Determinants Of Organizational Performance Of Small And Medium Manufacturing Firms In Nairobi County

ABSTRACT

Small and Medium Enterprises (SMEs) are vital contributors to the GDP growth, employment levels, and social welfare of Kenya. The manufacturing sector is a critical component of the government’s economic development agenda. However, in the recent past, SMEs in the manufacturing sector have witnessed a continuous trend of poor performance, which has caused deterioration in their development, as well as business closure. The current study sought to build on available literature. It examined the critical determinants of organizational performance of SMEs in the manufacturing sector in Nairobi County. The study specifically examined how organization structure, technology ability, and management competency affect organizational performance. The theories that guided the study were the dynamic capabilities theory and the teleological theory and the study adopted a descriptive survey research design, with a quantitative focus. The target population was the 503 registered SMEs in the manufacturing sector in Nairobi County. The research sampled 223 of those SMEs and considered one management personnel per firm as the respondents. Thus, the sample size for the study was 223 managers. The study utilized a structured questionnaire, and the instrument was pretested on 10% of the sample. The study obtained an 83% response rate and the collected research data was coded into SPSS. Descriptive and inferential statistics were used to analyse the collected data. The findings were graphically presented. The results of the regression analysis showed that 51.1% (R 2= .511) variation in the organizational performance of the SMEs could be determined by their organization structure, their technological capability and their management competency. The research concluded that a unit change in organization structure would lead to a 52.6% change in performance; a unit change in technology capability leads to a 13.4% change in performance; and a unit change in management competency leads to a 5.3% change in performance. The study recommends that the management of the SMEs should increase investment in putting processes in place and in continuous restructuring, which will enhance firm coordination and foster employee collaboration. The study further recommends that SME management should encourage all cadres of employees to be highly innovative and technologically savvy. The study notes that more research is required to explore why and how the research determinants affect performance; to see how the research variables affect one another; and how they relate when other measures of performance are assessed. Finally, there should be more research conducted on the determinants of organizational performance of SMEs in other sectors.