Impact of differentiation strategy on organizational performance in developing countries

Abstract

Background

In today’s competitive business environment, organizations must swiftly implement strategies to maintain their market position, differentiate themselves, expand their products, and enhance customer value. Differentiation strategies in organizations, such as universities, are crucial due to global competition, changing student expectations, technological advancements, and evolving market demands.

Objective

The study examines the impact of a differentiation strategy on organizational performance in developing countries, analyzing the macro-environment as a mediator.

Methods

The researchers employed a quantitative research design, utilizing a purposive sampling technique to select 200 managers from a targeted population of 400 managers employed at public universities in Kenya. The data were collected through a cross-sectional survey that utilized questionnaires. Partial least squares structural equation modeling (PLS-SEM) was used for data analysis.

Results

The study revealed that differentiation strategy significantly influences organizational performance across all managerial levels. Differentiation strategy significantly correlates with the macro-environment. The macro-environment significantly impacts organizational performance for the middle management and complete sample, but not for top management. The R² values indicate moderate explanatory power for MENV (R² = 0.316) and weak explanatory power for PER (R² = 0.244), suggesting that additional organizational and institutional factors may influence organizational performance. The study also found that the macro-environment significantly mediates the influence of differentiation strategy on organizational performance for the middle management and complete sample, but not for the top management, which had an insignificant indirect effect.

Conclusion

The research suggests that managers should adopt a differentiation strategy to enhance their unique value propositions and internal VRIN capabilities and resources, including technological innovation, customer service, staff training, continuous service quality enhancement, and brand and reputation building. Additionally, managers need to establish macro-environmental scanning mechanisms to enable them to respond proactively to regulatory, technological, and economic shifts. Managers should also foster public-private partnerships to co-develop programs and align with evolving policy environments. For policymakers and governments, the findings underscore the importance of investing in technological infrastructure, creating enabling regulatory environments, and fostering collaborative systems through public-private partnerships and international linkages. Such efforts are critical to expanding access to resources, facilitating policy alignment to support institutional innovation, resilience, and national competitiveness across different sectors and industries.