The banking industry remains one of the greatest agencies of commerce in the contemporary world (EY 2015). In spite of its positive contribution to commerce, however, the banking industry is blamed for many economic upheavals and financial crises worldwide (Brunnermerier 2009). For several decades, banking behaviour and practices have been associated with crises leading to dismal performances of most world economies, both developed and developing (Grant Thornton 2013).

On the African continent, the bank industry is characterised by small-sized banks, unstable markets, poor economies, low deposits and a dominance of foreign banks (Van Ballekom 2013). Compared with other world economies, Africa remains the smallest player and contributor in the financial sense (Mlachila, Park & Yaraba 2013). The continent has also experienced numerous financial crises over the last five decades associated with poor management and poor leadership (Ambutsi 2005; Mwangi 2012; Njuguna 2013; Sokpor 2006). These financial crises have not spared countries such as Kenya, which experienced dismal performance in its financial sector from 1970 to 2005. During this period, more than 20 banks closed down or became bankrupt (Ambutsi 2005; Mwangi 2012; Sokpor 2006).

For banks to be successful, leadership effectiveness is critical (Grant Thornton 2013; Kubicek 2011). Such leadership can only be realised if bank leaders possess the right competencies to perform the required tasks effectively (Al-Zoubi 2012; Mintzberg 1994). One vital leadership skill that is essential for organisational effectiveness is strategic thinking. Different models developed by scholars such as Amos (2012), Barnes (2013) and Schoonover (2011) have singled out strategic thinking as a major ability associated with leadership effectiveness. According to Hogan, Hogan and Kaiser (2009), strategic thinking is the ability to plan, organise, coordinate, monitor and make use of available resources. Chilcoat (1995) comments that effective leaders demonstrate more strategic thinking competency than ineffective leaders do, whether in the banking industry or in other situations. This point is supported by Fairholm (2009:12) who argues that strategic thinking competency enables organisations to change and adapt to future challenges. Goldman (2012) emphasises that leaders who think strategically are good decision-makers and contribute greater value to their organisations. Personnel Decisions International Corporation (2001) further observes that strategic thinking competency is considered a major component of leadership requirements in the contemporary volatile environment.

Given the importance of strategic thinking as a leadership competency and the lack of research on strategic thinking competency focusing on Kenyan banking leadership, this study aims to investigate the relationship between strategic thinking competency and leadership effectiveness in the indigenous banking industry in Kenya. Although there is some evidence in other industries that leadership effectiveness, in turn, impacts on organisational effectiveness (Amos 2012; Bonn 2001; Fairholm 2009; Goldman 2012), those findings are not relevant to the current study.

Firstly, a brief overview of the literature on strategic thinking and leadership effectiveness is given. This is followed by a discussion of the problem statement, purpose, objectives and hypotheses. The research methodology used in this study is then described, after which the study findings are presented. To conclude, the limitations and managerial implications of the study are provided.

The concept of strategic thinking competency has been debated by scholars and practitioners for the last 25 years in an effort to understand its meaning and impact on organisational leadership and performance. Although the concept is gaining interest, it is still an area considered to be under-researched (Jelenc 2008:6) as there is a lack of supporting empirical literature to clarify the role of strategic thinking in leadership effectiveness (Liedtka & Rosenblum 1998; Rosche 2003). This has resulted in a lack of theoretical understanding, leaving little guidance for leaders (Liedtka 1998). Fairholm and Fairholm (2009:2) conceptualise strategic thinking competency as a work in progress in the world of academic literature. The mere lack of a common definition for strategic thinking has led to the concept being considered indecisive (Bonn 2001; Goldman 2007) and even being confused and interchangeably used with other leadership and management concepts such as strategy, strategic planning and strategic management (Bonn 2001; Jelenc 2008; Liedtka 1998). Mintzberg (1994:110) states that ‘many practitioners and theorists have wrongly assumed that strategic planning, strategic thinking, and strategy-making are all synonymous’. However, recent studies have refined the existing literature on strategic thinking, thereby distinguishing it from the other strategy types (Goldman 2012; Haycock, Cheadle & Bluestone 2012; Markides 2012). This reworking of the definition of strategic thinking is triggered by the popularity of and attention to this concept as being critical to leadership effectiveness (Markides 2012). Similarly, the uncertainty, complexity and turbulence of the contemporary world of business has demanded that organisational leaders and managers think strategically in order to ensure survival of their businesses (Haycock et al. 2012; Liedtka 1998).

Among the numerous definitions given by scholars, O’Shannassy (2006:14) defines strategic thinking as ‘a particular way of solving strategic problems and opportunities at the individual and institutional level combining generative and rational thought processes’. Mintzberg (1994) and Raimond (1996) on the other hand see strategic thinking as the ability to synthesise and utilise intuition and creativity in order to give an integrated perspective to an organisation. Jelenc (2008) and Torset (2001) understand strategic thinking as a self-reflection on an organisation’s future that must be conceived as an organisational cognitive process which is performed and supported by a group through interaction and interdependence. For the purpose of this study, strategic thinking is defined as a mental process which involves synthesising, utilising intuition and creativity to identify and solve problems. The process is meant to improve organisational performance through innovative and creative activities that enhance overall leadership effectiveness (Goldman 2012).

In order to further examine and understand strategic thinking in this study, and based on previous research by Liedtka (1998) and Jelenc (2008), it was conceptualised and analysed in terms of six sub-variables, namely strategic thinking (general), thinking in time, intent-focused, intelligent opportunism, system perspective and hypothesis-driven. The definitions of the six sub-variables investigated in this study and their corresponding measures are indicated in Table 1.

In the contemporary world, effectiveness is defined as the ability to achieve set targets or objectives (Yukl 1994, 2010). In terms of leadership, effectiveness implies the leaders’ ability to perform and successfully attain organisational set standards (Green 2010; Yukl 2010). However, over the years, measuring effectiveness has remained a controversial subject to both scholars and practitioners owing to different measures which depend on organisations and circumstances. This has similarly affected the measurement of leadership effectiveness which still lacks a universally accepted approach (Arnold, Cooper & Robertson 1998). Stogdill (1974) and later Bass (1990) catalogued and interpreted over 5000 studies on leadership effectiveness in an attempt to identify major similarities and differences. Burns (1978:2) further observes that leadership effectiveness ‘is one of the most observed and least understood phenomena on earth’. Some of the definitions of leadership effectiveness are:

In the current study, leadership effectiveness is seen as the leader’s influence and ability to successfully exercise personal influence on others, thereby resulting in the attainment of set goals and objectives. According to numerous studies, leadership effectiveness is measured using five main sub-variables of cross-cultural competency, influence, follower commitment, versatility and group organisation (Cooper et al. 2012; Green 2010; National Centre For Research In Vocation Education [NCRVE] 1994). The definitions of the five sub-variables and their corresponding measures are shown in Table 2.

As mentioned in the introduction to this study, for more than four decades, the Kenyan banking industry experienced poor performance (Ambutsi 2005; Mwangi 2012; Njuguna 2013; Sokpor 2006). This was attributed to credit problems, operational risks, poor management and poor leadership competencies, poor legal frameworks and weak control mechanisms, leading to insolvencies and the closure of many banks. An examination of the industry performance shows that a total of 24 financial institutions were liquidated while many were put under receivership. It is however notable that from 2003, many local banks started to institute changes meant to transform the sector – which resulted in positive performance (Central Bank of Kenya 2010).

It is clear that leadership and management skills are enhanced by having the right competencies (Goleman 1998). One critical ability necessary to attain leadership effectiveness is strategic thinking (Liedtka 1998). According to Mintzberg (1994), effective leaders are strategic thinkers. In fact, a lack of strategic thinking competency has been associated with top executives’ failures and ineffectiveness worldwide (Bonn 2001; Chilcoat 1995; Haycock et al. 2012). Strategic thinking has also been associated with successful organisations in enabling them to respond to environmental challenges and adapt to future demands (Fairholm 2009:12). As such, strategic thinking is a very important skill associated with effective leaders.

Although numerous studies have been done on the Kenyan banking industry (Ambutsi 2005; Mwangi 2012; Njuguna 2013; Sokpor 2006), there is no study focusing on strategic thinking competency and leadership effectiveness. Specifically, the impact of strategic thinking on leadership and its effect on the overall performance of indigenous banks has never been tested empirically in this industry. Although the indigenous banks performed poorly for decades, as indicated above, they have performed better since 2005. Because bank performance is associated with effective leaders who must possess the right competencies, this study aims to establish whether the improved performance is partially attributable to strategic thinking competency among the leaders.

The study investigates the relationship between strategic thinking competency (independent variable) and leadership effectiveness (dependent variable) in the Kenyan indigenous banking industry. The main objective of this study is to determine whether strategic thinking competency is positively correlated with leadership effectiveness leading to improved performance of the overall banking industry. The secondary objectives of this study are:

By investigating the relationship, it is believed that the findings will add value to the understanding of bank leadership effectiveness, which will in turn enhance bank performance. The hypothesised relationship results in the development of a theoretical framework and relationship as depicted in Figure 1.

The following hypothesis and sub-hypotheses were formulated and tested in order to establish whether there is a positive relationship between strategic thinking and leadership effectiveness.

The current study used a positivist paradigm to establish the relationship between strategic thinking and leadership effectiveness, considering the quantitative nature of the data gathered by means of a survey method.

The population for this study consisted of 30 Kenyan indigenous banks and their employees. The participating banks were ranked in terms of their market share, ranging from the smallest to the largest market shares. From this ranking, the top 15 (50%) of 30 indigenous banks were included in this study. However, only 13 banks finally participated in the study. A total of 494 respondents were targeted, from whom 273 questionnaires were returned, with only 257 of them being usable for statistical analysis, giving a response rate of 55.3%. According to literature, 257 usable questionnaires was considered adequate for analysis in this case, since it was within the structural equation modelling (SEM) acceptable range of between 200 and 400 responses (Farrington 2009). There are also scholars who support samples of between 100 and 200 cases (Hair et al. 1998).

The results of this study indicate that there exists a positive relationship between strategic thinking competency and leadership effectiveness among the indigenous banks in Kenya. This means that bank leadership must possess the right strategic thinking competencies in order to make their banks effective and achieve the desired performance. However, to achieve the level of effectiveness desired, the right strategic competencies must first be identified and implemented. In this study it was hypothesised that six strategic thinking (independent variable) sub-constructs were critical to leadership effectiveness as derived from various empirical studies and literature, namely strategic thinking (general), thinking in time, intent-focused, intelligent opportunism, system perspective and hypothesis-driven. Similarly, leadership effectiveness (dependent variable) was assumed to be influenced by five sub-constructs (cross-cultural competency; influence; follower commitment; versatility and group organisation). Upon conducting several analyses and model tests ranging from CFA and CA to CFIs, the findings revealed significant adjustments to the proposed sub-constructs.

Strategic thinking competency: From the CFA performed on strategic thinking sub-constructs, four sub-constructs loaded successfully, namely strategic thinking (general), intent-focused, intelligent opportunism and hypothesis-driven. However, two sub-constructs (thinking in time and system perspectives) failed to load accordingly and were eliminated from further analyses. The four sub-constructs that loaded successfully were subjected to a CA test with positive results. A hypothetical test to establish the relationship between strategic thinking competency (see Figure 2) and its sub-constructs indicated the existence of a relationship. These findings provide support for all strategic thinking sub-hypotheses (H^1.1a–d). In order of importance, strategic thinking (general) is the most important constituent of strategic thinking competency, followed by intent-focused, hypothesis-driven and intelligent opportunism respectively. The result implies that the bank leaders need to pay attention to the four sub-constructs of strategic thinking as being critical to these leaders’ effectiveness and overall bank performance. The indigenous banking sector’s leadership also needs to possess strategic thinking (general), intent-focused, intelligent opportunism and hypothesis-driven sub-competencies if leadership is to achieve the objectives of their banking and sustain successful performance levels.

Leadership effectiveness: From the CFA performed on leadership effectiveness sub-constructs, three sub-constructs loaded successfully, influence, follower commitment and versatility. However, two sub-constructs (cross-cultural competency and group organisation) failed to load as expected, leading to their elimination. Further tests of the hypothetical relationship indicated that a strong relationship exists between leadership effectiveness and its sub-constructs. Influence was found to be the most important sub-construct, followed by follower commitment and versatility respectively, thereby supporting H^1.2a–c. The results imply that influence, follower commitment and versatility sub-constructs are essential measures of leadership effectiveness within the indigenous banking sector in Kenya. The implications of the findings are that bank leaders should use industry-specific measures rather than rely on general leadership measures which are discussed in literature.

The hypothetical relationship between strategic thinking and leadership effectiveness (H¹) was tested. The results indicate a positive relationship (p < 0.001) between the two (estimate = 0.544; p < 0.001). This relationship is in agreement with various studies, all emphasising the need for the banking industry to pay specific attention to strategic thinking competency as a key ingredient in leadership effectiveness and overall banking performance. This means than bank leaders must strive to maintain strategic thinking competency as a prerequisite for their effectiveness. This will enable them to synthesise information and be creative in their leadership.

As indicated previously, four sub-constructs (general strategic thinking, intent-focused, intelligent opportunism and hypothesis-driven) were significant measures of the strategic thinking competency in this study. This finding has added significant value to a field of strategic thinking which is considered to be under-researched (Fairholm & Fairholm 2009; Jelenc 2008). The few studies in strategic thinking have also not generated acceptable competencies or sub-constructs essential for leaders. For instance, Liedtka’s (1998) study had five sub-constructs while Jelenc (2008) had six sub-constructs. However, the four sub-constructs arising from this study are in agreement with Liedtka (1998), who cautioned against developing concepts that may not be relevant to practising managers. These findings are relevant to the indigenous banks’ leadership that focuses on the four sub-constructs as being critical to their performance. The implication of these findings is that by paying attention to the four sub-strategic thinking competencies, bank leaders will be in a position to remain competitive and attain the desired strategic goal and leadership in their industry.

In relation to leadership effectiveness, this study has established three attributes (measures) essential for bank leadership to be considered effective. It is notable that the measures arising from this study have support from scholars (Erkutlu 2006; Green 2010; Yukl 2010) indicating their relevancy and the need for bank leadership to pay attention to them as determinants of their effectiveness. The implication is that leaders need to understand that they have influence over their employees which must be carefully exercised. They also need to clearly understand the role of follower commitment. It is only when followers are committed to a common cause that the banks can realise their set goals. Likewise, understanding of versatility will enable them to work with and obtain results from others, which is a major determinant of effectiveness. To achieve effectiveness, bank leaders must pay attention to empowering themselves and their employees with appropriate knowledge and skills.

Scholars have noted that although strategic thinking competency is important, it remains a critical research area owing to a lack of supporting theory and empirical literature regarding its role in leadership effectiveness, thereby making this study a major contribution to the body of knowledge (Liedtka & Rosenblum 1998; Rosche 2003). However, since this is the first study on strategic thinking within the banking industry in Kenya, it is recommended that the banks devote time and resources to equip employees with appropriate skills in order to enhance their strategic thinking competency. While this study concentrated on strategic thinking competency and its relationship with leadership effectiveness, there are other competencies that may also influence leadership effectiveness, such as emotional intelligence, business acumen, personality, team-building, relationship-building and transformational leadership. It would be important to conduct further studies on these additional competences in order to determine their relevancy to strategic thinking and leadership effectiveness and overall bank effectiveness.