Strategy Formulation Practices, Integration of ESG Metrics and Performance of Manufacturing Firms in Kenya

Abstract

Manufacturing firms operate in an increasingly dynamic environment characterized by technological change, changing customer preferences, intense competition and evolving regulatory requirements. Effective strategic formulation enables firms to establish clear strategic direction, assess changes in the business environment, involve relevant management levels, utilize evidence in decision making and evaluate alternative courses of action. This study sought to analyse the effect of strategic formulation on the performance of manufacturing firms in Kenya. Strategic formulation was examined through mission, vision and strategic objectives, environmental scanning, participation of different management levels, use of data and analytics, and evaluation of strategic alternatives. The study adopted a quantitative research approach and a cross-sectional research design. The target population comprised 992 manufacturing firms registered with the Kenya Association of Manufacturers as at 31 December 2024. The Sample size (n) of 285 was determined using Yamanes formulae while simple random sampling technique was employed to pick the sample. Data were collected from senior managers using structured questionnaires, 255 (89%) questionnaires were obtained and analyzed. Descriptive statistics, Pearson Product-Moment correlation and simple linear regression were used to analyze the data. Findings indicated that strategic formulation was widely practiced among manufacturing firms, with a mean score of 4.05. Environmental scanning recorded the highest mean score of 4.23, indicating strong emphasis on monitoring market conditions, technological developments, competition and regulatory requirements. Pearson correlation analysis established a very strong positive relationship between strategic formulation and firm performance (r = .830, p < .001). Regression analysis further demonstrated that strategic formulation significantly predicted firm performance, explaining 68.8% of the variation in performance (R² = .688, F (1,253) = 558.584, p < .001). The standardized regression coefficient was positive and statistically significant (β = .830, p < .001), leading to rejection of the null hypothesis. ESG Metrics correlated moderately with strategy formulation practices (r = .441, p < .001). Qualitative evidence reinforced the statistical results, particularly the value of environmental scanning, clear strategic direction, management participation and evidence-based decision-making. The findings demonstrate that systematic strategic formulation is an important determinant in the integration and effectiveness of ESG Metrics and overall performance of manufacturing firms. Manufacturing firms should therefore strengthen environmental scanning, maintain clear mission, vision and strategic objectives, enhance participation of relevant management levels, utilize reliable data and analytics, and systematically evaluate strategic alternatives to improve strategic decision-making and organizational performance.