CORE COMPETENCIES AND COMPETITIVE ADVANTAGE OF

INSURANCE FIRMS IN KENYA

BY

JONATHAN OMBATI MARUCHA

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILMENT

OF THE REQUIREMENT FOR THE MASTER OF BUSINESS

ADMINISTRATION (MBA), SCHOOL OF BUSINESS,

UNIVERSITY OF NAIROBI

OCTOBER, 2012

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Declaration

This research project is my original work and has not been presented for the award of

degree in any other university or institution for any other purpose.

Signature …………………………………….. Date ……………………….

JONATHAN OMBATI MARUCHA D61/61884/2010

This research project has been submitted for examination with my approval as University

supervisor.

Signature …………………………………….. Date ……………………….

MS CAREN ANGIMA

LECTURER, SCHOOL OF BUSINESS

UNIVERSITY OF NAIROBI

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Acknowledgements

Indeed the task of completing this project has been made possible by the valuable input

of many people ranging from family, friends and even colleagues at work.

First and foremost, and with humble gratitude I give thanks to the Almighty God, who

provided me with the resources both mental and material and also the strength throughout

this journey of completing this project. I continue glorifying His Mighty Name.

Secondly, I deeply acknowledge the unwavering love and care I got from my family,

most importantly, my wife and son who sacrificed a lot for me to be able to carry out this

project to the end without hitches. They are a blessed people.

To my supervisor Ms. Caren Angima of the School of Business, who has been very

supportive and encouraging during this very challenging process from the start to the

final project which am now presenting herein. I sincerely appreciate the time you took to

read my work and for your guidance, encouragement and timely feedback. I also give

thanks to my lecturer and moderator; Prof. Ogutu for his guidance and insight in the field

of strategic management which was very handy.

Finally, I would also like to give exceptional thanks and gratitude to my special friends

Steve Muiga, George Owuor, Micah Atsobwa, and my elder sister Everline for their

sacrifice and consistent support especially during data collection. God bless you all.

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Dedication

I dedicate this work to my family especially my wife and son for their sacrifice that

enabled me to complete this project. They were the source of inspiration.

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Abstract

This study focused on the strategic role of core competencies on competitive advantage

as applied by insurance companies in Kenya. The first step was to identify what the

various insurance companies considered to be their core competencies. The other

objective was to find out whether the identified core competencies are used by insurance

firms to gain or achieve a competitive advantage.

The research was conducted through a survey and primary data was collected through

structured questionnaires which were distributed to all insurance firms licensed to operate

insurance business in the Kenyan market. The data collected was presented by a Likert

scale and analyzed using statistical tools such as means, percentages and frequency

distribution tables and graphs.

The findings revealed that although different insurance firms have different areas which

they consider as their core competencies, there is a significant relationship between core

competencies and competitive advantage. The study also showed that the core

competencies had a significant impact on competitive advantage. It was further noted that

once insurance firms achieve a competitive advantage, which is considered as success,

they sustain the success by proper use of their known competencies.

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TABLE OF CONTENTS

Declaration .................................................................................................................................................... ii

Acknowledgements ...................................................................................................................................... iii

Dedication .....................................................................................................................................................iv

Abstract .......................................................................................................................................................... v

List of Tables.............................................................................................................................................. viii

List of Figures ...............................................................................................................................................ix

CHAPTER ONE ............................................................................................................................................ 1

1.1 Background of the Study ................................................................................................. 1

1.2 Core competencies ........................................................................................................... 4

1.3 Competitive advantage ..................................................................................................... 5

1.4 Overview of the Insurance Industry ................................................................................. 7

1.5 Research Problem ............................................................................................................ 9

1.6 Research Objectives ....................................................................................................... 12

1.7 Value of the Study ......................................................................................................... 13

CHAPTER TWO ......................................................................................................................................... 14

2.1 Introduction .................................................................................................................... 14

2.2 The Concept of Strategy ................................................................................................ 14

2.3 Core competence ............................................................................................................ 14

2.3.1 Unique Resources ........................................................................................................................ 16

2.3.2. Key Work Processes ................................................................................................................... 16

2.3.3. Knowledge Management Systems .............................................................................................. 16

2.3.4. Dynamic Capabilities.................................................................................................................. 17

2.3.5. Institutional Facilities (infrastructure) ........................................................................................ 17

2.3.6. Key staff skills ............................................................................................................................ 18

2.3.7. Strategic Focus ........................................................................................................................... 18

2.4. Competitive Advantage ................................................................................................. 19

2.5. Core Competence and competitive advantage ............................................................... 21

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CHAPTER THREE .................................................................................................................................... 24

3.1. Introduction ......................................................................................................................... 24

3.2. Research design .................................................................................................................. 24

3.3. Population of the Study ...................................................................................................... 24

3.4. Data Collection ................................................................................................................... 25

3.5. Data Analysis ..................................................................................................................... 25

CHAPTER FOUR ....................................................................................................................................... 27

4.1 Introduction .......................................................................................................................... 27

4.2 Demographic Profile of the Respondents ............................................................................ 27

4.3 Core competence of Insurance Companies .......................................................................... 29

4.4 Core competence as a source of competitive advantage ...................................................... 36

CHAPTER FIVE ......................................................................................................................................... 43

5.1 Introduction .......................................................................................................................... 43

5.2 Summary .............................................................................................................................. 43

5.3 Conclusion ........................................................................................................................... 46

5.4 Recommendation ................................................................................................................. 47

5.5 Suggestion for further research ............................................................................................ 48

REFERENCES ............................................................................................................................................ 49

APPENDIX I: Letter of Introduction ........................................................................................................ 54

APPENDIX II: Questionnaire .................................................................................................................... 55

APPENDIX III: List of Licensed Insurance Companies ......................................................................... 62

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List of Tables

Table 4.1: Length of time working in insurance company….………..….……………...28

Table 4.2: Effects of core competence to the Company………….……………………..31

Table 4.3: Importance of core competence to the insurance firms..……………………..33

Table 4.4: Core competence usage to achieve competitive advantage………………......34

Table 4.5: Use of core competence to sustain success……………………………….......35

Table 4.6: Company managers’ investment to achieve competitive advantage…………37

Table 4.7: Factors that influence competitive advantage in insurance firms….…………38

Table 4.8: Applicability of the factors in contributing to competitive advantage……….39

Table 4.9: Effects core competence on organizational competitive advantage.................41

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List of Figures

Figure 4.1: Length of existence of insurance companies………………………………29

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Building a capable organization is one of the top priorities of executive management of

any organization. Business organizations around the globe are fighting for success within

their sectors and hence becoming victims of their own success which leads to the need for

diversification. This leads to the creation of a different mix of talents and capabilities. In

Kenya, the insurance industry is no different.

Insurance companies operate in a very competitive environment where most of the

products are rarely differentiated, prices are heavily regulated and the distribution

channels are almost shared. Firms continuously strive for ways to attain sustainable

competitive advantage (SCA) over their peers. They need to count more on their

internally distinguished strengths to provide more added customer value, strong

differentiation and extendibility (Hamel and Prahalad, 1994). Internal distinguished

strengths are the organization’s core competencies. Core competencies aid in shaping the

future of organization. Thus, to achieve success, organization must possess core

competencies and capabilities that are unmatched by their industry rivals.

Competencies were developed from the early 1980s as a technique for measuring and

improving performance. They remain popular in some large, complex organizations

because they provide standardized and measurable processes for better consistency and

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control. With the intensity of competition ever growing, where on-time delivery, speed,

quality, and cost are considered essential ingredients to respond to customer needs,

organizational core competence is considered vital to all firms who wish to succeed.

Building organizational capabilities is considered to be the key success factor in doing

business. Rapid changes in the business environment require senior management to adopt

strategies that focus on both current success and to invest in those activities that will

promote a competitive advantage for future success.

Competitive advantage is achieved by companies through strategic planning and

management which is a continuous process that evaluates, controls and examines the

business, the competitors and the industry at large and sets goals and strategies to

overcome obstacles on their way to success.

The stiff competition has necessitated companies to apply competitive strategies to

maximize their profits and to compete against other insurance firms. Those with effective

strategies often set themselves apart from the competition. However, some companies

resort to adopt ‘a me too’ strategy thus positioning themselves close to their competitors

so that consumers can make a direct comparison when they make a purchase while other

companies strategize to position themselves away from their competitors. In the latter

case, some insurance firms take a deliberate decision to offer products or benefits that are

superior to those of its competitors. This is by developing unique products through

innovation and customized products which may be difficult for others to imitate or by the

time the competitors imitate the product features, the company has already gained from

the early bird theory.

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The core competence is a primary factor for strategy formulation as it is an important

source of profitability. One stream of research suggests core competencies to be at the

base of all competitive advantage. Companies are likely to be different in terms of their

abilities to select, build, deploy, and protect this core Competencies. These differences

are likely to yield differences in corporate performance. The concept of core competence

has been developed to support more efficient identification and utilization of an

organization's strength. The assumption is that core competencies are cumulative and

they change more slowly over time than products and markets (Gupta et al., 2009).

Therefore, building core competence becomes essential to competitive advantage because

advantages emanating from the product-price-performance-tradeoffs are almost short

term. Especially in an era where technologies are altering the existing boundaries of

business; advantage can last only through competence enjoyed at the very roots of

products. And only through expertise over several technologies and a complete command

on their infinite variety of users, a company can occupy a highly advantageous position

(Eris and Saatcioglu, 2006).

To build successful core competencies, organizations must put together a strong

management team and attract and retain employees with necessary experience, technical

skills and other soft skills. Such employees are also a source of competitive advantage.

The management must be prudent to be proactive about what customers will want and

build competencies and capabilities that will enable them achieve the corporate objective.

Thus, strategy has to move from competing for product or service leadership to

competing in competence leadership. Since the insurance business is generally dynamic,

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it is the responsibility of the firm’s management to continuously fine tune and sharpen

their competencies to achieve and maintain a competitive advantage over their rivals.

1.2 Core competencies

A core competency is a unique skill that creates a unique customer value. Core

competencies are valuable capabilities that are collective and unique in their

characteristics, as well as strategically flexible contributing towards the success of

potential business. An organizational core competency is an organization's strategic

strength. Thus, it is what it does best than its competitors and should never outsource.

Organizational core competencies, the unique resources of an organization, affect many

products and services and provide a competitive advantage in the market place (Johnson

& Scholes, 2002). Organizations use their unique resources which include their

capabilities and competencies to be ahead of their competition. Once an organization

identifies its unique area of excellence, its management require to come up with a

strategic plan of how to utilize its competencies to achieve great competitive advantage.

The identification and proper utilization of a firm’s core competence may help in creating

customer value; new product development, provision of innovative products to ensure

quality service delivery to their customers. The most important aspect of strategy

implementation is building teams with competencies and capabilities. Competencies

among insurance companies are built on individual or groups of intangible assets that

constitute and embody the firm’s capabilities, skills, knowledge, experience, people,

resources and intellectual property.

5

While strong core competencies and competitive capabilities are majorly considered to be

useful during strategy execution, they are equally important avenues for securing a

competitive edge over rivals in situations where it is relatively easy for rivals to copy

smart strategies. Any time rivals can readily duplicate successful strategy features,

making it difficult or impossible to out strategize rivals and beat them in the marketplace

with a superior strategy. Since cutting-edge core competencies and competitive

capabilities represent resource strengths that are often time consuming and expensive for

rivals to match or trump, any competitive edge produced will tend to be sustainable and

pave the way for above-average company performance.

In essence, core competencies are those that cannot be easily duplicated by competitors;

however they also would be difficult to replace if a company found them destroyed or

damaged. They are the source of the company’s ability to deliver unique value to its

customers. They are not to be mistaken with “leading-edge technologies”, “world-class

processes”, or other “production-driven” definitions of distinctiveness. They are flexible

enough to straddle a variety of business functions, or product family technologies and

they are not tied to existing ways of doing business but are platforms for growth and

stimuli for growth (Harvey and Lusch, 1997).

1.3 Competitive advantage

According to Hamel and Prahalad (1990), the real competitive advantage lies in

integrating operations for the sake of hitting demand quality targets or meeting

specialized customer needs. The concept of core competence has implications at the

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strategic level of the firms and hence they should systematically work upon identifying

their core competencies and developing them for sustainable competitive advantage

(Srivastava, 2005). The best way to achieve lasting competitive advantage is to outdo

competitors by performing certain value chain activities in a superior fashion.

There are various factors that contribute to the performance and success of the insurance

companies in terms of volumes of sales and number of policies sold or signed up. One of

them is a service delivery level that is unmatched. However, it depends on other factors

like available resources, infrastructure, human resources skills and knowledge.

Like other players in the service, what happens in the insurance subsector is not much

different from the rest. It is largely dependent on the quality of service delivered to

customers. The unique difference is that insurance products are intangible which makes it

harder for the customer to immediately feel the results of the product purchased. In the

manufacturing sector or other normal product sale, there is a physical product exchange

while in insurance; it is a promise that is sold which is based on trust. All transactions

hinge on the pivotal principle of good faith.

Some insurance firms are doing better and even heavily expanding while others are either

stuck or are not well performing. The success in some is a sign that some internal

processes are being managed properly in these companies than it is in others. The internal

processes are their core competencies. These help companies distinguish their service or

product from those of their rivals. It also helps to reduce product development and

marketing costs which in the end contributes to achieve a competitive advantage.

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1.4 Overview of the Insurance Industry

The insurance industry is governed by the Insurance Act, Cap 487 of the Laws of Kenya.

Under the Act, the Insurance Regulatory Authority (I.R.A.) has been mandated to

regulate, supervise and develop the insurance industry in Kenya. Its strategic objectives

include to build a stable insurance industry, develop and grow the insurance industry and

also to strengthen institutional capacity within its scope.

The insurance industry plays a fundamental role in the Kenyan economy mainly as a

result of the amount of insurance premiums collected by the insurance firms, the scale of

investments and the essential social and economic role it plays by providing security to

property owners for both personal and business risks.

Information available at IRA, indicate that currently there are 45 insurance companies

and 2 locally incorporated reinsurance companies licensed to operate in Kenya. In

addition, there are 154 Licensed Brokers, 23 Medical Insurance Providers (MIPS), 26

Risk Surveyors, 4,205 Insurance Agents, 126 Insurance Investigators, 20 Loss Adjusters,

10 Risk Managers and 26 Motor Assessors.

It has been argued that insurance business in Kenya is profitable. According to Munda

(2012), some insurance companies have consistently recorded high profits which may be

attributed to their effective and strategic use of innovation and serious marketing

campaigns and strategies. It is also notable that, lately, no member of the Association of

Kenya Insurers (AKI) has closed shop. However, some general insurance companies are

reported to make losses, which means that their claims payout is in excess of their

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premium collections. This may be attributed to the significant losses in the motor and

medical insurance classes.

There are other challenges facing the insurance industry. These include, the dependence

on the people, the status of the market, laws governing insurance in Kenya and the lack of

proper communication of insurance information to the general public. There is also an

assumption that insurance is normally taken out for two main reasons; fear of losing and

the expectation to gain from insurance. Further, those who seek insurance especially the

long term do so in order to gain tax relief.

Further, due to the intangible nature of insurance, customer care, is not consider as an

important source of competitive advantage by insurance firms. This was evidenced by a

recent customer satisfaction tracker survey conducted by the Association of Kenya

Insurer’s (AKI). The results of the survey as presented by Akwir (2012), highlighted

several issues and among these, were; long and complicated compensation procedures,

lack of proper customer engagement in terms of frequency of communication and

accuracy of the information being communicated, use of appropriate channels and lack of

quality sensitization and the derivation for money.

Some insurance firms lack good corporate governance which is also a big factor

hampering the insurance industry growth in Kenya. Okumbe (2012) argues that, good

corporate governance will ensure that individual insurance companies provide effective

disclosure, continuous accountability and a broad based oversight framework to ensure

diligence, focus, growth and productivity in the industry for economic and social benefit

9

of the individual policyholders, employees, shareholders, investors and all categories of

stakeholders.

Another critical issue is the low penetration level caused by lack of serious marketing and

awareness campaigns. There is not enough or proper research carried out by insurance

firms before launching new products, especially as to insurability of risks and setting

rates and premiums accordingly. Indeed, very few firms have a research and development

department with sufficient funding. The target market for insurance firms has for long

been the urban market and little focus has been given to small and medium enterprises.

1.5 Research Problem

Contemporary business theory argues that companies must compete to keep or gain

competitive advantage. Insurance companies also strive for competitive advantage. In

Kenya the insurance industry has about 45 main stream insurance companies competing

for almost the same target market. The distribution channel for insurance products is

intermediary-driven i.e. insurance brokers and agents. Banks are the latest entrants to join

the insurance distribution channel by offering bancassurance to their customers. All this

has led intense competition and insurance companies are now trying to position

themselves strategically to be able to compete effectively.

In such a competitive environment, insurance firms are employing various strategic tools

to achieve market leadership in order to gain a competitive advantage. Some companies

are going back to enhance their internal processes and capabilities thereby making them

more consistent and efficient by improving their processes and products. Core

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competencies play a key role to counter competitors’ strategies. How well a company

utilizes its core competencies to a large extent determines the eventual organizational

performance. The search for competitive advantage also depends on how customers

appreciate a firm’s value addition and how they make comparisons among the available

products or service. Therefore it becomes a necessity for a company’s management to

assess its core competencies.

In determining the core competencies of an organization, one needs to know the

underlying skill, ability, knowledge, experience, technology or process that enable an

insurance company to provide a unique set of products or services. High-performing

companies develop new core competencies and expand their existing ones to enter new

and future markets. A company at this level of functioning recognizes the needs and

wants of customers in new and emerging markets and develops the competencies

necessary to meet those needs and wants. As such, they serve to narrow the focus of the

firm’s forward strategy. In particular industry managers need to increase their knowledge

and understanding of core competencies. To be more competitive, firms need to operate

in a more outward/strategy driven way and develop a strategic architecture that will

enable their organization to develop the necessary core competencies.

In the insurance industry in Kenya, the products and services offered by insurance

companies are rarely differentiated. For example general insurance firms sell almost

similar traditional products. For instance, the standard motor insurance product is being

sold at a strictly regulated rate with a legal requirement of instant premium payment

before cover is considered effective. In addition, the rating of huge risks (commonly

11

referred to as Listed Risks), is heavily controlled by IRA which consults with a panel of

AKI members to provide the rating guidelines hence a uniform rate across the industry

for the identified specific risk. Industry players are therefore not allowed to vary the rate

for compliance purposes. This leads to firms seeking other avenues of competition other

than price. As a result, insurance firms have to be smart to beat their competitors to the

business. Some companies then invoke their customer care skills, speedy service delivery

among others to beat the competition. These set of tools used by the firms are the

companies’ competencies and capabilities which help the gain competitive advantage.

Studies done locally on core competence in relation to competitive advantage include;

Wanyanga (2007), who studied the utilization of organization’s capabilities as an

operation strategy in the hotel industry in Kenya. His study noted that most hotels in the

country had not fully identified their strategic capabilities and always scanned the

external environment to identify the opportunities without identify their internal non-

imitable capabilities that will give them a competitive advantage.

A study by Ngugi (2011) looked at the strategic capabilities at the British Broadcasting

Corporation (BBC)–Africa. In his findings, the firm’s capabilities and resources available

to it must interact positively with the requirements of the firm’s markets and their

requirements be defined clearly and explicitly for the firm to achieve desired performance

results. As a result of the constant change in the business world, it was also found out that

the organizations strategic capabilities needed to continuously adapt to the changing

operating environment and the human resources play an important role towards the

realization of the same objective.

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Other related studies include Kak (2002) who examined the potential of and whether an

organization's SCA depends on the rareness and inimitability of its resources and

capabilities. Hafeez and Essmail (2007) also studied the evaluation of organization core

competences and associated personal competences using analytical hierarchy process and

established that firms with greater shared vision are more likely to enhance business

excellence and success as they utilize the shared vision and cooperation to build

innovative products and services, fulfill customer and market requirements, knows when

and how to attract, reward, and utilize teams to optimize results, acts to build trust,

inspire enthusiasm, encourage others, and help resolve conflicts and develop consensus in

creating high performance.

Therefore, it is evident from the foregoing studies, that there has not been any extensive

research conducted in the area of the role of core competence in competition more so in

respect to the Kenyan insurance market hence the question; what role does core

competence play to achieve competitive advantage by insurance firms in Kenya?

1.6 Research Objectives

The main objectives of the study were:-

(i) To establish the various core competencies in insurance companies in Kenya.

(ii) To ascertain the role of the identified competencies in achieving competitive

advantage

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1.7 Value of the Study

This study will important for insurance firms because they will be able to identify key

competencies, areas for investment and how to improve on the same to achieve a

competitive advantage. Insurance managers will gain insight into the competitiveness of

their core competences and find ways of how they can redesign the same with a view to

achieving competitive advantage by use of their own known core competences. Insurance

marketers too will find this study useful as they will be able to identify competitive

internal organizational competencies which can aid them to sustain organic growth and

ensure maximum retention of customers.

The research will form an invaluable source of reference for the IRA, especially in

coming up with policies to guide the industry in the development of good business

practices, having healthy competition and good corporate governance.

This study is expected to increase body of knowledge to the scholars in the service

industry and make them be in touch with how competitive advantage can be achieved

through embarking on improving organizational core competencies and capabilities.

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CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

The purpose of this section is to provide a critical evaluation of the available research

evidence about effectiveness of core competencies in gaining or achieving competitive

advantage by organizations. Various core competencies will be enumerated. A summary

of the concept of core competency, competitive advantage and their relationship will be

discussed together with current research that has been carried out relating to the subject.

This will lead to the imminent gaps that require to be filled by this research.

2.2 The Concept of Strategy

Strategic Management is defining an organization’s strategy that will enable achieve

better performance and a competitive advantage. Strategies are ends that concern the

purpose and objectives of the organization. They are the things that organizations do, the

paths they follow and the decisions they take in order to reach certain points or level of

success (Thompson and Strickland, 2003).

2.3 Core competence

The core competence of a firm is the firm-specific knowledge system that exerts

competitive advantage, which may pertain to a knowledge base, a technological system, a

managerial system, and/or a norm and value system (Leonard and Barton 1992).

15

Capabilities are characterized by significant barriers to duplication, whether these are in

the tacitness inherent in the skills of individuals or groups or in the complexity and

specificity of organizational routines. Collis (1994) postulated that capabilities are an

important source of advantage. Core competencies are particular strengths which provide

the fundamental basis for the provision of added value. They are the collective learning in

organizations, and involve how to coordinate diverse production skills and integrate

multiple streams of technologies. It is communication, an involvement and a deep

commitment to working across organizational boundaries.

A core competency is an organization’s strategic strength (Jardon and Martos, 2011). It

must be essential to corporate survival, invisible to competitors, difficult to imitate,

unique to the corporation, a mix of skills, resources and processes, sustainable over time,

greater than the competence of an individual, essential to the development of core

products, essential to the strategic vision and decision of the organization, marketable and

commercially valuable, and few in number (Tampoe, 1994).

Hamel and Prahalad (1994) went further and categorized core competence into market

access competencies which are skills that help place a firm in close proximity to its

customers (management of brand, sales and marketing, distribution and logistics,

technical support), integrity-related competencies which are the skills that allow a

company to do things much more quickly, with greater flexibility or with a higher caliber

of reliability than competitors (competencies such as, quality, cycle time management

and Just-In-Time) and functionality-related competencies which are skills that enable the

company to invest its services or products with unique functionality, which invest the

16

product with distinctive customer benefits, rather than merely making it incrementally

better. It is what the organization does best and what it should never outsource. The

strategic management classifies core competencies bases as: resource-based, competence-

based, and dynamic capability- based (Sanchez, 2004). Core competences sources can be:

2.3.1 Unique Resources

Resources represent inputs into a firm‘s production process. By themselves, resources do

not create a strategic advantage for the firm. Resources are the source of a firm‘s

capabilities. Resources represent inputs such as capital equipment, skills of employees,

brand names, finances and talented managers. Resources aid in development of

organizational core competencies and unique capabilities.

2.3.2. Key Work Processes

A process is any operation through which a set of inputs go through one or more steps

resulting in a more valuable set of outputs. Competitive success depends on transforming

a company‘s key processes into strategic capabilities that consistently provide superior

value to the customer (Akhavan and Jafari, 2006).

2.3.3. Knowledge Management Systems

Knowledge Management (KM) System refers to generally IT based system for managing

knowledge in organizations for supporting creation, capture, storage and dissemination of

information. The idea of a KM system is to enable employees to have ready access to the

17

organization's documented base of facts, sources of information, and solutions. Sharing

this information organization wide can lead to more effective engine design and it could

also lead to ideas for new or improved equipment. It comprises a range of strategies and

practices used in an organization to identify, create, represent, distribute, and enable

adoption of insights and experiences. Knowledge management system as a source of core

competence can be expressed as the capability to absorb new technology and in-house

technology development (Bozbura, 2007). The capability to absorb new technology

includes employee training, forecasting, innovation and technological needs satisfaction

(Chong, 2006).

2.3.4. Dynamic Capabilities

Capabilities are the firm's ability to utilize its resources effectively. Dynamic capability is

the firm’s ability to integrate, build and reconfigure internal and external competencies to

address rapidly changing environment (Teece et al., 1997). According to Dosi et al.,

(2000) dynamic capabilities are what enable the firm to quickly respond to change and

deploy resources accordingly, purposely integrated to achieve a desired end state.

2.3.5. Institutional Facilities (infrastructure)

Institutional facilities include both physical assets as well as non-physical "systems" such

as the body of rules and regulations governing companies such as: the administrative,

financial, and human resource systems, by which highly skilled and specialized

professionals are employed, trained, disciplined and advance in their careers.

18

2.3.6. Key staff skills

The right people are the most important assets of any organization. Successful

organizations of the future will be those, which understand the link between their

business results and people. Individuals in the organization are valuable resources as they

generate ideas and turn them into actions (Schon, 2003). According to Hamel and

Prahalad (1994), core competence is defined as a bundle of skills and technologies. Skills

can often be divided into technical, functional, self-management skills in addition to

important personal attributes (hard-working, trustworthy, results-oriented, and decisive).

Employees with good problem solving skills that enable them to identify, remedy and

resolve business problems. It would be an added value to the company having employees

with entrepreneurship skills such as ability to think critically, analyze situations and be

able to identify business opportunity. Competence at the level of people is an underlying

characteristic which enables them to deliver superior performance in the given job, role

or situation.

2.3.7. Strategic Focus

This is the long-term goal that is ambitious, builds upon and stretches a firm‘s core

competencies, and draws from all levels of the organization. It requires the firm to

concentrate on a narrow, exclusive competitive segment (market niche), hoping to

achieve a local rather than industry wide competitive advantage. Hamel and Prahalad

(1994) declared that strategy needs to be more active and interactive; less arm chair

planning was needed. Their most well-known advance was the idea of core competency.

19

They showed how important it was to know the one or two key things that your company

does better than the competition. The provision of customer value is a source of SCA;

customers’ desired value changes, firms should monitor these changes by continuously

learning about customers (Hamel &Prahalad, 1990).

2.4. Competitive Advantage

A Competitive advantage is, in very basic words, a position a firm occupies against its

competitors. If a firm possesses resources and capabilities which are superior to those of

competitors, then as long as the firm adopts a strategy that utilizes these resources and

capabilities effectively and efficiently, it should be possible for it to establish a

Competitive advantage. Every organization is a victim of its own success, so there is a

need for diversification, which creates a different mix of talents and capabilities. It must

learn how to sustain competitive advantage; it should protect itself from being despoiled

and assimilate new sources of technologies, skills and core competencies.

According to Sadler (2003), the sustainability of competitive advantage depends on three

major characteristics of resources and capabilities: durability, transferability and

replicability. It is arguable to suggest that competitive advantage is at the heart of a firm's

performance as it is concerned with the interplay between the types of competitive

advantage, cost, differentiation, and the scope of the firm's activities. The value chain

plays an important role to diagnose and enhance competitive advantage (Porter, 1985).

20

A competitive advantage is meaningful if it is related to an attribute valued by the market.

Customers need to perceive a consistent difference in important attributes between the

producer’s products or services and those of its competitors. These differences must

relate to some product/delivery attributes which are among the key buying criteria for the

market. Product/delivery attributes are those variables that impact the customers’

perceptions of the product or service, its usefulness and its availability. Some examples

of such attributes are product quality, price and after-sale service. Key buying criteria are

those variables and criteria that customers use in making their purchase decisions. They

are different for different industries and different market segments (Clulow et al., 2003).

Gupta et al. (2009) point out, that resources alone are frequently not enough to generate

competitiveness over other firms.

In creating a competitive advantage, a firm needs the ability to make good use of

resources; defined as the capability to handle a given matter, and, as the ability grow over

time, to utilize available resources to create new resources, such as skills (through new

technology or software application), or to open new doors to the development of new

types of product. “A firm is said to have a competitive advantage when it is implementing

a value creating strategy not simultaneously being implemented by any current or

potential player” (Clulow et al., 2003).

To acquire competitive advantage in any market, a firm needs to be able to deliver a

given set of customer benefits at lower costs than competitors, or provide customers with

a bundle of benefits its rivals cannot match. To realize the potential that core

competencies create, a company must also have the imagination to envision markets that

21

do not yet exist and the ability to stake them out ahead of competition (Hamel and

Prahalad 1991). The basis for competitive advantage is the ability to create knowledge

and move it from one part of the organization to another.

2.5. Core Competence and competitive advantage

In a competitive market environment, there are various strategic tools used by various

firms to achieve market leadership position and gain a competitive advantage. Core

competencies play a key role to counter competitors’ strategies. How well a company

utilizes its core competencies to a large extent determines the eventual organizational

performance.

Therefore, an organization should provide a differentiating edge to be competitive. Due

to fierce market competition, senior management must understand not only the

technologies but also the competencies and motives of competitors. If an organization's

capabilities are scarce, defensible, or hard to imitate, these can form the basis for SCA

and surplus profits. The organizations pick up skills, abilities, and resources that are

unique to them, reflecting their particular path through history. These resources and

capabilities reflect the unique personalities, experiences, and relationship that exist only

in a single organization. Such resources can be the sources of SCA.

Firms which have ‘critical competence’ have well-developed methods of continuously

improving and upgrading their competencies. Learning is the only sustainable source of

advantage, so managers must link their core competence to different types of strategies

across time (Ray et al., 2004). Critical competence seeks to identify the unique

22

competencies of a firm through generic procedures. In this sense, though the core

competencies of firms are diverse, their critical competence is universal. The ability of a

firm to develop its strategic architecture is its ‘critical competence’ and, this emerges as a

prerequisite for achieving sustainable competitive advantage (Hamel, 1994).

A core competency must be continually invested in and upgraded if it is to serve as a

source of sustained competitive advantage (Helleloid and Simonin, 2004). Competencies

evolve through an iteration of doing, learning and doing some more. Each sequence

expands knowledge and enriches core competence. Indeed, one of the shared values of

organizations which have maintained long-term competencies is the continuous

refinement of their core skills. This process of experimentation and improvement is the

key to competitive success Senge (2006).

An organization's competitive advantage potential depends on the value, rareness, and

imitability of its resources and capabilities. However, to fully realize this potential, an

organization must also be organized to exploit its resources and capabilities. In a dynamic

world, only organizations that are able to continually build new strategic assets faster and

cheaper than those of their competitors will earn superior returns and create long term

competitive advantage. The competitive advantage to which core competencies lead is a

function of several forces from both the supply and the demand side (Kak, 2008). The

concept of core competence is distinct from both the traditional strategic thinking of

competing for market share and Porter’s (1985) low cost-differentiation strategy.

23

Overall, the responses to changes in the external environment must be formulated based

on the totality of the competitive situation. These actions require deep understanding of

how the various components of supply and demand relate to the core competence and the

competitive advantage it produces. A change in the regulatory environment may

significantly affect a firm's ability to bring new products to market. It is the combined

impact of the change in technology with all of these other factors which will determine

the actual impact of the environmental change on the firm's competitive posture.

Therefore, maintaining core competencies requires an understanding of the interaction of

a change in one aspect of the environment with other aspects of the organization (Chong,

2006).

Therefore, for sustainable competitive advantage, managers should invest time, effort,

and resources in developing their critical competence. The first step towards developing

critical competence is to understand that such a competence exists and realize that it

makes a difference to the firm’s competitive advantage. Organizations are always trying

to imitate the actions of other successful organizations (Lippman and Rumelt, 2002).

24

CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Introduction

This section discusses how the research was conducted. It illustrates the research design,

the sources of information, the types of data collected, the method of data collection used

and the approach used to analysis the data.

3.2. Research design

The research design was a survey of all the insurance companies operating in Kenya. A

survey is the best method for this kind of study because after the survey the researcher is

able to make comparative analysis on how the various companies use their core

competencies to achieve or gain a competitive advantage. When all items of the

population are covered, no element of chance is left and highest accuracy is obtained.

Surveys are more efficient and economical than observations (Cooper and Emory, 1985).

3.3. Population of the Study

The population of the study consisted of all insurance companies licensed to transact

insurance business in Kenya by the government regulator; IRA (Appendix III). All 45

Insurance companies were approached.

25

3.4. Data Collection

The study used both primary and secondary data. Primary data was collected through a

questionnaire (Appendix II). The questionnaire consisted of both open and closed ended

questions designed to elicit specific responses for qualitative and quantitative analysis

respectively. The questionnaires were administered through mail survey (by using “drop

and pick later” method). The questionnaire had three parts. The first part was the

demographic profile of the respondent of the insurance company. Second part was

focused on core competencies and the last part enquiring about core competencies as a

source of competitive advantage.

Respondents were senior level managers of insurance companies responsible for

marketing and business development because they are tasked with ensuring that the

company maintains a lead or gains a higher competitive advantage over its rivals. A five

Likert Scale was used to score the responses in part one and two of the questionnaire. To

assist in accessing the targeted research respondents, the researcher was equipped with a

letter of introduction (Appendix I). Secondary data was collected from the findings of

published annual reports, strategic plan, articles and journals, previous studies conducted

by other parties and the World Wide Web of various insurance organizations.

3.5. Data Analysis

The data was analyzed by the use of descriptive statistics to summarize and relate

variables which were obtained from the administered questionnaires. The data was

classified, tabulated and summarized using descriptive measures, percentages and

26

frequency distribution tables while tables and graphs were used for presentation of the

findings. However, before the final analysis was performed, the data was cleaned to

eliminate discrepancies and thereafter classified on the basis of similarity after which it

was then tabulated. This method of analysis is most desirable as it enabled the researcher

to have an insight of the core competence used in achieving a competitive advantage.

27

CHAPTER FOUR

DATA ANALYSIS, INTERPRETATION OF THE RESULTS AND

DISCUSSION

4.1 Introduction

The research objective was to establish the use of core competencies as a strategic tool to

achieve competitive advantage by insurance firms in Kenya. This chapter presents the

analysis of the results and their interpretation and discussion of the results.

4.1.2. Response Rate

The survey targeted all the 45 licensed insurance companies in Kenya and questionnaires

were issued out to all. This number represented the insurance companies licensed by the

Insurance Regulatory Authority of Kenya. 35 questionnaires were received back and used

for subsequent analysis. This represented a response rate of 78%, which was a good

foundation upon which the analysis was conducted.

4.2 Demographic Profile of the Respondents

The demographic information considered in the study was the length of time the

respondents have worked in the insurance company and the time the company has been in

existence while conducting insurance business.

28

4.2.1 Length of Time working in the insurance company

The respondents were asked to indicate the duration they have worked in the company.

The findings are presented in Table 4.1.

Table 4.1: Length of Time working in the insurance firm

Frequency Percent Cumulative Percent

Less than 5 12 34.3 34.3

5 – 10 19 54.3 88.6

Over 10 4 11.4 100.0

Total 35 100.0

Source: Author

The result in Table 4.1 indicates that 34.3% have worked in the company for less than 5

years. The results also showed that 65.7% of the respondents have worked in the

insurance industry for over 5 years and thus are able to appreciate the importance of core

competence to their company and how to employ the same to achieve and gain a

competitive advantage against their competitors.

4.2.2 Length of existence of insurance companies

The question sought to establish the duration the insurance companies have been in

existence. The findings are presented in Figure 4.1.

Figure 4.1: Length of existence of insurance companies

Source: Author

The results in Figure 4.1 were that 91.4% of the insurance companies have been in

existence for more than 20 years. The results indicate that majority of the insurance

companies have been in existence for a long

possession of core competence which enable them to achieve competitive advantage over

their competitors.

4.3 Core competence

The core competencies are those unique capabilities, which usually span over multiple

products or markets. The insurance companies that responded listed various core

competencies with more than

product differentiation and information management systems as their known core

competencies. The other competencies listed with a lower frequency which amounted to

a combined 28% response

while the others competencies

29

of existence of insurance companies

The results in Figure 4.1 were that 91.4% of the insurance companies have been in

more than 20 years. The results indicate that majority of the insurance

companies have been in existence for a long time implying that they must be in

possession of core competence which enable them to achieve competitive advantage over

4.3 Core competence of Insurance Companies

The core competencies are those unique capabilities, which usually span over multiple

products or markets. The insurance companies that responded listed various core

with more than 65% indicating customer service, service

product differentiation and information management systems as their known core

competencies. The other competencies listed with a lower frequency which amounted to

a combined 28% response rate consider integrity, strong brand, staff skills and training

competencies listed were branch and regional network, time

The results in Figure 4.1 were that 91.4% of the insurance companies have been in

more than 20 years. The results indicate that majority of the insurance

that they must be in

possession of core competence which enable them to achieve competitive advantage over

The core competencies are those unique capabilities, which usually span over multiple

products or markets. The insurance companies that responded listed various core

service flexibility,

product differentiation and information management systems as their known core

competencies. The other competencies listed with a lower frequency which amounted to

ng brand, staff skills and training

listed were branch and regional network, time

30

management, risk evaluation and management, prudent and ethical practices, action

oriented, speed in settling of claims and issuance of policy documents.

4.3.1 Effects of company’s core competence

The respondents were requested to indicate the extent of agreement with the company’s

core competence in a five point Likert scale. The range was ‘strongly disagree (1)’ to

‘strongly agree’ (5). The scores of strongly disagree have been taken to represent a

variable which had mean score of 0 to 2.5 on the continuous Likert scale; (0< S.E <2.5).

The scores of ‘moderate’ have been taken to represent a variable with a mean score of 2.5

to 3.4 on the continuous Likert scale: (2.5 < M.E. <3.5) and the score of both agree and

strongly agree have been taken to represent a variable which had a mean score of 3.5 to

5.0 on a continuous Likert scale; (3.5 < L.E. <5.0). A standard deviation of > 0.9 implies

a significant difference on the impact of the variables among respondents. The results are

presented in Table 4.2.

31

Table 4.2: Effects of company’s core competence

Company’s core competence

Mean

Std.

Deviation

They are strategically flexible contributing toward the success

of potential business

4.31 0.76

It provides potential access to a wide variety of markets 4.23 0.77

It makes a significant contribution to the perceived customer

benefits of the end product

4.26 0.85

It has close relationships with customers and suppliers 4.14 0.84

They are flexible enough to straddle a variety of business

functions

3.97 0.78

They are collective and unique in their characteristics 3.94 0.59

They involve coordination of diverse production skills and

integrate multiple streams of technologies

3.75 0.62

They are difficult for competitors to imitate 3.12 1.16

Source: Author

The findings in Table 4.2 indicate that insurance firms strongly agree on the effect that

core competencies have to their various business operations. According to the

respondents, core competencies contribute greatly towards the success of potential

business (mean 4.31), significantly contribute towards perceived customer benefits of the

end product (mean 4.26), provides potential access to a wide variety of markets (mean

4.23), enabling closer relationship with customers and suppliers (mean 4.14.). They are

32

also flexible enough to straddle a variety of business functions (mean 3.97), are collective

and unique in their characteristics (mean 3.94) and they involve how to coordinate

diverse production skills and integrate multiple streams of technologies (mean 3.75).

The difference in views was evident on the respondents’ regarding how difficult they

consider their core competitors and whether they can be imitated by their rivals. Their

views were quite moderate (mean 3.12) with a high standard deviation (1.16). The

respondents’ reasons could have been subjective as what one considers as hard to imitate

could be viewed by another as easy to imitate. This could be informed by the existence of

a variety of similar insurance products in the market which may not be highly

differentiated. A comparison of responses on what their insurance firms considered as

core competencies, 65% listed their core competencies as customer service, service

flexibility, product differentiation and information management systems. This similarity

is an indicator of the view that they may not be doing anything different from each other.

4.3.2 Importance of core competence to the Insurance Companies

The respondents were asked to indicate the importance of core competences to their

company. The results are presented in Table 4.3.

33

Table 4.3: Importance of core competence to the Insurance Companies

Importance of core competence Mean Std. Deviation

Enables the company to be more efficient 4.36 0.80

Enables the company to focus on its operations 4.31 0.98

Enables the company to increase its customer

service

4.26 0.80

It aids the company in implementing its marketing

strategy

4.20 0.77

It results to the company doing the right things 4.01 0.96

Source: Author

The results in Table 4.3 indicate that insurance companies strongly agree that core

competences are an important tool to their organizations for achieving a competitive

advantage hence the high mean (mean of > 4). This is an indication of a unanimous view

by insurance firms that core competencies are important as they assist in executing

strategy and securing a competitive edge over rivals in situations where it is relatively

easy for rivals to copy smart strategies.

However, the views were varied on the relationship between core competencies and the

insurance companies’ focus on both its operations and doing the right things. The high

variation is evidenced by a high standard deviation of 0.96 and 0.98 on doing the right

things and focusing on operations respectively. This shows that despite their near

agreement on the importance of core competencies, respondents did not necessarily use

their core competencies in their firms to focus on their insurance operations or do the

34

right things. This could be due to the different strategies employed by insurance firms,

which include use of unscrupulous means by some firms to acquire huge tender

businesses or pricing strategies which may not necessarily have the approval of the

relevant authorities but are used nonetheless.

4.3.3 Core competence usage to achieve competitive advantage

The question sought to establish the extent to which companies’ uses core competence to

achieve competitive advantage. The results are presented in Table 4.4.

Table 4.4: Core competence usage to achieve competitive advantage

Core competence usage to achieve competitive advantage

Mean

Std.

Deviation

Integrity-related competencies (competencies such as, quality,

cycle time management and Just-In-Time)

4.14 0.91

Functionality-related competencies (skills that enable the

company to invest its services or products with unique

functionality and distinctive customer benefits)

3.91 0.89

Market access competencies (management of brand, sales and

marketing, distribution and logistics, technical support)

3.68 1.16

Source: Author

The results show that usage of core competencies by insurance companies’ to achieve

competitive advantage was to a great extent on integrity-related competencies (mean

4.14). Functionality-related competencies were also used to a fair extent (mean 3.91) and

35

market access competencies (mean 3.68). However, from the standard deviation, it is

notable that companies’ are highly varied in views on the use of all types of competencies

to gain competitive advantage but a great variance is on the use of competencies relating

to market access and integrity which portray a standard deviation of 1.16 and 0.91

respectively. This could be as a result of internal strategic programmes or focus.

4.3.4 Use of core competence to sustain success within the Insurance Industry

The respondents were to indicate the extent to which their company uses core

competencies to sustain their success. The results are presented in Table 4.5.

Table 4.5: Use of core competence to sustain success

Use of core competence to sustain success Mean Std. Deviation

Unique resources 3.74 1.04

Dynamic capabilities 3.83 1.20

Institutional facilities (infrastructure) 3.88 1.05

Knowledge management systems 3.91 1.07

Key work processes 4.03 0.82

Key staff skills 4.23 0.94

Strategic focus 4.29 0.86

Source: Author

The findings show that a majority of the insurance firms use strategic focus (mean 4.29),

key staff skills (mean 4.23) and key work processes (mean 4.03) as their main tools to

sustain success and knowledge management systems (mean 3.91). This is evident from

36

their high mean and hence collaborates with the response given under section 4.4 which

indicated a strong agreement among the respondents that they use integrity related

competencies to achieve competitive advantage. The other core competencies employed

by insurance firms include institutional facilities (infrastructure) (mean 3.89), dynamic

capabilities (mean 3.83) and unique resources mean 3.74. The companies’ views are

varied on how they use these factors to maintain successes implying the diversity in the

way these core competencies are used within the various insurance organizations to

sustain their business success. There is also a disparity of how insurance firms use both

internal work processes and strategy to sustain success within the industry.

However, the results show that the insurance companies use the core competencies to

sustain their success within the competitive insurance market.

4.4 Core competence as a source of competitive advantage

Core competencies are particular strengths relative to other organizations in the industry

which provide the fundamental basis for the provision of added value. Core competencies

are the collective learning in organizations, and involve how to coordinate diverse

production skills and integrate multiple streams of technologies.

4.4.1 Company managers’ investment to achieve competitive advantage

The respondents were asked to indicate the extent to which managers employ time, effort

and resources to achieve competitive advantage. The results are as shown in Table 4.6.

37

Table 4.6: Company managers’ investment to achieve competitive advantage

Company managers investment to achieve competitive

advantage Mean

Std.

Deviation

Time 4.27 0.81

Effort 4.35 0.73

Resources 4.43 0.70

Source: Author

The findings were that managers of the companies have invested resources (mean 4.43),

effort (mean 4.35) and time (mean 4.27) in order to achieve competitive advantage. The

implication is that these factors contribute immensely to the achievement of competitive

advantage in the insurance companies in Kenya.

4.4.2 Factors that influence competitive advantage in insurance firms

The respondents were requested to indicate the effect of the listed factors on their

company’s competitive advantage.

38

Table 4.7: Factors that influence competitive advantage in insurance firms

Effect of the factors on company’s competitive

advantage Mean Std. Deviation

Value 3.91 0.70

Rareness 2.97 0.89

Imitability of its resources and capabilities 3.23 0.70

Organizational exploitation of its resources and

capabilities

4.28 0.67

Source: Author

The findings in table 4.7 show that organizational exploitation of resources and

capabilities (mean 4.28) and value (mean 3.91) affected the competitive advantage of the

companies. Companies had a moderate view on the exploitation of the imitability of their

resources and capabilities (mean 3.23) and rareness (mean 2.97). It is important to

highlight that rareness affected the competitive advantage of the company due to the

similarity of the available insurance products and hence many companies may not be

using this attribute to gain or sustain competitive advantage. A core competency must be

continually invested in and upgraded if it is to serve as a source of sustained competitive

advantage.

4.4.3 Applicability of the factors in contributing to competitive advantage

The respondents were asked to indicate the applicability of the statements in contributing

to competitive advantage. The findings are presented in Table 4.8.

39

Table 4.8: Applicability of the factors in contributing to competitive advantage

Applicability of the factors in contributing to competitive

advantage Mean

Std.

Deviation

The company's product and service diversity is a source of

competitive advantage

4.10 1.03

The company has a competitive advantage over its rivals due

to its service flexibility

4.08 0.98

The superior quality of services is a source of competitive

advantage

4.06 0.87

The company has educated our staff in areas like product

knowledge and customer service

3.94 1.11

Speed of offering the service is one factor that led to achieving

competitive advantage

3.91 0.85

Unique resources are a source of sustained competitive

advantage

3.71 0.96

The added value is a source of competitive advantage 3.68 0.99

The company has achieved a competitive advantage through

its cost leadership strategy

3.68 0.95

Complexity of technology helped the company achieve

sustainable edge

3.66 0.97

The company has a competitive advantage over its rivals due

to its unique corporate culture

3.54 0.95

The company has achieved a competitive advantage through

its differentiation strategy

3.37 1.00

The company’s protection policy (in terms of patents,

copyrights, trademarks) is a source of competitive advantage

3.15 1.08

Source: Author

40

The findings show that competitive advantage of the company was contributed by the

company's product and service diversity (mean 4.10), service flexibility (mean 4.08),

superior quality of services (mean 4.06), educated staff in areas like product knowledge

and customer service (mean 3.94), speed of offering the service (mean 3.91), unique

resources (mean 3.71), added value (mean 3.68), cost leadership strategy (mean 3.68),

complexity of technology (mean 3.66), unique corporate culture (mean 3.54). The

companies were moderate on the extent to which they use differentiation strategy (mean

3.37) and the company’s protection policy (in terms of patents, copyrights, trademarks)

(mean 3.15) to achieve competitive advantage. The companies’ views on the applicability

of superior quality of services is a source of competitive advantage (standard deviation

0.87) and Speed of offering the service is one factor that led to achieving competitive

advantage (standard deviation 0.85) are almost agreed.

The above shows that maintaining a high level of service in customer, agent, and broker

interactions is one of the most effective ways for most insurance companies to compete

and differentiate themselves and probably increase profitability in a highly competitive

insurance market. It is also evident from the findings that insurance companies are

placing emphasis on their known core competencies which enable them to be more

efficient, provide better service, strategy execution among other key issues with an aim of

achieving great success within their industry. Insurance firms are exploiting their internal

resources and capabilities and ensuring that they provide value to their customers to

ahead of the pack. Many insurance executives are realizing that it is no longer business as

usual where it was traditionally the product or the price that they used to compete but

41

now it is about the level of engagement in terms service provision which means that the

company has to succeed in creating an intimate long-term relationship with their

customer. This is by having well trained and qualified staff that understand the

company’s products well and are able to deliver the service with zeal and speed.

4.4.4 Effect of core competence on organizational competitive advantage

The question sought to establish the effect of core competence on competitive advantage

of insurance firms. The results are presented in Table 4.9.

Table 4.9: Effect of core competence on organizational competitive advantage

Company’s core competence Mean Std. Deviation

Differentiation advantage 3.68 0.99

Cost leadership advantage 3.51 0.89

Time advantage 3.77 0.84

Profit 3.91 0.92

Growth 4.01 1.06

Sustainability 4.20 0.68

Source: Author

The findings in Table 4.9 indicate that the companies’ core competences affected the

companies’ sustainability (mean 4.20), growth (mean 4.01), profit (mean 3.91), time

42

advantage (mean 3.77), differentiation advantage (mean 3.68) and cost leadership

advantage (mean 3.51).

However, the insurance companies have varied views on the effect that profit (standard

deviation 0.92), differentiation advantage (standard deviation 0.99) and Growth (standard

deviation 1.06) have on the organizational competitive advantage. It is known that most

of the products available in the insurance market are closely related and hence

differentiation is rare.

43

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This section provides a summary of the research findings. It also provides a preview of

how insurance firms utilized their core competencies to achieve a competitive advantage.

It also provides suggestions and recommendations on key areas that need to considered

for further research.

5.2 Summary

The objective of the study was to establish which core competencies are used in the

insurance industry and whether these competencies are used by insurance firms in Kenya

to achieve competitive advantage. The study found out that insurance firms in Kenya give

great significance to their internal known core competencies.

It was noted that different insurance firms have different areas which they consider as

their core competencies. A majority of the firms consider customer service, flexibility,

information management systems and product differentiation as their main competencies.

Others competencies listed included prudent and ethical practices, staff skills and

training, strong brand, risk evaluation and management, a strong branch network (for

distribution), speed in claims settlement and timely issuance of insurance policy

documents.

44

However, in spite of core competencies being found to be collective and unique in their

characteristics, they were also noted to be important to the companies as they enabled

them to be more efficient, product focus, focus on its operations, increase its customer

service, and focus on its operations and doing the right things.

Core competencies contribute significantly to the creation of perceived customer benefits

and enables potential access strategies to a wide variety of markets. These enable the

company to have a close relationship with its customers. Core competencies involve how

to coordinate diverse production skills and integrate multiple streams of technologies

which enable insurance companies to straddle a variety of their business functions.

Maintaining core competencies requires an understanding of the interaction of a change

in one aspect of the environment with other aspects of the organization. The use of core

competences by the companies resulted in sustainability, growth, profit, time advantage,

differentiation advantage and cost leadership advantage.

The companies have been utilizing these core competencies to achieve competitive

advantage as they are strategically flexible contributing toward the success of potential

business. The ability of the companies to develop its strategic architecture is its critical

competence and, this emerges as a prerequisite for achieving sustainable competitive

advantage. Hence, for sustainable competitive advantage, the managers utilized their

time, effort, and resources in developing their critical competence.

Insurance firms achieve competitive advantage through product and service diversity,

service flexibility, offering a unique quality of services which is delivered with speed, use

45

of unique resources and qualified staff to provide superior customer service. Others that

were found to aid in the quest for achieving a competitive advantage include providing

value addition, use of cost leadership strategy and possessing modern technological

facilities which include information management systems. A unique corporate culture is

also important but not to a great extent.

Once an organization achieves or gains a competitive advantage, they will find ways of

sustaining that success. The study revealed that, to achieve this, insurance companies

consider key work processes, key staff skills and having a strategic focus as major

components. The other ways of sustaining success included knowledge management

systems, institutional facilities, dynamic capabilities and unique resources.

In order to sustain its success and have competitive advantage over its competitors, the

study found out that the companies were using strategic focus, key staff skills, key work

processes, knowledge management systems, institutional facilities (infrastructure),

dynamic capabilities and unique resources.

The study, thus, established that the companies have been using their core competence to

achieve competitive advantage. These competence were found to be the company's

product and service diversity, service flexibility, superior quality of services, qualified

staff in areas like product knowledge and customer service, speed of offering the service,

unique resources, added value, cost leadership strategy, complexity of technology and

unique corporate culture.

46

5.3 Conclusion

Due to fierce global competition, senior management must understand not only the

technologies but also the competencies and motives of competitors. The companies are

employing newer methods to turn more profitable by providing competitive customer

service which gives them a differentiating edge over their rivals. Successful strategy

implementation depends on competent employees and their capabilities. They are

important for your organization to develop core competencies. Hiring and retaining

competent employees help insurance firms to develop their core competencies which in

the end aid in achieving a competitive edge.

The study noted that insurance firms use their core competence to achieve competitive

advantage as they pick up skills, abilities, and resources that are unique to them,

reflecting their particular path through history. These resources and capabilities reflect

the unique personalities, experiences, and relationship that exist only in a single

organization. Such resources can be the sources of sustained competitive advantage, and

those imitating these resources will be at a cost disadvantage building them.

The core competences adopted by the insurance companies will in the long run determine

the survival of these companies as only organizations that are able to continually build

new strategic assets faster and cheaper than those of their competitors will earn superior

returns and create long term competitive advantage. In order to sustain success the

companies adopted strategic focus, key staff skills, key work processes, knowledge

management systems, institutional facilities (infrastructure), dynamic capabilities and

47

unique resources. The study found out that the companies achieved competitive

advantage through company's product and service diversity, service flexibility, superior

quality of services, educated staff in areas like product knowledge and customer service,

speed of offering the service, unique resources, added value, cost leadership strategy,

complexity of technology and unique corporate culture.

5.4 Recommendation

Foremost, the study found out that the companies have been using core competence to

achieve competitive advantage. It is therefore recommended that in order to sustain

competitive advantage, the companies must continually enhance their core competencies

and if constant renewal does not take place, other companies will imitate and make the

competencies which lead to competitive advantage obsolescence.

Secondly, the study established that the companies used different core competence to

achieve competitive advantage. It is recommended that the regulator should encourage

the insurance players to use their known core competencies to inculcate professionalism

in their operations. This will lead to financial stability and service consistency which will

lead to customer satisfaction and mutual benefit for all stakeholders. This will also mean

that there will be healthy competition which results a stable economy and avoid the

collapse of the companies.

48

5.5 Suggestion for further research

The study was undertaken on the insurance companies operating in Kenya. It is therefore

recommended that the study is replicated for other players in the insurance industry

especially insurance brokerage firms which are tasked with the responsibility of

distribution of insurance products and aiding in the penetration levels.

49

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www.akinsure.com

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APPENDIX I: Letter of Introduction

Dear Sir/Madam,

RE: MASTER OF BUSINESS ADMINISTRATION (M.B.A.) -STR ATEGIC

MANAGEMENT RESEARCH PROJECT

I am a postgraduate student at the University of Nairobi pursuing a degree in Master of

Business Administration where I am specializing in Strategic Management. Currently I

am carrying out a research project which is a requirement for the fulfillment of Part II for

the Award of M.B.A. degree.

The research is to establish how insurance firms in Kenya use core competencies as a

strategic tool to achieve sustainable competitive advantage.

In this regard, I kindly request you to assist in completing the research questionnaire. I

also take this opportunity to commit and guarantee that the information

collected/obtained from you is only for academic purposes and the same will be treated

with utmost confidentiality.

Your assistance will be highly appreciated.

Yours faithfully,

JONATHAN OMBATI MARUCHA

STUDENT REG. NO. D61/61884/2010

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APPENDIX II: Questionnaire

Please give answers in the spaces provided and tick (√ ) in the box that matches your

response to the questions where applicable.

PART A: DEMOGRAPHIC AND RESPONDENTS PROFILE

1. Name of the insurance company ……………………………………………………….

2. Please give your name below …………………………………………………………

3. What is your designation ……………………………………………………………..

4. How many years have you worked in the insurance industry ……………………….

5. How many years have you worked in this Insurance Company?

a) Less than five years ( ) c) Over 10 years ( )

b) 5-10 years ( )

6. For how long has your insurance company been in operation in Kenya?

a) Less than 5 years ( ) d) 16 – 20 years ( )

b) 6 – 10 years ( ) e) Over 20 years ( )

c) 11 – 15 years ( )

Part B: Core Competence

1. Please list what you consider as your organization’s core competencies.

a) …………………………..

b) ………………………….

c) ………………………….

d) …………………………..

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2. To what extent do you agree with the following regarding your company’s core

competence? Use 1- Strongly Disagree, 2- Disagree, 3- Moderate, 4- Agree and 5-

strongly agree.

1 2 3 4 5

They are collective and unique in their characteristics

They are strategically flexible contributing toward the success of

potential business

The company’s core competence are difficult for competitors to

imitate

The company’s core competence provides potential access to a

wide variety of markets

The company’s core competence makes a significant contribution

to the perceived customer benefits of the end product

The company’s core competence are flexible enough to straddle a

variety of business functions

It involve how to coordinate diverse production skills and integrate

multiple streams of technologies

The company’s core competence has close relationships with

customers and suppliers

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3. How are core competences important to your company? Use 1- Strongly Disagree, 2-

Disagree, 3- Moderate, 4- Agree and 5-strongly agree.

1 2 3 4 5

Enables the company to focus on its operations

Enables the company to be more efficient, product focus

Enables the company to increase its customer service

It results to the company doing the right things

It aids the company in implementing its marketing strategy

4. To what extent does your company uses the following core competences in order to

achieve competitive advantage? Use 1-Not at all, 2-Small extent, 3-Moderate extent, 4-

Great extent and 5-Very great extent.

1 2 3 4 5

Market access competencies (management of brand, sales and

marketing, distribution and logistics, technical support)

Integrity-related competencies (competencies such as, quality, cycle

time management and Just-In-Time)

Functionality-related competencies which are the skills which

enable the company to invest its services or products with unique

functionality and distinctive customer benefits

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5. To what extent does your company uses the following core competences to sustain its

success? Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very

great extent.

1 2 3 4 5

Unique Resources

Dynamic Capabilities

Institutional Facilities (infrastructure)

Knowledge Management Systems

Key Work Processes

Key staff skills

Strategic Focus

Part C: Core competence as a source of competitive advantage

6. To what extent do your company managers invest the following in order to achieve

competitive advantage? Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great

extent and 5-Very great extent.

1 2 3 4 5

Time

Effort

Resources

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7. To what extent has the following factors affected the company’s competitive

advantage? Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-

Very great extent.

1 2 3 4 5

Value

Rareness

Imitability of its resources and capabilities

Organization exploitation of its resources and capabilities

8. To what extent are the following statements applicable in contributing to

competitive advantage? Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and

5-Very great extent.

1 2 3 4 5

Our company has a competitive advantage over its rivals due to

its service flexibility

Our company has a competitive advantage over its rivals due to

its unique corporate culture

Our company has achieved a competitive advantage through its

cost leadership strategy

Our company has achieved a competitive advantage through its

60

differentiation strategy

Complexity of technology helped our company achieve

sustainable edge

Speed of offering the service is one factor that led to achieving

competitive advantage

Unique resources are a source of sustained competitive

advantage in our company

The added value is a source of competitive advantage

The superior quality of services is a source of competitive

advantage

Our company's product and service diversity is a source of

competitive advantage

Our company’s protection policy (in terms of patents,

copyrights, trademarks) is a source of competitive advantage

Our company has educated staff in areas of product knowledge

and customer service

9. To what extent has the company’s core competences affected the following

organizational competitive advantage?

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Use 1- Not at all, 2-Small extent, 3-Moderate extent, 4-Great extent and 5-Very great

extent.

1 2 3 4 5

Differentiation Advantage

Cost Leadership Advantage

Time Advantage

Profit

Growth

Sustainability

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APPENDIX III: List of Licensed Insurance Companies

Name

1 APA Insurance Limited

2 Africa Merchant Assurance Company Limited

3 Apollo Life Assurance Limited

4 British-American Insurance Company (K) Limited,

5 Cannon Assurance Limited

6 CFC Life Assurance Limited

7 Chartis Kenya Insurance Company Limited

8 CIC General Insurance Limited

9 CIC Life Assurance Limited

10 Concord Insurance Company Limited

11 Corporate Insurance Company Limited

12 Directline Assurance Company Limited

13 Fidelity Shield Insurance Company Limited

14 First Assurance Company Limited

15 GA Insurance Limited

16 Gateway Insurance Company Limited

17 Geminia Insurance Company Limited

18 Heritage Insurance Company Limited

19 ICEA LION General Insurance Company Limited

20 ICEA Life Assurance Company Limited

21 Intra Africa Assurance Company Limited

22 Invesco Assurance Company Limited

23 Jubilee Insurance Company Limited

24 Kenindia Assurance Company Limited

25 Kenya Orient Insurance Limited

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26 Kenyan Alliance Insurance Company Limited

27 Madison Insurance Company Kenya Limited

28 Mayfair Insurance Company Limited

29 Mercantile Insurance Company Limited

30 Metropolitan Life Kenya Limited

31 Occidental Insurance Company Limited

32 Old Mutual Life Assurance Company Limited

33 Pacis Insurance Company Limited

34 Pan Africa Life Assurance Limited

35 Phoenix of East Africa Assurance Company Limited

37 Pioneer Assurance Company Limited

38 REAL Insurance Company Limited

39 Shield Assurance Company Limited

40 Takaful Insurance of Africa

41 Tausi Assurance Company Limited

42 Trident Insurance Company Limited

43 UAP General Insurance Company Limited

44 UAP Life Assurance Company Limited

45 Xplico Insurance Company Limited