, 2007).

The model posits that organizations achieve effectiveness through a balanced alignment among all seven elements. Changes in one factor affect others and require coordinated adjustments. In periods of strategic change, aligning structures, systems, and leadership culture is essential for successful strategy implementation. Previous studies by Meru (2015) and Muchuku (2020) applied the model to explain how internal alignment influences strategy implementation processes in various organizations in Kenya. In order to investigate how strategic direction interacts with other organizational elements to impact strategy execution in Kenyan commercial banks, this study uses the 7-S model as a theoretical foundation.

Empirical Review and Conceptual Framework

Strategic direction is critical in influencing the performance of an institution in implementing such strategies. Mwangi (2014) conducted a study on the variables that influence the execution of strategies in Kenyan government-owned universities. She points out that many higher education institutions are aware of what their clients anticipate and what they must do to succeed. Despite the fact that a good strategy execution is essential for any institution, many private and public institutions find it difficult to translate developed plans into effective activities. The study overlooked the fact that strategic direction dictates how strategies are implemented, despite Mwangi's focus on several elements that contribute to institutional effectiveness.

Mapetereet al. (2012) investigated state-owned enterprises in Zimbabwe and found that many organizations failed to craft and articulate compelling strategic visions, resulting in poor implementation outcomes. Although these findings are instructive, their applicability is limited to public entities and may not be directly generalized to private sector organizations, such as the target group for the current study.

Ng’ang’a (2018) assessed the impact of strategic direction on the performance of tourism-related government agencies in Kenya. The study methodology utilized a cross-sectional survey design that incorporated both quantitative and qualitative approaches. Data from 420 respondents were gathered across different organizational levels, including those serving management and non-management employees. The findings revealed that strategic direction significantly influences organizational performance. Senior and middle managers were central in offering strategic direction, whereas lower-level employees primarily handled the implementation process. This study, however, focuses on the tourism sector, which operates under strategic conditions different from banking.

Through a case study of Telkom Kenya, Wairimu (2016) researched the factors influencing its implementation. This study found that appropriate organizational design, cultural alignment, and change management are essential for translating strategies into operational success. On a broader scale, Varelas and Apostolopoulos (2020) examined strategic leadership practices in Greek commercial banks and identified strategic direction and balanced organizational controls as the key determinants of successful strategy execution. The research findings revealed that strategic leadership actions, such as strategic direction and creating balanced organizational controls, have a positive and statistically significant relationship with successful strategy execution. If the business is to fulfil its strategic goals of maintaining its competitiveness in the market, the research advises the leadership, especially the CEO, to concentrate resources on providing the strategic direction of the firm. The effectiveness of a strategy's implementation is also impacted by the balance between financial and strategic controls. A strategic leader generates wealth by striking a balance between a long-term focus on strategic controls and the limiting impact of financial controls. Fig. 1. Below shows a conceptual framework that describes the link between the independent and dependent variables of the study. The independent variable is strategic direction measured by strategic vision, mission, and objective. The dependent variable is strategy implementation, which target to find out the level of achievement of strategic goals and objectives, organizational competitiveness, and timely and quality of service delivery.

Fig. 1. Conceptual framework.

Research Methodology

This study used a descriptive design. This design is appropriate for collecting detailed information about phenomena as they exist in their natural settings and for obtaining data that explain current conditions, opinions, and practices (Cooper & Schindler, 2010). The target population for this study comprised employees in management positions across all 42 commercial banks licensed by the Central Bank of Kenya (CBK) as of July 31, 2023. This study adopted a census approach to include all commercial banks, thus ensuring comprehensive coverage of the target population. Based on the population size and desired precision, a sample size of 126 respondents was determined using Yamane’s (1967) formula. Stratified random sampling was applied to select respondents, where strata were formed based on job titles. These comprised branch, operations, and human resource managers.

The primary data were collected using a structured questionnaire. The questionnaire was designed to capture information on strategic leadership directions and implementation practices. The instrument consisted of both closed- and open-ended questions and Likert-type scale items. Structured questionnaires were chosen because they are efficient, cost-effective, and allow standardized data collection across multiple respondents (Saunderset al., 2019). The questionnaires were self-administered to various respondents within the selected banks. This method was preferred because it gave the respondents ample time to respond to all questions, thus increasing the response rate and improving the accuracy and completeness of the data collected (Creswell & Creswell, 2018).

To verify the validity and reliability of the research tool, a pilot study was conducted with 26 workers selected from two commercial banks in Tier I and Tier II categories. KMO and Bartlett’s Test, was conducted to ascertain whether factor analysis was relevant for various contracts. The test revealed that the KMO and Bartlett’s Test were within the recommended range of KMO greater than 0.5 and Bartlett’s Test statistically significant (p < 0.05). Feedback from the pilot study included adjustments to question wording and structure to enhance clarity and consistency. Statistical methods for both descriptive and inferential analyses were used to clean, code, and examine collected data. The data were compiled, and respondents’ opinions were revealed using descriptive statistics, such as means, frequencies, and standard deviations. The Statistical Package for Social Sciences (SPSS) program was used to conduct inferential analysis to find trends and connections among the variables under investigation.

Results and Discussion

Response Rate

The study’s response rate to strategic leadership practices and strategy implementation in Kenyan commercial banks is summarized in Table I. The findings indicated that 114 participants completed the questionnaires, yielding a response rate of 91%. The findings also showed that 9% or 12 respondents did not respond to the questionnaires. The interpretation was that the majority of respondents were willing to respond to the research questions or to participate in the study.

Table I. Response Rate

Response	Frequency	Percentages
Responded	114	91%
No response	12	9%
Total	126	100

Descriptive Statistics

Strategic Direction

Table II presents the results of the Strategic Direction on a scale of 1 to 5 (where 1 = strongly disagree and strongly agree = 5). From the results, the banks’ strategic direction is guided by a well-defined mission, vision, and objectives, with a mean of 4.38 and a standard deviation of 0.487. The bank’s objectives were periodically evaluated and reviewed to ensure alignment with changing environments of 4.23, standard deviation 0.516. The bank core values were closely aligned with a vision mean of 4.16, standard deviation of 0.660. The bank has established a robust and strategic planning process that facilitates the development of a clear strategic direction mean of 4.16, with a standard deviation of 0.542. Top management provides a well-defined implementation plan to enhance efficiency and effectiveness in bank operations, with a mean of 4.25, standard deviation of 0.588. Senior management issues clear guidelines that direct various activities of the bank mean of 4.07, with a standard deviation of 0.688. The banks maintain a clear structure that directs the flow of information with a bank mean of 4.00, with a standard deviation of 0.638. Staff performance targets were aligned with the bank’s broad vision, mission, and objectives mean of 4.04 standard deviation of 0.872. The bank has clearly stated its short-term strategy mean of 4.24, standard deviation 0.584, and the bank has clearly stated its long-term strategy mean of 4.33, standard deviation 0.605. The findings show all the mean for the various statements were above 3, implying that the respondent were in agreement on various questions on strategic direction and strategy implementation, The standard deviation was very minimal implying very minimal variance in the response. This means the respondents were almost to the same opinion regarding the subject matter. Strategic direction entails top management functions on strategic planning and formulation in organizations; strategic direction is vital in guiding and developing the values of the organization and building impending direction. Through the strategic planning process, organizations can develop their vision, mission, goals, and core values, thereby providing a clear framework for decision-making and long-term growth (Ng’ang’a, 2018).

Table II. Strategic Direction

Statement	Mean	Standard deviation
The banks strategic direction is guided by a well-defined mission, vision and objectives.	4.38	0.487
The bank’s objectives are periodically evaluated and reviewed to ensure alignment with changing environments	4.23	0.516
The bank core values are closely aligned with the vision	4.16	0.660
The bank has established a robust and strategic planning process that facilitate development of clear strategic direction	4.16	0.542
The top management provide a well-defined implementation plan to enhance efficiency and effectiveness in bank’ s operations	4.25	0.588
Senior management issues clear guidelines which direct on various activities of the bank	4.07	0.688
The banks maintain a clear structure that directs flow of information in the bank	4.00	0.638
Staff performance targets are aligned with the bank broad vision, mission and objectives	4.04	0.872
The bank has clearly stated its short-term strategies	4.24	0.584
The bank has clearly stated its long-term strategies	4.33	0.605

Strategy Implementation

Table III presents the results of the Strategy Implementation on a scale of 1 to 5 (where 1 = strongly disagree and strongly agree = 5). From the results, the bank implements its strategies satisfactorily mean of 4.03 standard deviation of 0.722. The budgeted resources are used and allocated efficiently, with a mean of 4.17 and a standard deviation of 0.861. With a mean of 4.15 and a standard deviation of 0.668, the bank guarantees that its clients receive high-quality services on time. Periodically, the strategy implementation progress is reported, with a mean of 4.19 and a standard deviation of 0.622. The bank has gained market goodwill due to the implementation of strategies, with a mean of 4.21, standard deviation of 0.616. Customers give positive feedback about products and services offered by a bank with a mean of 4.13, standard deviation of 0.698. A clear Strategic direction led to successful strategy implementation with a bank mean of 4.11, standard deviation of 0.713. Strategic learning contributed to a strategy implementation mean of 4.06, standard deviation of 0.628. The bank has achieved its set goals and objectives annually had a mean of 3.99 and standard deviation of 0.698, and effective strategy implementation demands strong commitment and active involvement from executives and senior management mean of 4.33 standard deviation of 0.624. The results further revealed that all the mean for the various statements were above 3 implying that the respondent were in agreement on various contracts. The standard deviation was very minimal implying very minimal variance in the response. This means the respondents were almost to the same opinion regarding the questions.

Table III. Strategy Implementation

Statement	Mean	Standard deviation
The bank implements its strategies satisfactorily.	4.03	0.722
There is efficient allocation and utilization of budgeted resources	4.17	0.861
The bank ensures timely delivery of quality services to customers	4.15	0.668
There is periodic reporting of strategy implementation progress	4.19	0.622
The bank has gained market goodwill due to implementation of strategies	4.21	0.616
Customers give positive feedback about products and services offered by the bank	4.13	0.698
Clear Strategic direction has led to successful strategy implementation in the bank	4.11	0.713
Strategic learning has contributed to strategy implementation	4.06	0.628
The bank has achieved its set goals and objectives annually	3.99	0.698
Effective strategy implementation demands strong commitment and active involvement from executives and senior management.	4.33	0.624

Regression Analysis

Table IV presents the results of the model fitness statistics. From the results, the coefficients of correlation were found to be R, R-Square, and Adjusted R-Square, 0.751, 0.564, and 0.560, respectively. This implies that the model has a very high explanatory power indicating that strategic direction is a strong predictor of strategy implementation among commercial banks in Kenya. The standard error of estimate (0.35870) shows a relatively low level of prediction error, while the Durbin–Watson statistic (2.262) falls within the acceptable range (1.5–2.5), suggesting that there is no significant autocorrelation among the residuals.

Table IV. Summary Model

R	R Square	Adjusted R Square	Standard error of the estimate	Durbin-Watson
0.751a	0.564	0.560	0.35870	2.262

Table V, present the results on the analysis of variance. The results further show that the F-statistics = 145.045 and the p-value is 0.000. Since the p-value is less than 0.05, the results indicate that the regression model is statistically significant. This implies that strategic direction has a significant effect on strategy implementation among commercial banks in Kenya. These finding are supported by Varelas and Apostolopoulos (2020) that strategic leadership actions, such as strategic direction have a positive and statistically significant relationship with successful strategy execution.

Table V. Analysis of Variance

	Sum of squares	df	Mean square	F	p-value
Regression	18.663	1	18.663	145.045	0.000
Residual	14.411	112	.129
Total	33.073	113

Table VI summarizes the regression coefficient results. All test statistics were significant, as the associated p-value was found to be 0.000. The beta coefficient is 0.855. The outcome shows that there is a 0.855-unit rise in strategy implementation for every unit increase in strategic direction. A p-value of 0.000 and a related t-statistic of 12.043 were obtained. This finding implies that the null hypothesis of no association between Strategic Direction and strategy implementation is rejected. Management should therefore be keen on the strategic direction employed to enhance the proper positioning of commercial banks. Ng’ang’a (2018) pointed out that strategic direction encompasses the responsibilities of top management in the formulation and planning of organizational strategies. It plays a critical role in shaping organizational values and establishing a clear future path.

Table VI. Regression Analysis

Variable	Beta	Standard error	t-statistics	p-value
(Constant)	0.555	0.299	1.855	0.066
Strategic direction	0.855	0.071	12.043	0.000

Conclusions

The study found that, among Kenyan commercial banks, strategic direction significantly improved strategy implementation. The study’s conclusions show that a better strategic direction is likely to increase how well Kenyan commercial banks implement their strategies. Strengthening strategic direction contributes to a better alignment of the bank’s organizational goals, provides clearer communication of priorities, and more effective execution of the strategic action plan. The study further concludes that strategic direction is a key determinant of successful strategy implementation, underscoring its critical role in driving institutional effectiveness.

Recommendations

The study’s findings provide information that bank management can adopt on various strategic leadership practices that could lead to effective strategy implementation. Based on the findings of this study, it is recommended that management strategize on how to realize maximum benefits in strategy implementation by prioritizing the key strategic leadership directions, such as planning, goal setting, aligning the bank’s vision with the mission, and matching it with the best leadership style.

The study further recommends that the results be adopted by policymakers and agencies such as the Central Bank of Kenya (CBK) in guiding policy formulation, especially with regard to regulating the banking sector on issues related to corporate governance and implementation of strategies set by regulators.

The study recommends that future research be done to exploit the key aspect of strategic direction that influence strategy implementation. Future research should strengthen the methodology by adopting a mixed-methods approach that integrates quantitative and qualitative data, thereby providing a more holistic understanding of the phenomena under investigation.

Conflict of Interest

The authors declare that they do not have any conflict of interest.