Assessment of the cause and Impact of Business Environment on Organization Performance in

Ethiopia:
The Case of Bank of Abyssinia.

Selome Lemma

Alpha University College

Addis Ababa, Ethiopia
July 2020
Assessment of the cause and Impact of Business Environment on Organization Performance in
Ethiopia:
The Case of Bank of Abyssinia.

By: Selome Lemma

Advisor: Tadesse Negash (phD)

A Thesis Submitted to the Graduate Studies of Alpha University College

in Partial Fulfillment of the Requirements of the Degree
of Master of Business Administration.

Alpha University College

Addis Ababa, Ethiopia
July 2020
 Acknowledgement
I would like to sincerely thank all of the officials of the organization, and the individuals, who
gave me information I needed to conduct the research. I appreciate the support and assistance
from my families, especially, my father, other members of my family, and all my friends who
kept in high morale while doing the research. My appreciation also goes to my advisor for his
support, guidance and encouragement at all stages of the research.
 Declaration
I, hereby, declare that this research is my original work carried out by myself, independently.
This work has not been submitted earlier in full, or in part, for the award of any other similar
degree to this or any other university or institution.

Name:__________________________________
Signature:_______________________________
Date:___________________________________
 Advisor’s certification
This is to certify that the thesis entitled “Assessment of the cause and Impact of Business
Environment on Organization Performance in Ethiopia: The Case of Bank of Abyssinia.’’
Submitted, in partial fulfillment of the requirements for the master degree in business
management, to the school of graduate studies of alpha university college has been carried out by
Selome Lemma Bizuayehu. The student researcher has competed the work under my
supervision. It is difficult to avow whether or not this work is similar to another work submitted
to this or any other university without the proper “search” technology. However, I happily
recommend that the work be submitted to the graduate studies.

Advisor: Tadesse Negash (phD)

Signature:_________________
Date:_____________________
 Approval
by
the Board of Examiners
and
the Management Department
of the School Of Graduates Studies
Assessment of the cause and Impact of Business Environment on Organization Performance in
Ethiopia:
The Case of Bank of Abyssinia.

By

Selome Lemma Bizuayehu

This is to certify that the thesis prepared by Selome Lemma Bizuayehu with the title “Impact of
Business Environment on Organization Performance in Ethiopia: The Case of Bank of
Abyssinia.’’, and submitted in partial fulfillment of the requirements for the degree of master in
business management, complies with the regulations of Alpha University Collage and meets the
accepted standards.

The Examining Board

______________________ _______________________ __________________

Name of external examiner Signature Date

______________________ _________________ ___________________

Name of internal examiner Signature Date

______________________ __________________ ____________________

Departmental approval Signature Date

__________________ ______________________ ____________________

 Contents

Abstract .......................................................................................................................................................... i
CHAPTERONE:INTRODUCTION...................................................................................................................... 1
1.1. Background/Rationale of the Study .............................................................................................. 1
1.2. Statement of the Problem ............................................................................................................ 2
1.3. Research Questions ...................................................................................................................... 3
1.4. Objectives of the Study ................................................................................................................. 4
3.1.1. General Objective ................................................................................................................. 4
3.1.2. Specific Objectives ................................................................................................................ 4
1.5. Scope/Delimitation of the Study................................................................................................... 4
1.6. Limitations/Constraints of the Study ............................................................................................ 4
1.7. Significance/Contribution of the Study......................................................................................... 5
1.8. Organization of the Final Paper .................................................................................................... 5
CHAPTERTWO:LITERATUREREVIEW .............................................................................................................. 6
2.1. Introduction .................................................................................................................................. 6
2.2. Effects of Macro Environmental Factors on Performance............................................................ 6
2.2.1. Economic Factors .................................................................................................................. 7
2.2.2. Technological Factors............................................................................................................ 8
2.2.3. Socio-cultural Factors.......................................................................................................... 10
2.2.4. Political Component and Legal Factors ............................................................................... 11
2.3. Effects of Micro Environmental Factors on Performance........................................................... 12
2.3.1. The Competitive Environment ............................................................................................ 13
2.3.2. Customers ........................................................................................................................... 15
2.3.3. Suppliers .............................................................................................................................. 16
2.3.4. Substitute Products and Services ........................................................................................ 17
2.3.5. Marketing Intermediaries ................................................................................................... 18
2.3.6. Financiers ............................................................................................................................ 18
2.3.7. Public ................................................................................................................................... 18
2.3.8. Labor ................................................................................................................................... 19
2.4. Effects of Environmental Factors on Performance ..................................................................... 19
2.5. Empirical Review ......................................................................................................................... 23
2.6. Conceptual Framework ............................................................................................................... 23
2.7. Chapter Summary ....................................................................................................................... 24
CHAPTERTHREE:RESEARCHMETHODOLOGY............................................................................................... 25
3.1. Introduction ................................................................................................................................ 25
3.2. Research Design .......................................................................................................................... 25
3.3. Population and Sampling Design ................................................................................................ 26
3.3.1. Population ........................................................................................................................... 26
3.3.2. Sampling Design .................................................................................................................. 27
3.4. Data Collection Methods ............................................................................................................ 28
3.5. Research Procedures .................................................................................................................. 29
3.6. Data Analysis Methods ............................................................................................................... 30
3.7. Chapter Summary ....................................................................................................................... 30
CHAPTERFOUR:RESULTSANDFINDINGS ...................................................................................................... 31
4.1. Introduction ................................................................................................................................ 31
4.2. General Information ................................................................................................................... 31
4.2.1. Response Rate ..................................................................................................................... 31
4.2.2. Gender of Respondents ...................................................................................................... 31
4.2.3. Age of the Respondents ...................................................................................................... 32
4.2.4. Education Level of the Respondents................................................................................... 32
4.2.5. Position of the Respondent in the Bank ............................................................................. 33
4.2.6. Experience in the Banking Industry .................................................................................... 34
4.3. Effects of Macro Environmental Factors on Performance of Bank of Abyssinia ........................ 34
4.3.1. Impact of Political Factors on Performance ........................................................................ 34
4.3.2. Mean Scores of Political Factors Influencing Performance ................................................ 35
4.3.3. Impact of Economic Factors on Performance ..................................................................... 36
4.3.4. Mean Scores of Economic Factors Influencing Performance ............................................. 36
4.3.5. Impact of Technological Factors on Performance .............................................................. 37
4.3.6. Mean Scores of Technological Factors Influencing Performance ....................................... 38
4.3.7. Impact of Legal Factors on Performance ............................................................................ 39
4.3.8. Mean Scores of Legal Factors Influencing Performance ..................................................... 39
4.3.9. Impact Social Factors on Performance ............................................................................... 40
4.3.10. Mean Scores of Social Factors Influencing Performance .................................................... 41
4.3.11. Mean Scores of Competitor Related Factors Influencing Performance ............................. 42
4.3.12. Impact of Customers on Performance ................................................................................ 43
4.3.13. Mean Scores of Customer Related Factors Influencing Performance ................................ 43
4.3.14. Impact of Market Intermediaries on Performance ............................................................. 44
4.3.15. Mean Scores of Marketing Intermediaries Related Factors Influencing Performance ...... 45
 4.3.16. Impact of the Financiers on Performance .......................................................................... 45
4.3.17. Mean Scores of Financiers’ Related Factors Influencing Performance .............................. 46
4.3.18. Impact of the Public on Performance ................................................................................. 47
4.3.19. Mean Scores of Public Related Factors Influencing Performance ...................................... 47
4.3.20. Impact of Labor on Performance ........................................................................................ 48
4.3.21. Mean Scores of Labor Related Factors Influencing Performance....................................... 48
4.4. Effects of Environmental Factors on the Performance of Bank of Abyssinia ............................. 49
4.4.1. Micro Environmental Factors Affect Bank of Abyssinia’s Performance More Than Macro
Environmental Factors ........................................................................................................................ 49
4.4.2. Effects of Combined Micro and Macro Environmental Factors on Bank of Abyssinia’s
Performance ....................................................................................................................................... 49
4.4.3. Inclusion of Environmental Factors in the Bank’s Strategic Performance Planning ........... 50
4.4.4. Correlation Analysis ............................................................................................................ 51
4.4.5. Regression Analysis ............................................................................................................. 52
4.5. Chapter Summary ....................................................................................................................... 53
CHAPTERFIVE:DISCUSSION,CONCLUSIONSANDRECOMMENDATIONS....................................................... 54
5.1. Introduction ................................................................................................................................ 54
5.2. Summary ..................................................................................................................................... 54
5.3. Discussion.................................................................................................................................... 55
5.3.1. Effects of Macro Environmental Factors on Performance of Bank of Abyssinia ................ 55
5.3.2. Effects of Micro Environmental Factors on the Performance of Bank of Abyssinia ........... 57
5.3.3. Effects of Environmental Factors on Performance of Bank of Abyssinia ............................ 60
5.4. Conclusions ................................................................................................................................. 61
5.4.1. Effects of Macro Environmental Factors on Performance of Bank of Abyssinia ................ 61
5.4.2. Effects of Micro Environmental Factors on the Performance of Bank of Abyssinia ........... 62
5.4.3. Effects of Environmental Factors on Performance of Bank of Abyssinia ............................ 62
5.5. Recommendations ...................................................................................................................... 62
5.5.1. Recommendations for Improvement ................................................................................. 62
5.5.2. Recommendations for Further Study ................................................................................. 63
REFERENCES ................................................................................................................................................ 64
APPENDICES ................................................................................................................................................ 67
APPENDIX I: LETTER OF INTRODUCTION................................................................................................. 67
APPENDIX II: QUESTIONNAIRE ................................................................................................................ 68
 LIST OF FIGURES

Figure 2. 1: Conceptual Framework…………………………………………………………25

Figure 4. 1: Education Level of the Respondents ................................................................... 34
Figure 4. 2: Position of the Respondent in the Bank .............................................................. 34
Figure 4. 3: Extent to Which Political Factors Affect Performance ....................................... 36
Figure 4. 4: Extent to Which Economic Factors Affect Performance .................................... 37
Figure 4. 5: Impact of Technological Factors on Performance .............................................. 39
Figure 4. 6: Impact Legal Factors on Performance................................................................. 40
Figure 4. 7: Impact Social Factors on Performance ................................................................ 41
Figure 4. 8: Extent to Which Competitors Affect Performance ............................................. 42
Figure 4. 9: Extent to Which Customers Affect Performance ................................................ 44
Figure 4. 10: Impact of Market Intermediaries on Performance ............................................ 45
Figure 4. 11: Impact of the Financiers on Performance.......................................................... 47
Figure 4. 12: Impact of the Public on Performance ................................................................ 48
Figure 4. 13: Impact of Labor on Performance....................................................................... 49
Figure 4. 14: Combined Micro and Macro Environmental Factors ........................................ 50
Figure 4. 15: Inclusion of Environmental Factors in Strategic Planning ................................ 52
Figure 4. 16: Effects of Environmental Factors on Performance ........................................... 54
 LIST OF TABLES

Table 3. 1: Target Population.................................................................................................. 27

Table 3.2: Sample Frame………………………………………………………………...…..29
Table 4. 1: Gender Representations of the Respondents ........................................................ 33
Table 4. 2: Age of the Respondents ........................................................................................ 33
Table 4. 3: Years of Experience in the Industry ..................................................................... 36
Table 4. 4: Mean Scores of Political Factors Influencing Performance ................................. 38
Table 4. 5: Mean Scores of Economic Factors Influencing Performance .............................. 39
Table 4. 6: Mean Scores of Technological Factors Influencing Performance ........................ 41
Table 4. 7: Mean Scores of Legal Factors Influencing Performance ..................................... 42
Table 4. 8: Mean Scores of Social Factors Influencing Performance..................................... 43
Table 4. 9: Mean Scores of Competitor Related Factors Influencing Performance ............... 45
Table 4. 10: Mean Scores of Customer Related Factors Influencing Performance ................ 46
Table 4. 11: Mean Scores of Marketing Intermediaries Related Factors ............................... 47
Table 4. 12: Mean Scores of Financiers’ Related Factors Influencing Performance ............. 48
Table 4. 13: Mean Scores of Public Related Factors Influencing Performance ..................... 49
Table 4. 14: Mean Scores of Labor Related Factors Influencing Performance ...................... 50
Table 4. 15: Micro Environmental Versus Micro Environmental Factors ............................. 50
 Abstract

The performance of Bank of Abyssinia is key in determining the half and above performance
of Ethiopia’s banking sector against that of other banks in the country. This is because Bank
of Abyssinia is an institution with nationwide spread branches and other investments. The
performance is usually measured by both financial and non-financial indicators according to
the institution’s set objectives. This is normally affected by a number of environmental
factors both micro and macro. The purpose of this study was to examine the effect of
environmental factors on performance; a case study of Bank of Abyssinia. The study sought
to answer the following research questions: 1) what macro environmental factors does Bank
of Abyssinia face? 2) What micro environmental factors does Bank of Abyssinia face? and 3)
what are the effects of environmental factors on Bank of Abyssinia’s performance?

A descriptive design was employed in this study and a sample selected from the targeted
population of 267 where 80 respondents were picked using stratified sampling technique.
The respondents were picked from the Board of Directors, the top level management, the
middle level management and non-managerial employees. The study required primary data
which was collected by the use of questionnaires and interview schedules. Data collection
took a period of two weeks after which the data was analyzed using Microsoft Excel and
SPSS software. Descriptive statistics such as standard deviation, means, frequency, and
percentages were used to summarize the data. Correlations were used to determine degree of
associations between two linearly related variables and regression used to determine the
association between the dependent and independent variables. The analyzed data has been
presented using pie charts, graphs and frequency distribution tables to provide a simplified
and clear picture of the outcomes.

The research findings reveal that environmental factors significantly affect the performance
of the Bank. Macro environmental factors, which include political and legal factors, socio-
cultural factors, economic factors and technological factors, affect the direction in which
performance move most of them having a significant effect. On overall, they have a
significant effect on the performance of Bank of Abyssinia. Micro environmental factors, on
the other hand, which include: competitors, customers, substitute products, suppliers, market
intermediaries, financiers, the public and labor recourse, also have a significant effect on the

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 performance of Bank of Abyssinia, with competitors having the highest impact. Both micro
and macro environmental factors play a significant role in determining the overall
performance of Bank of Abyssinia with none being given much weight than the other. They
have a synergistic form of relationship in which both environments affect performance in the
same direction. When regressed against performance, environmental effects revealed a
significant effect implying the need to focus on both macro and micro environments of the
bank for achievement of optimal performance.

It is recommended that Bank of Abyssinia adopt environmental management into her

strategic planning to achieve optimal performance. This should be done through frequent
surveillance to align strategies to environmental changes. Each aspect of the environment
should be carefully considered and given weight for maximum results. Qualified and
competent individuals who understand how the market functions in different environments
should be consulted to do periodic studies and offer expert advice and opinion on the same.
The strategies adopted should then be measured progressively against performance so as to
check if Bank of Abyssinia is progressing or retrogressing in terms of performance.

The information gained from this study will be useful in enhancing positive performance in
the Bank and hence improving her overall performance. It will also be useful to
organizations working with Bank of Abyssinia such as the government, non-governmental
organizations, and research institutions among others by providing a means to strengthen
and guide policy making processes. The institutions may also use the information provided to
enhance their own individual performance against macro and micro environmental factors
by conducting a similar research specific to their operating environments. This will,
thereafter, lead to an overall economic enhancement. Other institutions in the banking
industry will also benefit from the information by implementing the recommendations
forwarded. They may also conduct such investigations specific to their own micro and macro
environments.
Key words

• Innovativeness
• firm performance
• subjective business performance
• organizational structure
• environmental turbulence

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 CHAPTER ONE: INTRODUCTION

1.1. Background/Rationale of the Study

No business organization can operate successfully in isolation without dependence on supportive

institutions, variables and factors (Oginni, 2010) i.e business organization exists and
operates within an environment where there is complex interplay in terms of activities as well as
networks of relationship between and among human resources, material resources and other
systems. In the views of Aborade (2005) all business decisions are found to be contingent
upon a good analysis of the environment which is often the bane of all the constraints as this
environment creates the opportunities, threats and problems for the business organization.
Evolving from this is the belief that business organization is an integral part of its environment
on the ground that they are mutually interdependent and exclusive where the environment
plays the role of providing the resources and opportunities to organization for its
existence, and the business organization in turn, offers its goods and services to the people
living in the environment for survival and enlightenment (Ajala 2005). This is also in line with
the views of Adi (2006) that the most important sole influence on organizational policy and
strategy at any point in its development is the environment, both within and outside the
organization. Akanji (2003) was of the opinion that the more complex, turbulent and dynamic an
environment becomes, the greater the impact on human attitudes, business, organizational
structure, market and process as well as facilities, therefore there is need for all organization to
direct their attention to the environment when formulating their strategic management policies in
order to facilitate their survival, growth and profit motives.
To understand organizational performance, one must know the elements inside and
outside organization known as Environmental factors. This refers to different forces or
surroundings that affect business operations. Such forces include customers, competitors,
suppliers, distributors, industry trends, substitutes, regulations, and government activities, the
economic, demographic and social and cultural factors. Others are innovations and technological
steadfast and unchanging, it is change itself. Change is inevitable and those organization
unstable, with long-term survivability in question. There are things, events, or situations that
occur that affect the way a business operates, either in a positive or negative way. These things,

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situations or events that occur affect the organizational performance in either appositive or
negative ways are called driving forces or environmental factors. In contemporary Ethiopia
business environment, performance of Ethiopia companies is predicated on factors such as
low-sales, high cost of production, low capital utilization lack of foreign exchange to source
needed inputs, poor power supply and low quality of goods and services, among others. These
issues have led to lack of proper integration and coordination of various corporate sub systems in
Ethiopian organization, resulting in the failure to achieve the stated goals and objectives.
Entrepreneur subsumed in the environment with which they interact by importing inputs
and exporting outputs. Thus, the vagaries and the extremities of the environment affect the
fortunes of organization
1.2. Statement of the Problem

Business is any commercial or economic activity that tends towards business profit. The primary,
objective of business organization is to make profit, grow and survive in the environment
in which it operates. The environment in which business organization operates is a complex,
multi-focus dynamic and has a far reaching effect on such organization. The environment tends,
shape the outlook, and goal of the organization by placing constraints on them. These constraints
in the environment of organization goal could be in the form of competition, these sets a limit on
the goals specify by the organization. For instance, trade union asking for increase in salary, will
affect the shareholder dividend. Unethical behavior also affects profit. All these settings provide
multiple contexts that influence how the organization operates and how and what it produces.
(Oghojafor, 1998) In management, the word “Environment” does not necessarily mean physical
surroundings, but is used to describe all those influences that bear upon the individual
organization. Business environment is used to mean anything, which surrounds the
business organization. It affects the decisions, strategies, process and performance of the
business. The environment is consisting of factors which are beyond the control of the business
(STEP) social, technological, economical, legal and political. It provides opportunities or poses
threats to the organization. Since business makes demand on the society and the society makes
demands on the business, managers in any organization must interact with and respond to
environmental factors internal or external to their organization. The sum of these
interrelationships within the business and between the business and the society is what is
the management regarded as business environment. Organization survival and success depend
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on the appropriate adoptions to a complex and over changing environment. It is pertinent for top
management of organization to identify opportunities and threats in the external environment.
Internal environment, it should focus on strengths and weakness, potential and existing ones. It
should respond swiftly, in order to know where it can have competitive advantage over its rivals.
Therefore, any organization should look or search its environment continuously. Oghojafor
(1998). The Ethiopian business environment has witnessed a lot changes from the period of the
oil boom in the 1960s and the early 1970s. Austerity measures in the early 1980s and the
structured adjustment program in the late 1980s from the company act of 1960s allied matter
decree in the 1990s, undoubtedly brought in the eighty’s the opportunities to be exploited
by some firms or the problems that inhibit the survival of so many business firm. The
need for studying business environment became important considering the fact that business
organization do not operate in vacuum and effective management in complex and dynamic
society such as Ethiopia, requires the assessment of strengths and weaknesses of the organization
and the opportunities and threats posed and the challenges of the external environment. For
survival and growth, organization must adapt to these changes. The objective of this study is to
examine the impact environmental challenges on the performance of business organization
specifically on bank of Abyssinia.
In the face of all these challenges, how effectively can a business organization respond to its
basic operational functions of survival, growth and profit maximization, hence the need to
examine the environmental factors in business environment of the organization with
implications on the survival and growth of business organization in Addis Ababa metropolitan
area of Ethiopia.

1.3. Research Questions

Which macro environmental factors affect the performance of Bank of Abyssinia?

Which micro environmental factors affect the performance of Bank of Abyssinia?
What are the effects of environmental factors on Bank of Abyssinia’s’ performance?
What is the business environment in which Bank of Abyssinia operate?
What are the opportunities and threats to banking operation that emerge from the
business environment in which the Bank of Abyssinia operate?

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 1.4. Objectives of the Study

3.1.1. General Objective

The general objective of this study is to investigate the impact of environmental challenges on
the performance of business organization (the case of bank of Abyssinia).
3.1.2. Specific Objectives
Specifically, the study was intended to achieve the following objectives:
To identify the macro environmental factors affect the performance of bank of Abyssinia.
To identify the micro environmental factors affect the performance of bank of Abyssinia.
To determine the effects of environmental factors on bank of Abyssinia’s performance.
To identify the business environment in which Bank of Abyssinia operate.
To examine the opportunities and threats to banking operation that emerges from the
business environment in which the Bank of Abyssinia operate.

1.5. Scope/Delimitation of the Study

Scope of the study was indicating its range of action or areas of influence. In this case the study
was given a great emphasis to the impact environmental challenges on the performance
of business organization. With a geographical limitation of the city Addis Ababa, specifically on
the bank of Abyssinia head office. By preparing self-administrative questionnaires and
distributing to the selected respondent it could be less time wasting and cost effective at
the same time giving viable data.
1.6. Limitations/Constraints of the Study
This study was limited to the service sector (banking sector) and therefore finding could not be
applicable in the other sector.
Some limitations that was from the Unwillingness of respondents in giving the required
and right response. An inability to answer the research questions
Age of data- In w/c the study was based on secondary data; pay extra care to the age of
the data. Making current an assumption based on old data represents a strong limitation.
Lack of settled time from the company in order to get the respondents freely.

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 1.7. Significance/Contribution of the Study

The research work provide insight into the dynamism of business environment through
which major and minor constraints in the environment were identified, the role of environmental
factors in ensuring as well as heralding survival and growth of business organization in relation
to danger posed by these environmental factors was identified. The work has equally
placed environmental factors in the fore front of business survival and growth thus enlightening
that the success of any business organization is contingent on understanding the
environmental influential factors.

1.8. Organization of the Final Paper

Chapter one presents the introduction to the research. As the name suggests, this introduces the
entire research by highlighting the need and purpose for this study. It will also discuss the local
content of the research. It then introduces the rest of the chapters.
Chapter two reviewed the prior relevant literature on the subject under study. This discusses in
detail the prior studies on project failure, causes of project failure and effects of project failure. It
also discusses the theoretical framework for the study.
Chapter three presents the methodology for the study by discussing the research philosophies
underpinning this research, the choice of research methods, research strategies, types of research,
sampling techniques, and justifications for the various choices made for this study.
Chapter four explains in detail how the data for the study will be collected and analyzed. This is
only for the groundwork undertaken during the actual data collection and data analysis processes.
Finally,
Chapter five presents the conclusion of the research by summarizing the main findings of the
study. It also highlights the contributions that this study makes to both the academic and the
practicing fields. It also highlights the limitations of the study and makes recommendations for
further studies.

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 CHAPTER TWO: LITERATURE REVIEW

2.1. Introduction

This chapter presents an examination of the literature interconnected to the aim of the study.
It is structured in line with the three specific objectives developed in the preceding chapter
which include the examination of micro environmental factors faced by Bank of Abyssinia;
the examination of macro environment factors faced by Bank of Abyssinia and the
relationship between the environmental factors and the performance of Bank of Abyssinia. A
conceptual framework is then developed from this review.

2.2. Effects of Macro Environmental Factors on Performance

In analyzing the macro-environment of an institution, it is important to identify the issues

that might in turn affect a number of important variables that are likely to influence the firm’s
demand and supply levels and its costs (Johnson and Scholes, 1993). The analysis examines
the impact of each of the factors on the business. The results can be used to take advantage of
opportunities and to make emergency plans for threats when preparing strategic plans and
business (Byars, 1991). Kotler (1998) claims that P.E.S.T analysis is a useful tactical tool for
understanding market decline or growth, business position, potential and direction for
operations. The use of P.E.S.T. analysis can be seen effective for business and strategic
planning, marketing planning, product and business development and research reports.
P.E.S.T. also ensures that organization’s performance is aligned positively with the powerful
change forces that are affecting business environment (Porter, 2004).

Pearce & Robinson (2011) explain that the remote environment comprises of factors that
originate beyond and usually are irrespective of a firm’s operating situation. They
additionally explain that the environment gives firms opportunities, threats and constraints
but rarely does a company exert any meaningful reciprocal impact.

According to Beatham et al. (2004), institutions measure their performance in financial

terms; turnover and profit. Various research findings on performance management, however,

6
advocate for an emphasis on both financial and non financial dimensions of organizational
performance such as service quality, competitiveness, organizational flexibility, customer
satisfaction, resource utilization and technology (Harris and Mongiello, 2001; Atkinson and
Brander-Brown, 2001).Cadogan et.al (2002) explains that the macro environment of a
company has significant influence on the performance; factors that influence firms include
technology, market changes, competition and customer demands. According to Isik, Arditi,
Dilmen and Birgonul (2010), managing the negative and positive effects of exogenous
factors has the power to reform corporate-wide characteristics.

2.2.1. Economic Factors

According to Barkauskas (2014) economic factors have the biggest effect on the
development of any given organization. Botezat (2003) states that the development and
performance of organizations strongly depend on the growth of revenue. Ramanauskien
(2010) noted that a rise in wages enable people to spend more money. This factor greatly
affects institutions that collect revenue (Barkauskas, 2015).

National taxation, interest rate fluctuations, currency and raw material prices are forces that
strongly impact on the global market (Yadin, 2002). Other economic forces are business
cycles, stock market values, GDP (gross domestic product per capita) figures and inflation
(Johnson, 2005; O'Connor, 2000). When considering any business in a country, the size of
these forces is very important for instance, the GDP size.

Entry modes having low break-even sales volumes such as indirect exporting are favored by
a small market (Root, 1998). This becomes more applicable when the industry is
concentrating on a specific smaller segment of a large market (Johnson, 2005). An agreement
with the local distribution channels is vital to gain access to each national market. Shipping
arrangements, documentation, and other issues over and over again make it hard and
expensive for small companies to export (Leonidou, 2004). Need for local sales services and
groups, transportation time and complicated adjustments of price and performance are the
factors that should be considered carefully. Cost can be hiked when it comes to a product that
is of great value or needs to be delivered fast (Porter, 1998). Economic factors’ analysis has
shown that in the overall economic growth case, the performance of organizations attracts

7
and increases good will from other sectors in a state (Barkauskas, 2015).

Dess et al. (2008) assert that the economy that institutions operate in has a significant
influence on all industries including manufacturers, suppliers, service providers, wholesale,
retail, government and non-governmental institutions. There are various fundamental
economic indicators used by companies in assessing the economic environment that include
unemployment rates, interest rates, the consumer price index, the gross domestic product, and
the net disposable income. Pearce and Robinson (2011) agree with this by asserting that
consumption patterns are influenced by the effect of various market segments making it
imperative for each company to consider the economic trends that touch its industry and this
must be done at both the international levels and be narrowed down to the national levels.

Tang, Thomas, Thomas and Bozetto (2006), concluded in their research on modeling
financial product purchases that economic factors play a vital role along with individual
precise characteristics in determining the customers’ purchasing behaviors. They additionally
suggest that if an economy is unfavorable, then the organizations’ marketing departments
will need to be selective in targeting their products as only certain specific groups will
probably purchase their them. On the overall Tang et al. believe that the interaction between
economic variables and socio-demographic variables are most significant in improving the
segmenting or targeting of customers by providing predictive purchase rankings and
providing accurate predictions of future purchases.

2.2.2. Technological Factors

The technological environment includes research, knowledge and technology (Snieskiene

2009). Technological factors increase the country’s competitiveness through the provision of
timely and effective information, the modernization of servicing system, the assurance of the
appropriate level of quality and other measures based on innovations and adapted technology
(Barkauskas, 2015). Barkauskas asserts that when using modern technology and information
systems, it is necessary to achieve that institutional information would be available for
residents of a given country and people from foreign countries as well.

8
The increased use of computer programs, technological trends and innovations, increasing
speeds in producing units, smart systems, improvements in artificial intelligence and
diversification are examples of technological forces (O'Connor, 2000). Electricity,
telecommunications, railroads, water supply and natural gas are some of the factors that
attract potential investors in a given place (Johnson, 2005). According to Root (2008), high
transportation cost makes it hard for external parties to compete with local products,
especially when there is a large distance between the two countries. In developed countries
like the United States, Germany and Sweden the infrastructure is generally better compared
to that in developing countries (Kessides, 2004).

According to Hjalager (2002), institutional performance is inevitably associated with new

technologies, the organizational and structural innovations. As Maksimenko. (2008) note, it
is necessary to provide management and marketing knowledge to rural residents as well as to
develop the information for all stakeholders when reorganizing and improving the
information system of any organization and the marking system of revenue collection
(Barkauskas, 2015)

Dess et al. (2008), explain that technological developments result in new services and
products and improve on the process through which products are desined/ made and
delivered to intended users. Victorino et al. (2005) assert that customers have different IT
expectations and requirements; each customer segment may need and, therefore, request
different types of IT applications. Burca et al. (2005) assert that in order for a firm to become
technologically sophisticated it needs to possess a robust scientific-technological base, novel
technology has to quickly make existing ones outdated and new applications in IT should
create new demand or revolutionize demands and markets. In their study on the relationship
between business performance, service practices and performance, and IT sophistication.
Burca et al. (2006) concluded that sophistication in IT moderates the relationship of service
practice against service performance.

Additionally the relationship between Strategic Orientation, Organization Structure,

Information Technology and Firm Performance also has been the point of focus for many
researchers (Croteau et al., 2001; Bergeron et al., 2004). In response to anticipated alterations

9
in the environment, companies deploy Information Technology at an increasing rate; hence,
making investments in Information Technology a major concern for executives in
organizations (Bergeron et al., 2004). Further, Sriram and Krishman (2003) find that
investments in IT are considered as a significant and value increasing activity for the average
firm by the stock market. Bergeron concludes by suggesting that Information Technology
needs to fit an organization’s environment, structure and strategy.

2.2.3. Socio-cultural Factors

Dess et al. (2008), suggest that beliefs, values, and lifestyles of a society are influenced by
socio-cultural forces. They further expound that socio-cultural forces influence sales of
services and products through the enhancement of sale of services and products of an
industry while suppressing those of others.

Consumer purchases are strongly influenced by cultural, social, personal and psychological
characteristics; generally marketers can’t control these factors but instead take them into
account (Armstrong and Kotter, 2000). Keegan et al. (1992) suggest that there are internal
and external factors that influence consumer behavior; external factors include economic,
demographic, situational, social and technological factors while internal factors include
attitudes and beliefs, learning needs and motives, perception and values, and personality.

Armstrong and Kotler (2000) reinforce this by explaining the buying behavior and choices of
persons are influenced by four major psychological factors: perception, motivation, beliefs
and attitudes and learning. Attitudes describe a person’s consistent feelings, evaluations, and
inclinations towards an idea or object, thus they place people into a mind frame for disliking
or liking things, for moving toward or away from them (Armstrong and Kotler, 2000). The
creation of target market strategies is, therefore, widely viewed as integral to formulating an
business strategy that is effective (Doyle, 2006; Grant, 2004) bringing the market
segmentation concept which is often cited as essential to establishing a target market strategy
(Kotler and Keller, 2005).

10
 2.2.4. Political Component and Legal Factors

The political-legal environment includes such factors as political stability, strategic

development objectives, small and medium business promoting, the government executed
institutional promotion and regulatory policy, the government’s support and the business of
an institution’s regulating legislation. Legal and bureaucratic restrictions are one of the main
obstacles to the development of revenue collection business. Usually legal documents
promote the revenue collection activity and therefore its performance but there are cases
when due to specific conditions, the activity may be legally restricted (Barkauskas, 2015)

According to O'Connor (2000), political forces influencing performance in the business

world include: wars and diplomatic relations, trade agreements, sanctions and embargoes,
political trends and events, legislation protecting consumers and safety and health of the
employees. Political inputs are most likely to happen in branches that, affects certain political
goals, such as native access to national resources, defense and employment (Porter, 1998). If
the market’s economy is centrally planned socialist economy, political factors tend to have an
impact on the entry mode and performance of the business (Root, 2008). According to
Cheverton (2004), government actions are together with suppliers and customers part of the
business process. Some kind of legislation can also belong to either political or legal forces
depending on its nature and local circumstances. The legislation is used to restrict for
example marketing activities, particularly in industrialized countries (Yadin, 2002).
According to Barkauskas (2015), ideal conditions for the development of revenue collection
institutions are political stability, security, well-defined and functioning legal system, public
goods provided by the state – infrastructure, environment, information. Dess et al. (2008)
state that legislation and political processes both have an influence on the environmental
settings that an industry or firm must conform to. Moreover, they suggest that legislation
formulated and passed by governments have significant impact on the firms’ governance.
Political constraints may be put on companies through anti-trust laws, fair trade regulations,
minimum wage regulations, tax programs, pollution and pricing policies and this

11
may be perceived as protecting employees, consumers, and the environment and would
restrict the profitability and performance of an organization. Through patent laws, product
research grants, government subsidiaries, legislation and political actions may, on the other
hand, protect firms or even boost their profitability (Pearce & Robinson, 2005).

Xinming, Zhilong, Jinfeng and Muhammad (2012), further suggest that it is important for an
organization to establish a political connection with a government. The political connection
that a firm has with the government influences its strategic choice only to further influence
strategy implementation and on the overall, corporate performance. The environment that
organizations operate in includes market and non-market dimensions, the better portion of
non-market dimensions is the political environment and this plays a key role in the growth of
enterprises. Therefore, the corporate strategy of an organization should consist of both
market and political strategies (Tian et al., 2003; Zhang and Zhang, 2005).

One of the main barriers to global competition, which suffers when national markets require
different products, are the regulations concerning the cost of changing the products so they
meet national market needs (Porter, 1998). According to Leonidou (2004), the legal forces
are policies and legislative regulations which are barriers for foreign business to enter the
local market. Barriers like these protect a country’s own production from foreign investors
who would otherwise completely take over the economy (Root, 2008). The higher the
barriers, the more attractive the local production (Porter, 1998; Leonidou, 2004). Porter
(1998) asserts that other legal barriers are world laws concerning bribes and taxes if they are
set to negatively influence the global trade. Customs documentation and shipping
arrangements are other issues that make it often hard and costly for firms to export
(Leonidou, 2004). Technical norms, different legal restrictions and building regulations bring
out different variants of products on the national market.

2.3. Effects of Micro Environmental Factors on Performance

The micro environment entails the factors having a direct bearing on an enterprise’s
performance. Unlike the macro factors, these factors are more closely linked with the
business. The micro environment factors are as discussed below:

12
 2.3.1. The Competitive Environment

The success of an entity depends upon its ability to gratify the wants and needs of clients
better than those of its competitors. The most common competition which a product of a
company now faces is from differentiated products of other businesses. Neelamegam is of the
view that the best way for a firm to grasp its competition’s full range is to take the buyers’
viewpoint (Neelamegam, 2008).

Dess et al. (2008), submit that in addition to the remote environment, managers need to take
into consideration the industry environment, commonly known as the competitive
environment. Competitiveness refers to positioning a business according to the firm’s
weaknesses and strengths such as its intangible and tangible assets and its managerial
competencies (Isik, Arditi, Dilmen and Birgonul, 2010).

Kale and Arditi (2003) suggest that a business’s environment hosts competitive forces and a
firm’s strategic performance is strongly correlated with its ability to handle the effects of
competition. Dess et al. (2008), also assert that the nature of competition in an industry and
an organization’s profitability of are directly linked to the competitive environment. The
competitive environment comprises of competitors (potential and existing), suppliers and
customers.

The market place that organizations function in is confronted by intensified competition

(Sivadas and Baker-Prewitt, 2000). Casu and Girardone (2009) suggest that competition is
generally considered to have a positive influence on the international competitiveness,
innovation and efficiency of an industry.

According to Porter (2008), rivalry’s degree depends on the the basis and intensity of
competition. Intense rivalry is as a consequence of several interacting factors which include;
slow industry growth, numerous or equally powerful competitors, lack of differentiation,
high fixed or storage costs, and high exit barriers.

Hopkins (2008) explains that the more the rivals there are in an industry, the higher the

13
competitive pressure coming from them. Hopkins asserts that a slow growth rate increases
the competitive rivalry since businesses have a greater tendency to compete with their rivals
and always try to steal market share.

Industries need to develop their strategies efficiently after scrutinizing the environment of the
business they operate in (Singh et al., 2010). Researchers have discovered that the strategy of
an institution is established by its competitive environment and that matching appropriate
strategy and the environment enhances its performance (Baines and Langfield-Smith, 2003;
Chenhall and Langfield-Smith, 2003; Singh et al., 2010).

Dess et al. (2008) describe the threat of new entrants as the possibility that the profits of
established firms in the trade may be eroded by the entry of new competitors. Pearce and
Robinson (2011) explain that new entrants to an industry bring new capability, the desire to
often gain substantial resources and market share; often, organizations diversifying through
acquisition into an industry often leverage resources to cause a shake- up.

According to Pearce and Robinson (2011), the seriousness of the threat of entry depends on
the barriers to entry and the existing competitors’ reaction that the entrant can expect, if
barriers to entry are high and a new entrant expects sharp retaliation from existing
competitors then they don’t pose a serious threat of entering the market or industry. The six
barriers to entry include economies of scale, differentiation, capital requirements, switching
costs, access to distribution channels and cost disadvantages (Dess et al. 2008). Thompson et
al. (2008) add to the factors that increase the threat of new entries a large pool of entry
candidates with sufficient resources, the possibility of market proliferation by the existing
firms, high expectations of new entrants to make high profits, an increase in buyers demand
and finally the failure of existing firms to robustly contest new comer’s entry.

Existing firms defend their markets by retaliating once new competition enters their market
(Chen and Miller, 1994). In some situations existing firms wait for others to react and then
follow or do nothing on the other hand they are unable to compete with the new market
entrants and choose to exist the market (Nargundkar et al., 1996). Failure to consider
competitor reaction may result in the drawing of the wrong conclusion by a firm of its actions

14
(Porter, 1980; Putsis and Dhar, 1998); therefore successful firms look onward by taking a
dynamic view of competition as a series of moves and counter moves. However, despite its
importance, various firms pay little attention to the reaction of competitors in their decision
making and usually think, at best, in terms of only one move instead of multiple moves
(Reibstein and Chussil, 1997).

2.3.2. Customers

Creation of a customer is the drive of any business entity. An enterprise exists only because
of its customer. A firm may have different categories of clienteles like industries and other
commercial establishments, household, individuals, and government institutions. Depending
on one customer is often too risky since it may place the company in a poor bargaining
position. With the growing Globalization, the consumer environment is increasingly
becoming universal (Cherunilam et al., 2007).

Dess et al. (2008), state that buyers pose a threat to an industry by forcing down prices,
bargaining for better quality and playing competitors against each other. The power of each
buyer group is dependent on the attributes of the prevailing market situation in the level of
importance of that group. A buyer group is powerful when it purchases large volumes of a
product or service relative to the seller’s sales, the products of the industry are
undifferentiated, the buyers face few switching costs and the buyers pose a threat of
backward integration.

Singh and Sirdeshmukh (2000) asserts that besides buyer bargaining power, in the twenty
first century customer retention is a customer loyalty is rapidly becoming the market place
currency. Anderson and Narus (2004), further suggest that better and more effective strategy
than continuously trying to acquire new customers in order to replace defecting customers
therefore making it evident that customers play a great role in organizational performance.

In addition to the above, Singh and Ranchhod (2004) state that customer orientation has a
positive impact on the performance of an organization. As popularly conceptualized, a
company’s market orientation incorporates customer orientation and competitive orientation.
While customer orientation focuses on the needs and wants of customers, competitive

15
orientation emphasizes on competitive threats (Kirca et al., 2005). On the overall, an
organization is faced with the threat of buyer bargaining power coupled together with the
daunting task of constantly satisfying the needs of their clients. Despite all this, through the
collection and sharing of information on customers ‟needs and competitors” actions,
organizations can be more sensitive to customers “needs and more responsive to
competitors” moves, therefore being able to respond rapidly.

2.3.3. Suppliers

These are the individuals and firms that supply the input like raw materials and components
to the enterprise. It is fundamental to have a reliable source of supply. Uncertainty
concerning the supply or other supply challenges will compel the firms to maintain high
costs. It is significantly risky to depend on one supplier, hence, the business should have
multiple sources of supply (Cherunilam et al., 2007).

According to Pearce & Robinson (2011), suppliers can exert power participants in the
industry by reducing the quality of purchased services and goods or by raising prices,
therefore, powerful suppliers can squeeze profitability out of an industry. Supplier bargaining
power is high when the supplier group is dominated by few companies, the supplier is not
threatened by substitute products, the industry is not an important customer of the supplier
group, the suppliers good is an important input to the buyers business, the supplier groups
products have established switching costs for the purchaser and the supplier group poses a
credible threat of forward integration (Dess, Lumpkin & Esiner, 2008).

Burnham et al. (2003) describes switching costs as “the onetime costs that customers relate
with, in the process involved in switching from one provider to another”, according to Kim
and Son (2009) switching costs are clienteles costs from switching and can be referred to as
switching barriers and switching costs can be considered as benefit from constraints. There
are different types of switching costs. Burnham et al. (2003) present them as financial
switching costs, relational switching costs and procedural switching costs.

On the other hand Haile ́n et al. (1991), explain that dependent suppliers are more likely to
make changes to their product processes, product specifications and inventory to meet the

16
buyer’s needs. Suppliers who are more dependent on a buyer also are more willing to
cooperate with the buyer by being involved in product development activities (Laamanen,
2005; Provan, 1993; Takeishi, 2001).

2.3.4. Substitute Products and Services

According to Dess, Lumpkin and Esiner (2008), all firms within a given industry compete
with industries or firms producing substitute goods and services. Substitutes reduce potential
returns or profits by placing ceilings on the prices that a firm can profitably charge. Porter
(2008) explains that a substitute product performs the same or similar function as an
industry’s product through different means.

Pearce & Robinson (2011) explain that substitute products that deserve keen attention are
those that are subject to trends improving their price-performance tradeoff with the industry’s
product or are produced by industries earning high profits. Often, substitutes come rapidly
into play if some development leads to increased competition in their industries and causes
price reduction or performance improvement.

Pitta(2010), in a study on Product strategy in harsh economic times, highlights the three
components of the threat of substitutes which includes switching costs, buyer inclination to
substitute and the price performance trade-off of substitutes. Karagiannopoulos,
Georgopoulos and Nikolopoulos (2005) concur when they suggest that the threat of
substitution is affected by switching costs, they go ahead to explain that switching costs are
associated with costs of retaining, retooling and redesigning that are incurred when a
customer switches to another product or service.

According to Karagiannopoulos, Georgopoulos and Nikolopoulos (2005), the substitution

process follows an S-shape curve, it begins slowly as trendsetters risk experimenting with the
substitute then picks up if other customers follow suit and eventually levels off when almost
all economical substitution possibilities have been exhausted. Pitta (2010) suggests that the
threat of substitutes exists when a product’s demand is affected by changes in the price of
substitute products, as more substitutes become more available, demand becomes more
elastic since customers have more alternatives.

17
 2.3.5. Marketing Intermediaries

These are the firms that help a firm to distribute, sell and promote its goods and services to
the final consumers. They include physical distribution firms, middlemen, financial
intermediaries, and marketing services agencies. Middlemen such as retailers and
wholesalers buy merchandise and resell. Physical distribution companies such as
transportation firms and warehouses help the company to stock and move products to there
destination from their point of origin. Marketing service agencies such as marketing
consulting firms, marketing research firms and advertising agencies help the business in
targeting and promoting its products to the right markets. Financial intermediaries such as
insurance companies, banks and credit companies insure against the risks associated with the
buying and selling of goods or help in financial transactions. The firm has to develop strong
relationship with all these for the successful operation of its business (Chidambaram et al.,
2005).

2.3.6. Financiers

According to Joshi, Rosy, Kapoor and Sangam (2007), another important micro environmental
factor is the financiers of a business. Besides the financing capabilities, their attitudes,
strategies and policies (Including attitude towards risk), ability to provide non-financial
support etc. are very important.

2.3.7. Public

A firm has to protect certain public’s interest within its environment. The consumer
protection groups, local people, environmentalists and media persons are some of the well-
known examples of public. Some businesses are seriously influenced by media public. Some
businesses are affected by local publics. Environmental pollution is a matter often taken up
by a number of local publics. Protests have been raised by non-government organizations
(NGOs) against deindustrialization resulting from imports, cruelty to animals, child labour,
environmental problems and so on. It is very important to deliberate the public views to keep
afloat as a company (Cherunilam, 2007).

18
 2.3.8. Labor

The firm, where many workers are employed, the labor force is organized in trade unions’
forms. The trade unions interact with the administration for bonus and higher wages, better
working conditions among other things. They pressurize the management for the gratification
of their demand and even resort to go slow tactics such as gherao, strikes, etc. (Joshi et al.,
2007).

2.4. Effects of Environmental Factors on Performance

The environment of a business may be defined as the total surroundings, having a direct or
indirect bearing on the functioning of business. It may also be defined as the set of external
factors, such as economic factors, social factors, political and legal factors, and demographic
factors, technical factors, among others, which are uncontrollable in nature and affect the
business decisions of a firm (Obasan, 2014). Different institutionss are affected by different
numbers and kinds of environmental factors. External environmental factors change speedily,
are uncertain, and complex, and may create problems for organizations if not closely
monitored. Any organization ignoring or being unresponsive to environmental factors is
creating trouble or inviting trouble. Environment factors affect the relationship between
strategic planning and performance (Cheng-Hua et al., 2011). Several researchers have
argued that the direction of performance depends on organizational environment. For
example, the relationship between market orientation and performance may be moderated by
market and technological turbulence and competitive intensity (Subramanian et al., 2009)

Business environment is complicated by dynamics of change and competitive, producing a

degree of uncertainty such that the nature of the improvement of results after total quality
management implementation is unclear hence calling for close monitoring as a performance
check (Montes et al., 2003). Environmental factors significantly influence business strategies
in the banking industry (Oparanma et al., 2009). Cheng-Hua et al. (2011) also asserts that
environmental variables can moderate the effect of management strategies, therefore,
significantly affecting performance. Environmental uncertainty arises from organizational
ability to make environmental forecasts (Aziz et al., 2010). As a result, organizational
decision making is influenced by the complexity and volatility of the environmental (May et

19
al., 2000). Organizations attempting to ignore environmental factors or that refuses to
respond to such factors create trouble for themselves and place themselves at a competitive
disadvantage. On the contrary, understanding and responsiveness can contribute to firms’
effectiveness and benefits.

Environmental factors that may influence business performance are many and varied; some
are internal to the business while others are external to the business (Salihu, 2015). Today it
becomes extremely essential for Commercial banks to examine their performance because
their survival in the dynamic economic environment will be dependent upon their good
performance (Okoth et al., 2013). The current business environment is marked by diverse
dynamic features such as information technology, global competition, corporate social
responsibility and quality service revolution which are compelling managers to rethink and
reshape their approach to their various operation responsibilities. Due to this paradigm shift,
new firms are emerging that are more responsive to both their internal and external
environments (Obasan, 2014). The internal factors occur within the operational base of a
business and directly affect the different aspect of business. These internal factors include
firms Mission, resistance to change, poor quality staff, lapses in internal control, bad
resource/financial management, operational weaknesses, high staff turnover and over-
leveraging while the external factors include government regulation, economic recession,
political turmoil, low cost competitors, changes in customer behavior, environmental or
health issues, natural disasters, technological changes, change in input supply, changes in
macro-economic variables and terrorist attacks. Hence, it is important for a business to keep a
pace with the various changes in the environment in order to survive in the long run.
According to Adebayo et al. (2005) business environment can be broadly categorized into
internal and external environment with the former comprising variables or factors within the
control and manipulation of the firm to attain set objective while the latter encompasses
factors that are outside the control and manipulation of the firm. Hence, a firm must develop
a plan that will help it to cope with the various environmental forces (Oluremi et al., 2011).
The nature of business environments are said to be classified as dynamic, stable and unstable
which often help a firm in the selection of appropriate strategies that enhance achievement of
maximum performance (Ibidun et al., 2013). Adeoye (2012) opined that in order for firms to

20
cope with the dynamic and swiftly changing business environment, there is a need to develop
and implement appropriate strategies that will safeguard their operations and yield the
desired results. Similarly, Ogundele (2005) added that a business perception of the nature of
the business environment is a function of its size and industry. Business survival is the ability
of a firm to continuously be in operation despite various challenges, that is, the managerial
process of directing the affairs of a firm regularly on a going concern basis and meets the
needs of all stakeholders (Akindele et al., 2012). Business failure is a situation where a
business go into bankruptcy or cease operations which results in losses and failure to meet its
various financial commitment to creditors. In order to survive, firms always keep a close tab
on the various activities that determine their continuity. Adeoye (2012) submitted that the
present form of complexities facing firms include leadership styles changes, market
uncertainty, conflicts, culture, technology, structure, competitive market, profitability and
workplace motivation. Hence, firms must develop a strategical plan and tactical procedure
that is appropriate and adaptive to the present business environment that will aid its optimum
resources utilization and attainment of set goals.

Alexander (2000) observed that the dynamic and swiftly changing business environment in
which most businesses function has made business environment to have significant impact on
organizational survival and performance. This implies that the external environment is
complex and constantly changing and its significant characteristic is competition. The
recognition of the presence of an intense competition often compel the need to seek more
information about clienteles for the purpose of evaluation and to use such information to their
advantage consequently enabling competition to drive business organizations to look for their
customers in order to understand better ways to meet their needs, wants, and thereby
enhances organizational performance (Azhar, 2008). Porter (2004) developed the five forces
of competitive position analysis as a simple framework for assessing and evaluating the
competitive strength and position of a business organization. His theory is based on the
concept that there are five forces which determine the competitive intensity and
attractiveness of a market and helps to identify where power lies in a business situation. This
is useful both in understanding the strength of an organization’s current competitive position,
and the strength of a position that an organization may look to move into. The five forces are

21
supplier power, buyer power, threat of substitution, threat of new entry and competitive
rivalry. Ogundele et al. (2004) submit that external business environment and their factors
helps visualize the analysis of business survival and growth in an attempt to enhance
understanding of how environmental factors work together with the variables of business
survival and growth to determine the future of business organization.

Ghazali et al. (2010), indicated that the internal source of firm’s strengths are related to their
financial resources while the weaknesses are associated to the firms’ management. On the
other hand, the external source of opportunities to the companies are support and
encouragement from the government while threats originate from the various bureaucratic
procedures that firms have to face in order to get plan approval and certificate of fitness.
Similarly, Norzalita et al. (2010) investigated the influence of the external environment in the
market orientation performance linkage among firms in Malaysia and reported that market-
technology turbulence and competitive intensity did not moderate the relationship between
market orientation and business performance. Adeoye (2012) reported that environmental
changes are continuously exerting new pressures on firm’s performance and in order to adapt
with these changes, businesses often formulate and implement strategies to reorganize and
reform the way products are manufactured and distributed to final customers. Thus, the
influence of environmental factors on business performance towards profit objective is found
to have increasingly stronger interrelationships which need more sophisticated business
strategies.

To simplify the description of performance in the two environments (micro and macro
environments) the terms ‘antagonistic’ and ‘synergistic’ were used by Lichtenthaler (2009) in
his study on “Outbound open innovation and its effect on firm performance”. The same
descriptions will be employed in this study. Performance upwards in a bad environment or
downwards in a good environment is antagonistic, the performance and the environment
acting in opposite directions on the character. Synergistic description is the reverse, upwards
in a good environment or downwards in a bad, performance and environment acting in the
same direction. In his study, directional selection in a single macro-environment was
synergistic with respect to the micro-environmental differences, and increased environmental
sensitivity and consequently to increase environmental variance. Both the micro and macro

22
environmental factors affected firm performance in the same direction; whether negative or
positive.

2.5. Empirical Review

Most of the studies done on the effects of macro and micro environmental factors have
covered the stock market and direct profit making organization (Muchiri, 2012). Muchiri
suggested in his research the need to replicate the study of these environmental factors in
other sectors of the economy like public institutions in order to find out whether these factors
influence the performance of the firm. Although many studies have been done on the
performance of Bank of Abyssinia, none has clearly captured the impacts of each micro and
macro-environmental factor on the institution’s performance and the combination of the two.
Thus this study sought to fill this research gap by carrying out a study on the effects of
environmental factors on performance; a case study of Bank of Abyssinia.

2.6. Conceptual Framework

To understand the long-term forces on the market is very important, it is also vital to know
how they change. By recognizing and understanding the relevance of these changes faster
than the competitors, the company can gain an advantage (Cheverton, 2004). Political
factors, economic factors, technological factors and legal factors all combine to form the
macro-environmental factors that play a big role in influencing the performance of Bank of
Abyssinia. At the same time, competitors, suppliers, customers, marketing intermediaries,
financiers, the public, labor and regulatory agencies combine to form the micro environment
that also affects the performance of Bank of Abyssinia. The overall performance of the
institution is affected by a combination of the environmental factors. This is as shown in
figure 2.1 below:

23
 Dependent
Independent
Variables Variable

Macro environmental factors

• Political factors
• Economic factors
• Social factors
• Legal factors
• Technological factors Performance
• The extent to which set
goals/ objectives are
achieved in a particular
Micro environmental factors period of time

• Competitors
• Customers
• Suppliers
• Marketing intermediaries
• Financiers
• Public
• Labor

Figure 2. 1: Conceptual Framework

2.7. Chapter Summary

Chapter two presented a literature review on effects of environmental factors that

organizations operate in on their performance bringing into context the importance of an
organization carefully monitoring both the micro and macro environments that it operates
in. The theories underpinning the study were intensively explored as well as the empirical
literatures. Both the micro and macro environments were extensively covered and the
research gaps explored. The next chapter discusses the methodology of the study.

24
 CHAPTER THREE: RESEARCH METHODOLOGY

3.1. Introduction

Chapter three describes the research design that was used in this study as well as the
population and the design used to select the sample, incorporating the sampling frame, the
sampling technique and the sample size. It also describes the data collection tools that were
used to get information needed to achieve the objectives of the study and the research
procedures used in the field during the study. It also covers the data analysis methods used
while analyzing and interpreting the data and finally provides a summary of the chapter in
the final section.

3.2. Research Design

A research design provides the glue that holds a research project together; it structures the
research and shows how all the major parts of the project including the samples, measures,
treatments or programs and the methods of the assignment work together to address the
research questions (Brown et al, 2003).

The study carried out in this paper was a descriptive study. Descriptive case studies are
designed to obtain pertinent and precise information concerning the current status of a
phenomenon and wherever possible to draw valid general conclusions from the facts
obtained.

As they described research design, Cooper and Schindler (2001) also explains that a
descriptive study describes a phenomena or the characteristics associated with a subject
population which stipulates answering who, what, where, when and how. Descriptive studies
involve the estimation of proportion of the population and the discovery of associations
among different relationships as well as the measurement of the cause and effect of
relationships among variables.

25
The descriptive study design enabled an in-depth investigation into the subject under study.
The study aimed at collecting information concerning Bank of Abyssinia’s environment
factors and examining the information against the performance of the institution. It helped in
the discovery of which environmental factors are faced during the operations of Bank of
Abyssinia’s activities, where and when they are mostly experienced and who causes them as
well as whom they affect in the Bank. Finally, the descriptive design assisted in an in-depth
look of how these factors affect the overall performance of the Bank.

3.3. Population and Sampling Design

3.3.1. Population

Population is the total collection of elements with common observable characteristics about
which some inferences can be made (Mugenda and Mugenda, 1999). Cooper and Schindler
(2008) describe a population as the total collection of elements whereby references have to
be made. The target population for this research was the management and the employees of
the Head office of Bank of Abyssinia, Ethiopia. They were opted for because they are fully
engaged in the process of strategy formation and implementation. The information they gave
could also be a representative of any other Bank of Abyssinia Branch as well as any other
bank as banks face almost the same set of challenges. The target population was 180 and was
distributed in various departments and categorized as illustrated below:

Table 3. 1: Target Population

Department Frequency Percent

Personal Banking 118 44

Corporate and Investment 104 39
Banking
Consumer Cards and Payment
(digital banking) 29 11
Human Resource 16 6
Total 267 100
HR Department; Bank of Abyssinia, Head Office

26
 3.3.2. Sampling Design

3.3.2.1. Sampling Frame

A sample frame refers to a list of elements from which the sample is actually drawn and is
closely related to the population (Cooper and Schindler, 2008). The list could be of
geographical areas, institutions, individuals, or other units (Gill and Johnson, 2002). In this
study, the sampling frame was obtained from Bank of Abyssinia human resources
department as the human resource department has the statistics on employee distribution in
the Bank.

3.3.2.2. Sampling Technique

Sampling technique is the name (or other identification) of the specific procedure by which
the units of the sample have been selected (Wolcott, 1997). In order to select an appropriate
sample size the study employed probability sampling technique and in particular stratified
sampling. Stratified random sampling subjects are selected in a way that the existing
subgroups in the population are less reproduced thus samples will consist two or more
groups. This method was the most suitable for this study because the population was divided
into strata, that is, in departments namely, personal banking, corporate and investment
banking, consumer cards and payment, and human resource.

3.3.2.3. Sample Size

A sample is a finite part of a population in statistics whose properties are to be studied to gain
information about the whole (Jankowicz, 2002). Cooper and Schindler (2008) argue that a
sample size as the set of elements from which data is collected. A good sample size should
provide information that is detailed and comprehensive.

Researchers rarely survey the entire population for two reasons (Jackson et al., 2008): the
population is dynamic such that the individuals making up the population may change over
time and the cost is too high. The study used a target population of the total employees and

27
Managerial staff as provided by Bank of Abyssinia Headquarters Human Resource and a
sample size of 30% of Bank of Abyssinia’s head office staff was calculated. This sample
(30% of the entire population) was representative as it was drawn from all the departments.
The 30% sample is as such a large sample. Hainmueller (2007) states that a large sample size
reduces sampling variability and also reduces the probability of biases. As defined by
Mugenda and Mugenda (1999), for any meaningful study, 10-30% of the population is
adequate. It is a reliable representation of the entire population. The sample size was
presented as shown in the table below;

Table 3. 2: Sample Frame

Department Frequency Proportion Sample Size

Personal Banking 118 30% 35
Corporate and Investment 104 30% 31
Banking
Consumer Cards and Payment
(digital banking) 29 30% 9
Human Resource 16 30% 5
Total 267 80

3.4. Data Collection Methods

A letter of introduction elucidating the purpose of the study and the set time frames to
complete the questionnaire was attached to the questionnaires, which were distributed by
hand. Cooper and Schindler (2008) explain that a questionnaire is an instrument delivered by
to the participant via personal or non-personal means that is completed by the participant.

The questionnaires contained both open ended as well as closed ended questions. Cooper and
Schindler (2008) explain that questions may be structured in questionnaires therefore
presenting participants with a fixed set of choices; often referred to as closed questions. On
the other hand questions can also be unstructured therefore not limiting the responses but still
providing a frame of reference for participants’ answers; often called open-ended questions.
Both qualitative and quantitative data was collected; qualitative data mainly focusing on

28
respondents’ opinions while quantitative data will focus on the exact figures, mainly
numerical data. A five Likert scale was used to get the respondents view in levels of their
opinion. The sections of the questionnaires addressed each research objective which aimed to
find out how each research questions affected performance.

3.5. Research Procedures

The research procedures section describes how the researcher will gather the relevant data for
the study. The study employed a descriptive research design for the case study. The research
objectives of this study provided the basis for which the questionnaires used as data
collection instruments were designed and developed. A pilot test was conducted as
recommended by cooper and Schindler (2008) who explains a pilot test as a tool that is
administered to detect weaknesses in the research design and instruments. A pilot study is a
small scale preliminary study before the main research in order to measure the validity of
data collection instruments, (Kothari, 2006). A series of tests needs to be conducted before
ascertaining that the instrument for collecting data is good (Lee and Lings, 2008). Saunders,
Lewis, and Thornhill (2012) also agree with this by suggesting that a pilot test will be carried
out to identify problems and pilot testing will be used to evaluate questionnaires for
ambiguities, flow, grammar and clarity of the questions. The pilot study also helped in
knowing whether the questions to be responded to were relevant to the topic of the study and
if they were reliable to make inferences that would lead to viable and credible conclusions.
Collected data in the pilot study was analyzed using MS Excel and SPSS software.

Thereafter, the data collection instruments were fine-tuned to the basis of the feedback that
was received from the pilot test and the final version of the data collection instrument was
then administered to the respondents identified in the sample size. The questionnaires were
administered manually, via hand delivery after briefing the established sample size. To
ensure a high response rate, follow up was thoroughly done with each respondent being
assisted personally to understand the concepts whenever they met difficulties in responding
to the questions.

29
 3.6. Data Analysis Methods

A codebook was prepared before entering the data collected in this study. Coding involved
assigning of numbers and symbols to responses so that they can be grouped into a limited
number of categories (Cooper & Schindler, 2008). According to Saunders et al., (2012) this
enables the researcher to enter in data quickly and with fewer errors. Thereafter data cleaning
was undertaken to ensure that only the relevant data was retained for the analysis. This
process ensured that there was consistency across all the respondents and located omissions.
It reduced errors in recording, improved legibility and clarified unclear and inappropriate
responses (Cooper & Schindler, 2008). The cleaned data was thereafter statistically analyzed
through Microsoft Excel and the Statistical Package for Social Scientists (SPSS) Version 20.
Descriptive statistics such as frequency, means, percentages and standard deviation were
used to summarize the data. Correlations were used to determine degree of associations
between two linearly related variables and regression used to determine the relationship
between the dependent and independent variables. The analyzed data has been presented
using frequency distribution tables, pie charts and cross tabulations to give a simplified and
clear picture of the findings. The information is presented and discussed in line with the
research objectives.

3.7. Chapter Summary

This chapter discussed the methodology incorporating research design that was adopted in
the research process was discussed. It highlighted the population under investigation as well
as the sampling design giving details on the sampling frame, the sampling technique and the
sample size. Further, the research instruments that were used to collect data have been
specified. Finally, the research procedures used as well as the methods used in data analysis
has been explained in this chapter. The proceeding chapters will discuss the research
findings, present the analysis and present the discussions as well as the conclusion and
recommendations.

30
 CHAPTER FOUR: RESULTS AND FINDINGS

4.1. Introduction

This chapter presents data analysis and discussions of the study findings on effects of
environmental factors on performance: a case of Bank of Abyssinia. The analysis is based on
research questions and objectives as identified in the study and then analyzed using
Microsoft Excel and SPSS software. The results have been presented in form of tables, charts
and graphs. The chapter is then concluded by a chapter summary.

4.2. General Information

4.2.1. Response Rate

This study had targeted 80 respondents from the headquarters of Bank of Abyssinia in Addis
Ababa, Ethiopia. Questionnaires were given to randomly selected respondents in each
departmental strata of the Bank. However, due to the study time limitations, 80 responses
were achieved which represents 94% response rate which was a good response rate at it was
above the 70% threshold (Mugenda & Mugenda, 2003). This formed the basis for the
analysis presented in this chapter.

4.2.2. Gender of Respondents

The study examined gender to establish the highly involved persons in the banking sector.
Majority of the respondents (54.9%) were males while females formed 45.1% of the
respondents as shown in Table 4.1 below. This implies that males are more involved in
running of the banking sector than their female counterparts. This can also be attributed to
the fact that most men have white collars jobs in urban centres while many women are
usually the home custodians.

31
Table 4. 1: Gender Representations of the Respondents

Gender Frequency Percent

Male 44 54.9
Female 36 45.1
Total 80 100.0

4.2.3. Age of the Respondents

Most (58.8%) of the respondents were aged between 25 and 35 years, 25.5% of the
respondents were in the ages 36 to 45 years, 11.8% of the respondents were in the ages 18 to
24 years while 3.9% of the respondents were aged between 46 to 55 years. This suggests that
most of the workers in the bank were of the age brackets of 25 to 35 years while individuals
over the age of 55 are not active as workers in the banking industry as shown in Table 4.2
below:

Table 4. 2: Age of the Respondents

Age group Frequency Percent

18-24 9 11.8
25-35 48 58.8
36-45 20 25.5
46-55 3 3.9
Total 80 100.0

4.2.4. Education Level of the Respondents

Most of the respondents (43.1%) were degree holders, 33.3% of the respondents had attained
a post graduate education level, and 21.6% had attained diplomas, while only 2% had a
doctorate degree. This implies the majority of the bank personnel were knowledgeable in the
operations of the banking sector and hence could give valid and dependable responses as
shown in Figure 4.1:

32
 Highest level of education
50.0
43.1
45.0
40.0
33.3
35.0
30.0
25.0 21.6
20.0
15.0
10.0
5.0 2.0
0.0
Diploma Bachelors' Degree Masters' Degree Doctorate

Figure 4. 1: Education Level of the Respondents

4.2.5. Position of the Respondent in the Bank

Most (70.6%) of the respondents were at non-managerial level, 15.7 were at middle level
management, 9.8% were at senior management levels, while 3.9% of the respondents were
among the Board of Directors. This implies that the majority of employees in the Bank are at
non-managerial level. This indicates a normal occurrence in businesses in which the pyramid
narrows as one goes up the hierarchy of protocols. The information is as presented in Figure
4.2 below:

Position at the Bank (%)

3.9
9.8
15.7

70.6

Non-managerial level Middle level management

Senior Management Board of directors

Figure 4. 2: Position of the Respondent in the Bank

33
 4.2.6. Experience in the Banking Industry

The findings indicate that majority (45.1%) of the respondents had between 0 to 5 years’
experience, 39.2% had between 6 to 10 years’ experience, and 9.8% had above 15 years’
experience while 5.9% had worked with the banking industry for between 11 and 15 years.
This implies that most of the staff were new in the bank and young as well since the workers
with the least experience were also the youngest. This does not, however, have a negative
implication on the findings of this study since the respondents were knowledgeable in the
banking sector and hence capable of giving credible responses. Their responses were also
matched against those with more experiences giving no great discrepancies. This is as shown
in Table 4.3 below:

Table 4. 3: Years of Experience in the Industry

Experience Frequency Percent

0-5 36 45.1
6-10 31 39.2
11-15 5 5.9
Above 15 8 9.8
Total 80 100.0

4.3. Effects of Macro Environmental Factors on Performance of Bank of

Abyssinia

4.3.1. Impact of Political Factors on Performance

Results indicate that most (49%) of the respondents agreed with the statement that political
factors affect the bank’s performance to a great extent, 11.8% strongly agreed, 27.5%
thought that the impact was only moderate while 11.8% of the respondents disagreed with
the statement that political factors affected Bank of Abyssinia’s performance to a great
extent. This could mean that the state of politics has an impact on performance. In the advent
of political instability, the bank’s performance is significantly affected according to the
majority of the respondents as shown in Figure 4.3.

34
 Extent to which political factors affect
Performance (%)
60.0
49.0
50.0

40.0

27.5
30.0

20.0
11.8 11.8
10.0

0.0
Great extent Moderate extent No extent Very great extent

Figure 4. 3: Extent to Which Political Factors Affect Performance

4.3.2. Mean Scores of Political Factors Influencing Performance

Majority of the respondents largely agreed politically instigated factors affect performance.
Only a few respondents disagreed with this statement disassociating politics with bank’s
performance (mean of 2.51). A majority thought the legislature barring market access, civil
and national conflicts and interest capping regulations significantly affected the performance
of Bank of Abyssinia. This is as shown in Table 4.4 below.

Table 4. 4: Mean Scores of Political Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which political factors affect
2.51 1.102
performance
Legislature barring market access adversely
4.37 .662
affect performance
Civil and national conflicts affect
4.61 .603
performance
Interest capping regulations impede
4.29 .782
performance

35
 4.3.3. Impact of Economic Factors on Performance

The findings indicate that most of the respondents (52.9%) strongly agreed and 31.4% agreed
with the statement that economic factors have a significant effect on the bank’s performance.
However 15.7% of the respondents thought that economic factors only affect the bank’s
performance to a moderate extent. This could mean that there is need focus on the economic
factors that the bank faces to improve performance. No respondent disagreed with this
statement. The data is as represented in Figure 4.4 below.

Extent to which Economic factors affect

Performance (%)

15.7

52.9
31.4

Very great extent Great extent Moderate extent

Figure 4. 4: Extent to Which Economic Factors Affect Performance

4.3.4. Mean Scores of Economic Factors Influencing Performance

Majority of the respondents strongly agreed economically stimulated factors affect

performance significantly. However, a few respondents disagreed with this statement only
associating the effects of economic factors with bank’s performance to a minimum extent
(mean of 3.57 and standard deviation 1.1). A majority thought GDP size is plays an
important role on performance, interest rate fluctuations & currency value, national taxation,
unemployment rates, and inflation rates significantly affected the performance of Bank of
Abyssinia. These are areas that, therefore, need substantial focus during strategic planning.
The information is as represented in Table 4.5 below

36
Table 4. 5: Mean Scores of Economic Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which economic factors affect
1.63 .747
performance
GDP size is plays an important role on
4.51 .505
performance
Interest rate fluctuations & currency value
4.37 .662
strongly affect performance
National taxation significantly affect
3.57 1.100
performance
Unemployment rates affect performance 4.65 .688
Inflation rates negatively affect performance 4.25 .523

4.3.5. Impact of Technological Factors on Performance

About 59% of the respondents indicated that technology has a very great impact on
performance while 33% and 8% thought that the impact was great and moderately great
respectively. None of the respondents thought that technology has no impact. This could
attribute to the rise in global technology where most transactions are becoming digital and
technology being employed in many sectors. This is shown in Figure 4.5.

37
 Extent to which Technological factors affect
Performance

58.8
60.0

50.0

40.0 33.3

30.0

20.0
7.8
10.0

0.0
Very great extent Great extent Moderate extent

Figure 4. 5: Impact of Technological Factors on Performance

4.3.6. Mean Scores of Technological Factors Influencing Performance

In as much as the majority of the respondents thought that technology is key in effective
performance, most felt Bank of Abyssinia has not fully utilized technology to its maximum
potential. There were variations in the response given to this question with respondents
diving a wide range of opinions, hence the large standard deviations observed as shown in
Table 4.6.
Table 4. 6: Mean Scores of Technological Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which Technological factors affect
1.49 .644
performance
Bank of Abyssinia uses computer programs,
new
4.22 1.101
technology and latest innovations
Modern technological infrastructure affects
4.18 1.108
performance
Performance is attributed to use of Mobile
4.20 1.059
banking
Performance is attributed to agency banking 3.88 1.070

38
 services decline banks' performance 3.67 1.438

4.3.7. Impact of Legal Factors on Performance

From the study findings, most (58.8%) of the respondents strongly agreed with the statement
that legal factors greatly affect the performance of Bank of Abyssinia, 27.5%% of the
respondents agreed, while 13.7% thought that the impact was only moderate. This indicates
that majority of the respondents were of the opinion that indeed the intervention by the legal
related sectors on the bank operations influence the performance thereof as shown in Figure
4.6.

Extent to which legal factors affect performance

70.0
58.8
60.0

50.0

40.0
27.5
30.0

20.0
13.7
10.0

0.0
Very great extent Great extent Moderate extent

Figure 4. 6: Impact Legal Factors on Performance

4.3.8. Mean Scores of Legal Factors Influencing Performance

Majority of the respondents strongly agreed legal factors affect performance significantly.
However, there was a diverse reaction when it came to the individual legal factors affecting
performance. Although most of the respondents thought policies and legislature affect
performance negatively, some thought that some policies can affect performance positively
hence a large standard deviation. This implies that the effects of legal factors depend on the
direction they take. Some legal factors are appealing to performance while some repel
growth. This was also the case for import policies and some legal barriers such as barriers
inhibiting bribery thought to be influencing performance. The case was, however, different

39
For technological norms & legal restrictions where a majority of the respondents thought
these significantly affect performance as shown in Table 4.7.
Table 4. 7: Mean Scores of Legal Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which legal factors
1.55 .730
affect performance
Policies and legislature affect
3.75 1.197
performance negatively
Technological norms & legal restrictions
3.96 .871
significantly affect performance Import
policies reduce performance some legal 4.12 1.070
barriers increase performance 3.86 1.312

4.3.9. Impact Social Factors on Performance

The study findings indicated that most (35.3%) of the respondents strongly agreed, 33.3%
agreed, while 31.4% expressed a neutral stand to the statement that social factors
significantly affected performance. This means that social factors have volatile expressions
among respondents. This could be as a result of the fact that social factors can be easily
manipulated to change their course of occurrence. This is as shown in Figure 4.7 below.

Extent to which social factors affect

Performance

31.4 35.3

33.3

Very great extent Great extent Moderate extent

Figure 4. 7: Impact Social Factors on Performance

40
 4.3.10. Mean Scores of Social Factors Influencing Performance

The respondents strongly agreed with the fact that socially initiated factors affect
performance significantly. However, a few respondents disagreed with the view that
increased population increases performance (mean of 3.51). A few of the respondents also
disagreed with the opinion that Ethiopians have low motivations towards banking (mean
2.94) as represented in Table 4.8 below:

Table 4. 8: Mean Scores of Social Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which social factors affect performance 1.96 0.824
Increased population increases performance 3.51 1.405
Cultural values decrease performance 2.29 0.807
Poverty declines performance 4.04 0.916
Attitude affects performance 3.59 0.753
Wrong perception declines performance 3.82 0.888
Poor performance is due to low education levels 2.14 0.825
Low motivation towards banking leads to poor
performance 2.94 1.028

Extent to which competitors affect performance

82.4
90.0
80.0
70.0
60.0
50.0
40.0
30.0 17.6
20.0
10.0
0.0
Very great extent Great extent

Figure 4. 8: Extent to Which Competitors Affect Performance

41
 4.3.11. Mean Scores of Competitor Related Factors Influencing Performance

Most of the respondents agreed strongly with the statement that competitors significantly
affect the performance of Bank of Abyssinia. Majority thought that increased competition
leads to a decline in performance and this could mostly be attributed to substitutes presented
by the competitors. However, there was variation in the opinion that financial institutions
need to be decreased for Bank of Abyssinia to thrive and the fact that diversified products by
new entrants decline performance. A few respondents did not also agree with the view that
undifferentiated products lead to the loss of customers to competitors as shown in Table 4.9.

Table 4. 9: Mean Scores of Competitor Related Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which competitors affect
performance 3.92 1.055
Increased competition declines
performance f 4.24 0.885
inancial institutions need to be
decreased for high performance 3.47 1.317
Diversified products by new entrants
decline performance 1.18 0.385
Substitutes affect performance
negatively 4.31 0.547
Undifferentiated products lead to loss of
customers 2.76 1.069

42
 4.3.12. Impact of Customers on Performance

The findings indicate that most of the respondents (60.8%) strongly agreed and 35.3% agreed
with the statement that customers have a significant effect on the bank’s performance. Only
3.9% of the respondents thought that customers only have a moderate influence. This implies
that meeting customer needs would result in accrual of more customers and hence high
performance. No respondent disagreed with this statement. This is represented in Figure 4.9
below.

Extent to which customers affect performance

3.9

35.3

60.8

Very great extent Great extent Moderate extent

Figure 4. 9: Extent to Which Customers Affect Performance

4.3.13. Mean Scores of Customer Related Factors Influencing Performance

Most of the respondents were of the opinion that customers strongly affect performance. A
majority indicated that retail banking and approaching customers significantly increases
performance. A few did not totally agree with the fact that the net worth of individual
customers affects performance as shown in Table 4.10.

43
Table 4. 10: Mean Scores of Customer Related Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which customers affect performance 1.43 .575
Net worth of individual customers determines
3.73 1.343
level performance
Retail banking increases performance level 4.39 .493
Approaching potential customers increases
4.39 .493
performance

4.3.14. Impact of Market Intermediaries on Performance

A majority of the respondents indicated that marketing intermediaries affect performance to a

significant level. This implies that Bank of Abyssinia needs venture into agency banking to
test if this can significantly increase her customer base. Marketing intermediaries bring the
bank’s products closer to the intended customers. The information is as presented in Figure
4.10.

Extent to which marketing intermediaries

Affect performance
60.0
52.9
50.0

40.0
33.3
30.0

20.0
13.7
10.0

0.0
Very great extent Great extent Moderate extent

Figure 4. 10: Impact of Market Intermediaries on Performance

44
 4.3.15. Mean Scores of Marketing Intermediaries Related Factors Influencing
Performance

Although a few respondents (mean 3.65) do not agree with the statement that customers
prefer agency banking to going to bank halls, most are of the opinion that utilizing banking
agents broadens the customer base. This could thus be considered in strategic management
since it could sell the bank to potential customers. This is shown in Table 4.11.
Table 4. 11: Mean Scores of Marketing Intermediaries Related Factors

Statement Mean Std. Deviation

Extent to which marketing
1.80 .664
intermediaries affect performance
Bank of Abyssinia has performing
2.47 1.433
Banking Agents
Maximally utilizing banking agents
4.12 .909
broadens the customer base
Customers prefer agent banking 3.65 1.383

4.3.16. Impact of the Financiers on Performance

Views concerning the impact of financiers on performance of Bank of Abyssinia were

largely variant. A majority (39.2%) thought that financiers only affect performance to a
moderate extent. This implies that the bank needs to focus on selling her products and
diversification of offered products to increase her customer base. Financiers should be
viewed from the customers’ point since increasing customers will increase the account
balance hence enabling financing of the bank’s investment for maximum performance. A few
respondents (37.3%-strongly agree and 23.5% agree) still think that financiers are very
important. The two combined indicate that financiers are still significant in the performance
achievement at 60.8% as shown below in Figure 4.11.

45
 Extent to which financiers affect performance

37.3
39.2

23.5

Very great extent Great extent Moderate extent

Figure 4. 11: Impact of the Financiers on Performance

4.3.17. Mean Scores of Financiers’ Related Factors Influencing Performance

The numbers of respondents who think financiers are significant in performance

improvement and maintenance makes the majority. The view however varies largely among
the respondents when focusing on the individual financiers’ related factors. A few
respondents thought that financiers are not willing to risk money to ensure high performance
(mean 3.43). As regarding performance solely relying on financiers or being attributed to
stakeholders, a few respondents had a contrary opinion. This implies that performance needs
to be reliant on a diversified number of factors for it to be sustained. The information is as
shown in Table 4.12

Table 4. 12: Mean Scores of Financiers’ Related Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which financiers affect
2.02 .883
performance
Financiers are willing to risk money to
3.43 1.330
ensure high performance
Performance does not solely rely on
2.67 1.160
financiers
Performance is attributed to stakeholders 3.73 1.201

46
 4.3.18. Impact of the Public on Performance

The study findings indicated that most (49%) of the respondents strongly agreed, 43.1%
agreed, while 7.8% thought that the public only affects performance to a moderate percent as
shown in Figure 4.12. This means that the public needs to be put in focus when formulating
the bank’s strategic management targets. This is because the public make the populations that
make the potential customers to Bank of Abyssinia.

Extent to which the public affect performance

60.0
49.0
50.0
43.1
40.0

30.0

20.0

7.8
10.0

0.0
Very great extent Great extent Moderate extent

Figure 4. 12: Impact of the Public on Performance

4.3.19. Mean Scores of Public Related Factors Influencing Performance

Majority of the respondents indicated that investing in public awareness of the banks
intended customers and the range of products being offered would increase the bank’s
performance. This is because a majority of the public considers Bank of Abyssinia a rich
man’s bank.
Table 4. 13: Mean Scores of Public Related Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which the public affect
1.59 .638
performance
The public considers Barclays a rich
4.24 .586
man's bank
Investing in public awareness and marketing
4.31 .469
will increase performance

47
 4.3.20. Impact of Labor on Performance

A majority of the respondents (54.9%) indicated that labor related issues significantly affect
performance. This implies that a satisfied and motivated labor performs their duties optimally
leading to eventual high performance of the bank. Focusing on the labor will thus increase
performance. This is shown in Figure 4.13.

Extent to which labor affects performance (%)

7.8

37.3
54.9

Very great extent Great extent Moderate extent

Figure 4. 13: Impact of Labor on Performance

4.3.21. Mean Scores of Labor Related Factors Influencing Performance

Most respondents thought that a motivated labor force increases performance. This means
that motivating laborers leads to offering of quality services at an effective rate hence
resulting into satisfied customers. The labor force also goes to an extra mile in selling the
bank’s products leading to eventual high performance. Opinions varied regarding switching
to e-banking and doing away with manual labor. A few respondents thought that increasing
the labor force would not significantly affect performance. Motivating the labor force was
thus the highly favored strategy as shown in Table 4.14.
Table 4. 14: Mean Scores of Labor Related Factors Influencing Performance

Statement Mean Std. Deviation

Extent to which labor affect performance 1.53 .644
Increasing labor will increase performance 3.10 1.044
Motivating laborers will increase
4.80 .401
Performance
E-banking is preferable to manual labor 1.96 1.113

48
 4.4. Effects of Environmental Factors on the Performance of Bank of Abyssinia

4.4.1. Micro Environmental Factors Affect Bank of Abyssinia’s Performance More Than
Macro Environmental Factors

The study findings indicate that a majority (47.1%) of the respondents neither agreed nor
disagreed while 9.8% strongly disagreed with the opinion that micro environmental issues
affected performance more than the macro environmental factors. A few (43.1%) thought
that the micro environment factors affect performance to a significant level compared to
macro environmental factors. This implies that focus need to be placed on both macro and
micro environmental factors. The information is as shown in Table 4.15 below.

Table 4. 15: Micro Environmental Versus Micro Environmental Factors

Opinion Frequency Percent

Disagree 8 9.8
Neutral 38 47.1
Agree 34 43.1
Total 80 100.0

4.4.2. Effects of Combined Micro and Macro Environmental Factors on Bank of

Abyssinia’s Performance

As projected by the findings of the study, 72.5% of the respondents thought that combined
macro and micro environmental factors have significant effects on performance. About 22%
of the remaining respondents also thought that the two environments affect performance to a
significant level.
Only 5.9% had a neutral opinion with no respondent totally disagreeing with the view as
shown in Figure 4.14. As suggest above, this implies focus should be place on both macro
and micro environmental factors affecting the bank for optimal performance.

49
 Combined Micro and Macro Environments

5.9
21.6

72.5

Neutral Agree Strongly agree

Figure 4. 14: Combined Micro and Macro Environmental Factors

4.4.3. Inclusion of Environmental Factors in the Bank’s Strategic Performance Planning

A majority of the respondents (54.9%) strongly agree with the fact that environmental factors
need to be included in the Bank’s strategic management. About 35% of the remaining also
agree with this while 9.8% remained neutral on this opinion as shown on Figure 4.15. None
of the respondents disagreed with the opinion. This means that both macro and micro
environments affecting the Bank need to be considered for performance to increase to
competitive levels

50
 Inclusion of environmental factors in strategic
Performance management

54.9
60.0
50.0
35.3
40.0
30.0
20.0 9.8
10.0
0.0
Neutral Agree Strongly agree

Figure 4. 15: Inclusion of Environmental Factors in Strategic Planning

4.4.4. Correlation Analysis
The study findings show that the relationship between macro environmental factors and
micro environmental factors is strongly significant. Pearson Correlation indicated a
significant value of less than 0.01 (2-tailed) indicating a strong relationship between how
micro environmental and macro environmental factors affect performance of Bank of
Abyssinia. The relationship is synergistic such that both the macro and micro environmental
forces affect performance in the same direction.

Correlations

Average of macro Average of micro

environmental factors environmental factors

Average of macro Pearson Correlation 1 .853**

environmental factors
Sig. (2-tailed) .000

N 51 51

Average of micro Pearson Correlation .853** 1

environmental factors
Sig. (2-tailed) .000

N 51 51

51
Correlations

Average of macro Average of micro

environmental factors environmental factors

Average of macro Pearson Correlation 1 .853**

environmental factors
Sig. (2-tailed) .000

N 51 51

Average of micro Pearson Correlation .853** 1

environmental factors
Sig. (2-tailed) .000

N 51 51

Correlation is significant at the 0.01 level (2-tailed).

4.4.5. Regression Analysis

A majority of the respondents indicated that performance is strongly affected by

environmental factors. When the environmental factors were regressed against performance,
the significant value was below 0.05. Significance values below 0.05 indicate a strong
relationship among the variables under research. The total number of respondents was 51 and
most agreed with this statement and therefore the low standard deviation (0.98) presented.
This is as represented in the histogram below.

52
 Figure 4. 16: Effects of Environmental Factors on Performance

4.5. Chapter Summary

This chapter presented the results, analysis and discussions as were derived from the sample
population’s responses to the questionnaires. It highlighted the general demographic
information of the respondents including their age groups, gender, education levels, years of
experience and position at the bank. Further, the chapter four took an in depth look at the
responses to each of the research questions, analyzing the frequency of response to each
question and the average for each factor under discussion. The researcher measured the
standard deviations across the data and gave an in depth explanation of the environmental
factors and how they affect performance as indicated by the study population. Finally, the
researcher regressed performance against the environmental factors under review to come up
with the inferences that are presented in the chapter. The proceeding chapter will present the
summary, discussions, conclusions and recommendations.

53
 CHAPTER FIVE: DISCUSSION, CONCLUSIONS AND
RECOMMENDATIONS

5.1. Introduction

This chapter presents the summary of the study findings, conclusion, recommendations and
suggestions for further research.

5.2. Summary

The main purpose of this study was to investigate the effects of environmental factors on
performance; a case study of Bank of Abyssinia. The research questions under review were:
1) which macro environmental factors affect the performance of Bank of Abyssinia? 2)
Which micro environmental factors affect the performance of Bank of Abyssinia? And 3)
what are the effects of environmental factors and Bank of Abyssinia’s’ performance? The
study used a descriptive research design to conduct the research in which respondents were
divided according different strata as presented by the departments in Bank of Abyssinia. The
study therefore employed non-probability sampling using the stratified sampling technique to
form the sampling frame. The respondents in the strata were randomly selected to avoid bias.
Questionnaires were the data collection tools used in the study. The data was then analyzed
using Microsoft Excel and SPSS software and discussed, presenting descriptive analysis,
correlations and regressions. The results were presented in tables and figures including
graphs, pie charts and a histogram. Based on the study’s objectives, the findings were
summarized.

The findings indicated that majority (54.9%) of the respondents were male with most
(58.8%) of the respondents being aged between 25 and 35 years. Most of the (43.1%)
respondents were degree holders with a majority (70.6%) of the respondents being of non-
managerial levels in the bank. The findings indicate that majority (45.1%) of the respondents
had between 0 to 5 years’ experience in the banking industry.

A majority of the respondents (74.5%) strongly agreed that macro environmental factors
affect performance. None of the respondents disagreed with this statement. Similarly, most of

54
the respondents (80.4%) strongly indicated that micro environmental factors affect the
performance of Bank of Abyssinia. 72.5 of the respondents thought that a combination of the
micro and macro environmental factors strongly affects performance. None of the
respondents indicated that there was no relationship between environmental factors and
performance. Correlation and regression analyses were done on the obtained data indicating
that environmental factors significantly affected performance. The significant value was
below 0.05. Below this significance level, the inference is that there is a strong relationship
between variables under study; environmental factors and performance.

5.3. Discussion

5.3.1. Effects of Macro Environmental Factors on Performance of Bank of Abyssinia

Results indicate that most (49%) of the respondents agreed with the statement that political
factors significantly affect performance of Bank of Abyssinia, with a majority (52.9%) of the
respondents agreeing that the state of economic factors highly influence the direction of the
Bank’s performance. Political factors mainly include civil and national conflicts that may
destabilize a peaceful economy, interest capping regulations, and international laws that bar
market access. The size of GDP, interest rate fluctuations and currency values are examples
of economic factors that affect the Bank’s performance. Others include national taxation,
unemployment rates and inflation rates. About 58.8% of the respondents thought that
technological factors highly affect performance. This value coincided with that of legal
factors against performance. Technological factors included computer programs and
innovations emerging in the current market, mobile banking and competition from other
technologies such as T24 that offer similar but quicker and easy to access services.

Legal factors, on the other hand, included policies and legislature that regulate entrance of
foreign businesses into the local market, technical norms and different legal restrictions,
restrictive import policies such as high tariffs and such legal barriers that inhibit such acts as
bribery. The measurement of social factors against performance had the highest level of
distributed answers with 35.3% of the respondents attributing performance to socially related
factors such as size of population, cultural and religious values, poverty levels, attitude,

55
perception, and education levels. All the macro environment factors had a significant
influence on the level of performance experienced by the bank.

The results of the study agree with Barkauskas (2014) who asserted that economic factors
have one of the biggest effects on the development of any given organization. This is also in
agreement with the assertion that the development and performance of organizations strongly
depend on the growth of revenue (Botezat, 2003). As noted by Ramanauskien (2010), a rise
in wages enable people to spend more money. This study is also in congruence with the
research conducted by Tang et al. (2006) on modeling financial product purchases, who
concluded that economic factors play a vital role along with individual precise characteristics
in determining the overall performance of a business enterprise.

Currently, most firms and especially banking institutions are employing digital means to
ensure their services are readily available upon demand. This is as explained by Dess et al.
(2008), that technological developments result in new services and products and improve on
the process through which products are designed/ made and delivered to intended users. A
majority of the respondents (58.8%) agreed with this fact hence showing congruence with
previous studies. It is therefore important to invest in new technology in order to increase
performance and stay abreast competition.

Since the study revealed that some socio-cultural factors has some degree of influence on
performance, the creation of target market strategies is, therefore, widely viewed as integral
to formulating an business strategy that is effective (Doyle, 2006). Consumer purchases are
strongly influenced by cultural, social, personal and psychological characteristics; generally
marketers can’t control these factors but instead take them into account (Armstrong and
Kotter, 2000). They should be therefore an integral part of strategic management in order to
increase performance. Legal and bureaucratic restrictions are one of the main obstacles to the
development of revenue collection business. Usually legal documents promote the revenue
collection activity and therefore its performance but there are cases when due to specific
conditions, the activity may be legally restricted (Barkauskas, 2015). The study indicated that
legal forces had the least variance, hence, agreeing with the fact some legal barriers can be an
obstacle to growth while some can increase the performance of Bank of Abyssinia. Technical

56
 norms, different legal restrictions and building regulations bring out different variants of
products on the national market.

The results of the study also agree with Barkauskas (2015), who established that ideal
conditions for the development of revenue collection institutions are political stability,
security, well-defined and functioning legal system, public goods provided by the state –
infrastructure, environment, information. Bank of Abyssinia therefore needs to plan on her
survival in different political environments. As part of her cooperate social responsibility, the
bank may choose to be involved in peaceful campaigns in a bid to create and operate within a
healthy political environment.

Cadogan et.al (2002) explains that the macro environment of a company has significant
influence on her performance. According to Isik, Arditi, Dilmen and Birgonul (2010),
managing the negative and positive effects of exogenous factors has the power to reform
corporate-wide characteristics. This calls for Bank of Abyssinia to put emphasis on studying
ways in which to survive and optimally perform in the macro environment in which she
operates. Including macro environmental factors in her strategic planning may result into
positive performance.

5.3.2. Effects of Micro Environmental Factors on the Performance of Bank of Abyssinia

The findings indicate that majority (82.4%) of the respondents perceived the competition as
the major micro environmental factor influencing performance. Competition mainly arises
from institutions offering similar or competitive services that provide consumers with a
diversity of options from which to select their preferred service provider. The banking
industry has experienced the advent of new entrants most of whom have undifferentiated or
substitute products that they are willing to offer at bargaining rates hence attracting a large
customer base. This offers stiff competition to Bank of Abyssinia, a situation that the
respondents thought has resulted to declining performance.

Majority (60.8%) of the respondents strongly agreed with the statement that customer
satisfaction impacted significantly on the performance of Bank of Abyssinia. Retail banking
was thought to be effective in marketing the bank’s products among potential customers.
This isan area that Bank of Abyssinia has not invested in and the research findings

57
indicated that majority of the respondents thought that the bank needs to shift attention to the
retail banking. Finding potential customers and taking products closer to them will increase
customer loyalty and hence the customer base of the bank.

The study findings indicate that most (52.9%) of the respondents perceived marketing
intermediaries as influencers of performance to a great extent. However, this was not given
the top priority among respondents. Respondents felt the need to include and maximally
utilize banking agents to broaden the bank’s customer base. A few respondents thought that
customers prefer banking with agents than taking long hours on banking halls. The study
findings also indicate that majority (39.2%) of the respondents thought of financiers being
able to influence performance only to a moderate magnitude. The respondents thought that
only a few financiers were willing to take risks to ensure that the bank thrives. Most thought
that the bank can perform optimally with only customer deposits and without external
financiers. The respondents had a neutral opinion as regards the influence of stakeholders on
performance. About 49% of the respondents perceived the public as a significant influencer
of the bank’s performance. Most considered Bank of Abyssinia as a bank for the rich and
hence preferred other financial institutions. The respondents indicated that engaging in public
awareness of the bank’s products and market would change this perception.

The study findings indicated that 54.9% of the respondents agreed with the statement that
labor impacted on the bank’s performance to a very great extent. Contrary to the opinion that
Bank of Abyssinia should increase her labor, the respondents rather thought that motivating
the existing labor force would lead to a significant rise in performance. A motivated labor
force would serve customers well to their satisfaction and go an extra mile to marketing the
bank among potential customers. The respondents indicated that the bank should engage
manual laborers and e-banking services to the same degree for optimal performance. The
study also indicated the impact of micro environmental factors on performance was also
significant.

The research findings agree with Kale and Arditi (2003) who suggested that a business’s
environment hosts competitive forces and a firm’s strategic performance is strongly
correlated with its ability to handle the effects of competition. A majority of the respondents
(82.4%) asserted the importance of putting competitors on check in order to increase

58
performance. Knowing the strategies used by competitors to thrive will give Bank of
Abyssinia a competitive advantage ensuring her high performance and consequently her
survival in the economy. The study also agreed with Singh and Ranchhod (2004) who stated
that customer orientation has a positive impact on the performance of an organization.
Studying consumer behavior may, therefore, determine whether Bank of Abyssinia will
remain a favorable banking choice for consumers or otherwise. This therefore shows the need
to focus on consumers to increase performance.
A motivated labor force also results in high performance by the Bank. This agrees with an
assertion by Joshi et al., 2007 who quoted that a highly motivated human resource performs
optimally and can achieve higher results that what is expected of it. Treating her employees well
result in less time being spent on fighting labor unions and instead in the achievement of the
Banks goals, hence, resulting in high performance. As indicated by the results of the study, it is
also very important to deliberate the public views to keep afloat as a company (Cherunilam,
2007). As forwarded by Joshi et al. (2007), another important micro environmental factor is
the financiers of a business.

The findings of the study indicated that about 39% of the respondents agreed that financiers
are very important in Bank of Abyssinia’s performance. This factor however had varrying
responses since some of the respondents thought that increasing her customer base would
provide a strong financial base for the bank. However, financiers still remain an asset to the
bank as portrayed by the majority. Besides the financing capabilities, their attitudes,
strategies and policies (Including attitude towards risk), ability to provide non-financial
support etc. are very important. Bank of Abyssinia also has to develop strong relationship
with all her marketting intermediaries for the successful operation of its business
(Chidambaram et al., 2005). Intermediaries provide services and information closer to the
consumers hence widening her customer base. This results in increased performance.

It is, therefore, very important that micro environment factors be included in the banks
strategic management since these factors are more closely linked with the business. Paying a
closer look to micro environmental factors will ensure that competitors, customers,
marketing intermediaries, labor force and the public are all within the bank’s competitive
advantage. This will ensure a constant and continued rise in performance.

59
 5.3.3. Effects of Environmental Factors on Performance of Bank of Abyssinia

The study findings indicate that most (72.5%) of the respondents agreed with the statement
that combined micro and macro environmental factors significantly affect the Bank’s
performance. This was confirmed by the correlation and regression analyses which indicated
a significance value below 0.05 (1-tailed). This level indicated a strong relationship between
environmental factors and the performance of Bank of Abyssinia. None between the two
variables was given much weight more than the other as the respondents and the analysis
results indicated that both macro and micro environmental factors had a significant influence
on the performance of Bank of Abyssinia. The findings also indicate that 54.9% of the
respondents agreed with the suggestion that Environmental factors should be included in the
Bank’s strategic planning to achieve optimal performance results.

The findings of this study show a synergistic relationship between both the macro and micro
environmental factors towards the performance of Bank of Abyssinia. This agrees with a
study done by Lichtenthaler (2009). In his study, directional selection in a single macro-
environment was synergistic with respect to the micro-environmental differences, and
increased environmental sensitivity and consequently to increase environmental variance.
Both the micro and macro environmental factors affected firm performance in the same
direction; whether negative or positive. This study also indicated the same results.

As indicated by the study, environmental factors that may influence business performance
are many and varied; some are internal to the business while others are external to the
business (Salihu, 2015). Today it becomes extremely essential for Commercial banks to
examine their performance because their survival in the dynamic economic environment will
be dependent upon their good performance (Okoth et al., 2013). The study agrees with
Obasan (2015) who stated that it is important for a business to keep a pace with the various
changes in the environment in order to survive in the long run. A firm must, therefore,
develop a plan that will help it to cope with the various environmental forces (Oluremi et al.,
2011).

60
The nature of business environments are said to be classified as dynamic, stable and unstable
which often help a firm in the selection of appropriate strategies that enhance achievement of
maximum performance (Ibidun et al., 2013). Adeoye (2012) opined that in order for business
to cope with the dynamic and rapidly changing business environment, there is a need to
develop and implement appropriate strategies that would safeguard their operations and yield
the desired results. The study therefore agrees with previous studies done on inclusion of
environmental factors on a firm’s strategic management in order to yield optimal results.

As asserted by Cheng-Hua et al., 2011, environment factors affect the relationship between
strategic planning and performance. Any organization ignoring or being unresponsive to
environmental factors is creating trouble or inviting trouble. Bank of Abyssinia should,
therefore, put considerable effort into ensuring that her operational environment is well
studied in order to employ strategies that will ensure high performance. Environmental
uncertainty arises from organizational inability to make environmental forecasts (Aziz et al.,
2010) and, therefore, showing the need for the Bank to employ highly qualified and
competent individuals to carry out market environmental research on a regular basis.

5.4. Conclusions

5.4.1. Effects of Macro Environmental Factors on Performance of Bank of Abyssinia

The first objective of this study was to evaluate how macro environmental factors affect the
performance of Bank of Abyssinia. From the finding it can be concluded the macro
environmental factors significantly affect the performance of the Bank. Issues under focus on
this included political factors, economic factors, technological factors, legal factors, and
social factors. All these factors affected performance to varying degrees but aggregately
caused a significant effect on performance.

61
5.4.2. Effects of Micro Environmental Factors on the Performance of Bank of Abyssinia

The second objective was to determine how micro environmental factors affect Barclays
Bank’s performance. Areas under investigation were competitors, customers, marketing
Intermediaries, financiers, the public, and labor. The research findings revealed that all the
aforementioned factors affected performance to different degrees but ultimately caused a
combined effect. The aggregate effect was significant. The micro environmental factors
therefore affect the bank’s performance top a significant degree.

5.4.3. Effects of Environmental Factors on Performance of Bank of Abyssinia

The third objective of the study was to identify how environmental factors affect
performance. This objective focused on a combination of both micro and macro
environmental factors. Both macro and micro environmental factors were revealed to affect
performance from both separate and aggregate levels. The effect was established to be
significant.
5.5. Recommendations

5.5.1. Recommendations for Improvement

5.5.1.1. Effects of Macro Environmental Factors on Performance of Bank of

Abyssinia

Policy makers should conduct seminars regarding the effects of environmental factors on
performance so as to come up with sound and realistic policies and formulate laws geared
towards performance appraisal and improvement. The bank should come up with creative
and innovative products and marketing strategies that will help cut across different cultures,
religions and social levels in Ethiopia. For instance, introduction of Muslim Banking that
offers profits on savings instead of interests since the Muslims do not believe in charging
interest but in making profit. Bank of Abyssinia needs to invest in and fully utilize modern
technological infrastructure to achieve optimal performance and stay abreast her competitors’
techniques. In the event of a change in the macro environmental factors, the bank needs to
quickly find a way to survive and be resilient enough to recover from any setbacks

62
 5.5.1.2. Effects of Micro Environmental Factors on the Performance of Bank of
Abyssinia

The bank should study the methods employed by her competitors and borrow techniques that
could improve her performance. There is need for public awareness so as to change the
perspective of the public that has marked Bank of Abyssinia as the bank for the rich. The
bank should diversify her products and increase the range so as to retain her customers.
There services should also be rated as affordable by customers to win customer loyalty.
There is also the need to invest in marketing intermediaries to reach more people and make
services easily available to her customers. Finding ways to motivate her labor will ensure
improved and high quality customer service and hence high performance.

5.5.1.3. Effects of Environmental Factors on Performance of Bank of Abyssinia

Both macro and micro environmental factors should be included in strategic planning so as to
achieve high performance in Bank of Abyssinia. Such studies should be done on a regular
basis for performance monitoring and development of key performance indicators. Opinions
from workers should be sought after during strategic planning since they are the people who
majorly interact with these environmental factors.

5.5.2. Recommendations for Further Study

There is need to conduct such studies on the bank with customers, financiers, the public and
other stakeholders as the key respondents in order to establish their view and come up with
inferences from their point of view which will be integrated in this study.

It is also recommended that similar studies be done on other banks in Ethiopia and the results
obtained be compared to those of this study so as to determine if their performance is
influenced in the same way with the same set of environmental factors as it does Bank of
Abyssinia.

63
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 APPENDICES

APPENDIX I: LETTER OF INTRODUCTION

May 2020

Dear Respondent,

RE: REQUEST FOR RESEARCH DATA

The survey collects information for conducting the research “ASSESSMENT OF THE
CAUSE AND IMPACT OF BUSINESS ENVIRONMENT ON ORGANIZATION
PERFORMANCE IN ETHIOPIA: THE CASE OF BANK OF ABYSSINIA.” Data
collected in the survey is intended for academic purposes only and will be used
confidentially.

The survey also will be used in partial fulfillment of master of business administration
research.

To facilitate this, your organization has been selected to generate data required for this study.
The information provided in this study will be used purely for academic purpose and your
name will not be mentioned in the report. Findings of the study shall upon request be availed
to you.

Your assistance and cooperation will be highly appreciated.

Sincerely,

Selome lemma

67
 APPENDIX II: QUESTIONNAIRE

Data collected in this survey is intended for academic purposes only and will be used in
partial fulfillment of an MBA research project to examine effects of environmental factors on
performance- a case study of Bank of Abyssinia. All information gathered will be handled
with the strictness and confidentiality. There are 4 sections.

SECTION I: GENERAL INFORMATION

Please tick the most appropriate

1. Gender:

Male [ ]

Female [ ]

2. Age

18-24 [ ]

25-35 [ ]

36-45 [ ]

46-55 [ ]

Above 55 [ ]

3. Highest level of Education (tick one)

▪ Doctorate Degree [ ]
▪ Master’s Degree [ ]
▪ Bachelor’s Degree [ ]
▪ Diploma [ ]
Others (Please specify) ________________________________________

68
 4. Please indicate your position at the bank

1. Board of Directors [ ]
2. Senior Management [ ]
3. Middle level Management [ ]
4. Non Managerial Level [ ]
5. Years of experience in the industry?

▪ 0-5 year [ ]
▪ 6-10years [ ]
▪ 11–15years [ ]
▪ Above 15 years [ ]

SECTION II: EFFECTS OF MACRO ENVIRONMENTAL FACTORS ON

PERFOMANCE OF BANK OF ABYSSINIA

Part A: Political Factors

1. As per your opinion, to what extent do political factors impact the performance
of Bank of Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

69
 2. Kindly indicate your level of agreement with the following statements that relate to
the effect of Political Factors on the performance of Bank of Abyssinia.

a. Legislature have an adversely affects Bank of Abyssinia’s performance.

Strongly disagree O O O O O Strongly agree

b. Bank of Abyssinia performance is affected by civil and national conflicts.

Strongly disagree O O O O O Strongly agree

c. Regulations calling for interest capping have impeded the performance of Bank of

Abyssinia.

Strongly disagree O O O O O Strongly agree

Part B: Economic Factors

3. As per your opinion, to what extent do Economic Factors impact the performance
of Bank of Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

70
 4. Kindly indicate your level of agreement with the following statements that relate to
the effect of Economic Factors on the performance of Bank of Abyssinia.

a. The size of the economic growth (GDP) plays an important role in the performance Bank

of Abyssinia.

Strongly disagree O O O O O Strongly agree

b. Interest rate fluctuations and currency value are forces that have strong effects on Bank of

Abyssinia’s performance.

Strongly disagree O O O O O Strongly agree

c. National taxation has a significant effect on the performance of Bank of Abyssinia.

Strongly disagree O O O O O Strongly agree

d. Unemployment rates plays an important role in the performance of Barclays Bank

Strongly disagree O O O O O Strongly agree

e. Inflation rates have negatively affected the performance of Bank of Abyssinia

Strongly disagree O O O O O Strongly agree

Part C: Technological Factors

5. In your opinion, to what extent do Technological Factors impact the performance

of Bank of Abyssinia?

Very great extent []

Great extent []
Moderate extent []
Little extent []
No extent []

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 6. Kindly indicate your level of agreement with the following statements that relate to
the effect of Technological Factors on the performance of Bank of Abyssinia.

a. Computer programs, technological trends and innovations are examples of

technological forces used by Bank of Abyssinia.

Strongly disagree O O O O O Strongly agree

b. Modern technological infrastructure has a significant effect on Bank of

Abyssinia’s performance

Strongly disagree O O O O O Strongly agree

c. Bank of Abyssinia has embraced mobile banking hence leading significant effects

on her performance

Strongly disagree O O O O O Strongly agree

d. Bank of Abyssinia employs agency banking and this has significant effects on her

performance

Strongly disagree O O O O O Strongly agree

e. Mpesa services have contributed to decline in Bank of Abyssinia’s performance

due to a shift in focus

Strongly disagree O O O O O Strongly agree

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Part D: Legal Factors

7. In your opinion, to what extent do Legal Factors impact performance of Bank of

Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

8. Kindly indicate your level of agreement with the following statements that relate to
the effect of Legal Factors on the performance of Bank of Abyssinia.
a. Legal forces are policies and legislative regulations which are barriers for foreign
business to enter the local market

Strongly disagree O O O O O Strongly agree

b. Technical norms and different legal restrictions have significantly affected the
performance of Bank of Abyssinia

Strongly disagree O O O O O Strongly agree

c. Restrictive import policies such as high tariffs reduce the performance of Bank of
Abyssinia

Strongly disagree O O O O O Strongly agree

d. Legal barriers inhibiting bribes increase the performance of Bank of Abyssinia

Strongly disagree O O O O O Strongly agree

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Part E: Social Factors

9. In your opinion, to what extent do Social Factors impact performance of Bank of

Abyssinia?
Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

74
 10. Kindly indicate your level of agreement with the following statements that relate to
the effects of Social Factors on the performance of Bank of Abyssinia.
a. Increased population positively affects the performance of Bank of Abyssinia

Strongly disagree O O O O O Strongly agree

b. Many cultural values in Ethiopia result in Bank of Abyssinia’s poor performance

Strongly disagree O O O O O Strongly agree

c. Poverty is the reason for the sluggish growth in Bank of Abyssinia’s performance

Strongly disagree O O O O O Strongly agree

d. Many people in Ethiopia have a poor attitude towards banking with Barclays bank

hence affecting her performance

Strongly disagree O O O O O Strongly agree

e. Many Ethiopians perceive banking as an activity of the rich

Strongly disagree O O O O O Strongly agree

f. The low level of education among Ethiopians is the reason as to why Bank of Abyssinia is

experiencing poor performance.

Strongly disagree O O O O O Strongly agree

g. Ethiopians are not motivated towards banking hence affecting Bank of Abyssinia intended

high performance

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 Strongly disagree O O O O O Strongly agree

SECTION III: EFFECTS OF MICRO ENVIRONMENTAL FACTORS ON

PERFOMANCE OF BANK OF ABYSSINIA

Part A: Competitors

11. In your opinion, to what extent does competition from other similar banking
and credit institutions affect performance of Bank of Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

12. Kindly indicate your level of agreement with the following statements that relate to
the effects of competitors on the performance of Bank of Abyssinia.

a. Increased competition negatively affects the performance of Bank of Abyssinia

Strongly disagree O O O O O Strongly agree

b. The number of financial institutions in Ethiopia should be decreased for Barclays Bank to
thrive

Strongly disagree O O O O O Strongly agree

c. New entrants in the banking sector are the reason for the sluggish growth in Bank of
Abyssinia’s performance due to their diversified product

Strongly disagree O O O O O Strongly agree

76
d. The threat of substitutes provided by competitors has highly affected the performance of
Bank of Abyssinia negatively

Strongly disagree O O O O O Strongly agree

e. Undifferentiated products have caused a loss of customers to competitors hence leading to

a decline in the performance of Bank of Abyssinia

Strongly disagree O O O O O Strongly agree

Part B: Customers

13. In your opinion, to what extent does customer satisfaction impact the performance of
Bank of Abyssinia?

Very great extent []

Great extent []

Moderate extent []
Little extent []

No extent []

14. Kindly indicate your level of agreement with the following statements that relate to
the effects of customers on the performance of Bank of Abyssinia.
a. A few customers with high account balances positively affects the performance
of Bank of Abyssinia while many customers with low account balances affect
the performance negatively

Strongly disagree O O O O O Strongly agree

b. Retail banking is thriving in Barclays Bank

Strongly disagree O O O O O Strongly agree

c. It is absolutely important for Barclays Bank to employ more retail sales

representatives to reach out to customers at their locations than to wait for

77
 them to come to the banking hall.

Strongly disagree O O O O O Strongly agree

Part C: Marketing Intermediaries

15. In your opinion, to what extent do banking agents impact performance of Bank of
Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

16. Kindly indicate your level of agreement with the following statements that relate to
the effects of marketing intermediaries on the performance of Bank of Abyssinia.

a. Bank of Abyssinia’s performance is highly reliable on the inclusion of banking

agents in the system.

Strongly disagree O O O O O Strongly agree

b. Bank of Abyssinia should include and maximally utilize her banking agents to
broaden her customer base

Strongly disagree O O O O O Strongly agree

c. Customers are more likely to prefer agent banking to queuing in the bank hall

Strongly disagree O O O O O Strongly agree

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Part E: Financiers

17. In your opinion, to what extent do financiers impact the performance of Bank of
Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

18. Kindly indicate your level of agreement with the following statements that relate to
the effects of financiers on the performance of Bank of Abyssinia.

a. Financiers are willing to take high risks to ensure Bank of Abyssinia is at

optimal performance

Strongly disagree O O O O O Strongly agree

b. Bank of Abyssinia can perform optimally with customer deposits, without

other external financiers.

Strongly disagree O O O O O Strongly agree

c. Stakeholders have resulted to fast growth of Bank of Abyssinia’s performance

Strongly disagree O O O O O Strongly agree

79
Part F: The Public

19. In your opinion, to what extent does the public impact the performance of Bank of
Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

20. Kindly indicate your level of agreement with the following statements that relate to
the effects of the public on the performance of Bank of Abyssinia.

a. The public considers Bank of Abyssinia as “the bank of the rich”

Strongly disagree O O O O O Strongly agree

b. The Bank should engage in public awareness of her products and market to win more
customers.

Strongly disagree O O O O O Strongly agree

Part E: Labor

21. In your opinion, to what extent does labor impact the performance of Bank of
Abyssinia?

Very great extent []

Great extent []

Moderate extent []

Little extent []

No extent []

80
 22. Kindly indicate your level of agreement with the following statements that relate to
the effects of labor on the performance of Bank of Abyssinia.

a. To raise her performance, Barclays Bank should increase her labor

Strongly disagree O O O O O Strongly agree

b. A motivated labor force is crucial to the Bank’s performance growth

Strongly disagree O O O O O Strongly agree

c. Bank of Abyssinia should lay off her manual labor and invest more on e- banking
for optimal performance

Strongly disagree O O O O O Strongly agree

SECTION IV: EFFECTS OF ENVIRONMENTAL FACTORS ON PERFOMANCE

OF BANK OF ABYSSINIA

23. Kindly indicate your level of agreement with the following statements that relate to
the effects of environmental factors on the performance of Bank of Abyssinia.

a. Micro environmental factors affect Bank of Abyssinia’s performance more

than macro environmental factors.

Strongly disagree O O O O O Strongly agree

b. Combined micro and macro environmental factors have significant effects on

the Bank’s performance

Strongly disagree O O O O O Strongly agree

c. Environmental factors should be included in the Bank’s performance strategies

to achieve optimal results

Strongly disagree O O O O O Strongly agree

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THANK YOU

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