ORGANIZATIONAL STRUCTURE AND PERFORMANCE OF TIER ONE COMMERCIAL BANKS IN NAIROBI COUNTY, KENYA

Abstract

The performance of Tier One commercial banks in Nairobi County is increasingly shaped by internal structural dynamics amid rising operational costs, stricter regulatory demands, and heightened market competition. This study investigated the effect of organizational structure—focusing on hierarchy levels, formalization, and span of control—on bank performance. Grounded in Organizational Structure Theory, the research adopted a descriptive design targeting senior and middle-level managers from all 11 Tier One banks. A purposive sample of 88 managers drawn from 8 banks participated in the study. Data were collected through structured questionnaires and analyzed using SPSS Version 26.0, employing descriptive statistics and simple linear regression. The findings revealed strong, negative, and statistically significant bivariate relationships between each organizational structure variable and bank performance. However, the simple linear regression results indicated that the overall influence of organizational structure on performance was not statistically significant (β = –2.14, p = 0.113). This suggests that although structural elements such as hierarchy, formalization, and span of control may individually impact performance, their combined effect does not sufficiently explain performance variations when analyzed within a single model. The study concludes that organizational structure may influence performance outcomes at the individual factor level, but its predictive power is limited when assessed holistically through simple regression. It is recommended that Tier One banks consider streamlining their internal structures by eliminating unnecessary hierarchical layers, simplifying formal procedures, and widening managerial span of control where feasible. Pilot-testing these structural changes in selected units may offer practical insights for enhancing strategic performance in a competitive banking environment.