EFFECT OF TURNAROUND STRATEGIES ON PERFORMANCE OF PUBLIC CORPORATIONS IN KENYA

ABSTRACT 
Many public corporations experiencing decline in performance have opted to implement turnaround strategies to improve their performance. This study extends previous research findings by seeking to examine the effect of turnaround strategies on performance of Public Corporations in Kenya, by identifying the turnaround strategies adopted in these Corporations, and to determine the effect of turnaround strategies on their performance. To achieve this objective, correlational research was adopted. The target population comprised 162 public corporations in Kenya. A purposive sample of thirty two (32) corporations was used in the study. A Likert type scale questionnaire was administered to respondents to collect data from the selected public corporations. Primary data was complemented with secondary data collected from the corporations for the previous three years. Data collected was edited and processed using Statistical Package for the Social Sciences (SPSS). Descriptive statistics that is in percentages were used to describe the research variables. Pearson’s product moment coefficient was used to examine the relationship between turnaround strategies and organisational performance and multiple regression was used to establish the effect of turnaround strategies on performance of the corporations. The results showed a significant positive relationship between turnaround strategies and performance, P-value<0.05. The positive relationship suggests that when declining corporations implement turnaround strategies (revenue generating and cost reduction strategies) their performance when measured using the balance scorecard measurement tool which measures financial perspective, customer satisfaction, internal business processes and innovation and learning perspectives, will improve positively. The findings also found that cost reduction strategies had a greater effect on the performance of public corporations in Kenya compared to revenue generating strategies. Therefore, it can be recommended that public corporations need to implement turnaround strategies to turn around declining corporations. The study also recommends areas of further research.

CHAPTER ONE 
INTRODUCTION 
Background of the Study 
Organisations adopt various strategies to enhance their performance, to be competitive in the market and to achieve their objectives; these corporations have adopted various strategies. According to Byars, Rue, and Zahra (1996) these strategies are classified in various categories, they include stable growth strategy, which is used by companies that wish to maintain their objectives; this is a relatively low-risk strategy and is quite effective for successful organisations in an industry that is growing and in a nonvolatile environment. Growth strategy can be adopted by companies that wish to grow their business and there are several different generic strategies that fall in this category. They include concentration strategy, vertical integration and diversification. Harvesting strategies, are considered when a company attempts to “harvest” as much as they can, it entails minimum amount of investment with maximum short-term profits. Defensive strategy also referred to as retrenchment strategies are used when a company wants to reduce organisational operations, usually through cost reductions (cutting on non- essential expenditure) and asset reduction (disposing off equipment, selling land and reducing number of staff among others). However, the most common forms of defensive strategies are turnaround, divestment, liquidation, bankruptcy and becoming captive. There are also combination strategies which include simultaneous strategies or combinations. This study mainly concentrated on a specific retrenchment strategy that is designed to reverse the corporations’ negative trend and get the organisation back on track to improved performance in terms of profitability, market share or service delivery, this strategy is turnaround. 

In Kenya, Public Corporations are formed to achieve various objectives both commercial and social. Some Public Corporations exist to correct market failures. This is the case, where for instance, the service they give may not be profitably provided by the private investors, for example in tourism or infrastructure such as roads. Sometimes, they exist to meet explicit social and political objectives, such as providing education, health or even redistribute income or develop marginal areas. 

Turnaround Strategy 
According to Johnson, Scholes and Whittington (1995) in turnaround strategy is on speed of change, rapid cost reduction and revenue generation. Some of the main elements include: crisis stabilization - the aim of which is to regain control over the deteriorating position. There’s likely to be short-term focus on cost reduction and revenue generation. In revenue generation and cost reduction, the model indicated to increase revenue, a company should ensure that marketing must be tailored to key market segments, pricing strategy that maximizes revenue, organisational activities focused on needs of target market segment; and additional opportunities exploited for revenue creation related to target market. Funds from reduction of costs are invested in new growth areas. In reducing costs they advocated for reducing labour costs and costs of senior management, focusing on productivity improvement, reducing marketing costs not focused on target market, tightening financial controls, tightening control on cash expenses, establishing competitive bidding for suppliers, deferring creditor payments, speeding up debtor payments, reducing inventory, and eliminating non-profitable products or services. 

Management changes especially at the top level are usually required. This usually includes the introduction of the chief executive as well as changes in the composition of the board of directors. Gaining stakeholder support in a turnaround situation is important, it is vital that key stakeholders are kept informed of the situation now, as well as when it improves. Clarifying the target market is key to any turnaround success, consequently the turnaround strategy, while involving cost-cutting may require the business to conceptualise and reorient itself to the market. There is also evidence that a successful turnaround strategy involves getting much closer to customers and involving the flow of market information. Refocusing involves clarifying the target market which is likely to provide the opportunities to discontinue products and services that are either not targeted on those markets, eating up management time or not making sufficient financial contribution, while there may be also opportunities to outsource services. Financial restructuring involves changing the existing capital structure, raising additional finance or renegotiating agreements with creditors. Prioritization of critical improvement areas requires the ability of management to prioritise those things that give quick and significant improvements (Johnson et al., 1995). 

Organisational Performance 
One of the important questions in business has been why some organisations succeeded while others failed. Organisation performance has been the most important issue for every organization be it profit or non-profit one. It has been very important for managers to know which factors influence an organisation’s performance in order for them to take appropriate steps to initiate them. However, defining, conceptualizing, and measuring performance have not been an easy task. Researchers among themselves have different opinions and definitions of performance, which remains to be a contentious issue among organisational researchers (Barney, 1997). Chong (2008) suggest that organizational performance can achieve efficient objectives or goals than economic results. This vision reveals that financial and economic measures present critical limitations in assessing performance. An alternative way is to apply the non-economic measures, though subjective in nature, as supplements to the economic. The combinations of these two measures economic and non-economic help the owners or managers to gain a wider perspective on measuring and comparing their entrepreneurial performance, in particular, the extent of effectiveness and efficiency in utilizing the resources, competitiveness and readiness to face the growing external pressure including globalizations (Chong, 2008). 

In this study, the balanced scorecard model developed by Kaplan and Norton in 1991 was used to measure the effect of turnaround strategies on performance of public corporations in Kenya. The model groups measures of performance into four distinct categories of performance (financial perspectives, customer satisfaction, internal business processes, and innovation and learning perspectives). 

Public Corporations in Kenya 
Public Corporations were first established in Kenya by the colonial government to provide essential services to the white settlers. Indigenous Africans’ participation in economic activities such as trade and cash crop farming was generally discouraged. The original Kenyan Public Corporations were cartel-like organisations, and were set up to handle the products of European-owned farms, including sisal, pyrethrum, flax, and pigs. In the 1950s, farm products accounted by far for the greater part of the commodity exports of most tropical African countries (Jones, 1980). Eight Public Corporations were operating during World War II, while at independence (1963) Kenya inherited a framework of Public Corporations especially in the Agricultural Sector. 

Following independence in 1963, therefore, the independent Kenya Government devised strategies to achieve three goals that were considered imperative for development: a fast overall economic growth rate, equitable distribution of development benefits and Kenyanisation of the economy. The means of achieving these goals were defined in Sessional Paper No. 10 of 1965 on African Socialism and its Application to Planning in Kenya, which states that, “under African Socialism, the power to control resource use resides with the state”. From 1965 onwards, the government actively expanded and strengthened State Owned Enterprises (SOEs) as the vehicles of development and Kenyanisation. Indeed, as the SOEs proliferated in the first decade of independence, Kenya’s economy grew apace at an impressive rate of 6.8%. Economic growth, however dropped marginally to 5% in the 80s, and further declined to a mere 0.3% in 1990s. 

The late 1980s saw a paradigm shift in the global politico-economic system, which emphasizes reforms that favour a free market economy. The thinking advocated by Breton Woods institutions such as the World Bank and the International Monetary Fund (IMF) led to the introduction of Structural Adjustment Programmes (SAPs) that pushed for liberalization of economies to pave way for private sector participation. SAPs are economic policies countries must follow in order to qualify for World Bank and IMF loans, SAPs are designed for individual countries but have common guiding principles and features which include export-led growth, privatization, liberalization and the efficiency of free market. The number of Public Corporations has reduced since then. Structural Adjustment Programs are programs which make it possible for countries to get a loan from the IMF or the World Bank. These loans are connected with conditionalities like significant policy reforms which have to be complied with before getting the loan (Abugre, 2000). In history the main agency providing structural adjustment lending was the World Bank. In 1986 the IMF also joined in providing adjustment loans and later other international financial institutions adopted the principle. 

Public Corporations in Kenya are found in various sectors of the economy that include transport, trade and industry, agriculture, energy, education, tourism, housing, roads among others. These corporations are coordinated under various ministries. Thisstudy sampled 32 public corporations which have implemented turnaround strategies with a view to investigating the effect of specific turnaround strategies on their performance. Other studies have in the past established a link between corporate diversification strategy and resource constraints but the effect on performance especially in Kenyan Public Corporations have not been addressed.

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Item Type: Kenyan Postgraduate Material  |  Attribute: 58 pages  |  Chapters: 1-5
Format: MS Word  |  Price: KSh900  |  Delivery: Within 30Mins.
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